Grand Committee
(11 years, 4 months ago)
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The Deputy Chairman of Committees (Lord Colwyn)
My Lords, when there is a Division in the Chamber, the Committee will adjourn as soon as the Division bells are rung and resume after 10 minutes.
Local Elections (Ordinary Day of Elections in 2014) Order 2013
(11 years, 4 months ago)
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Lord Ahmad of Wimbledon
That the Grand Committee do report to the House that it has considered the Local Elections (Ordinary Day of Elections in 2014) Order 2013
Relevant document: 7th Report from the Joint Committee on Statutory Instruments
Lord Ahmad of Wimbledon
My Lords, we are considering today the draft of an order to move the date of the local government elections in England in 2014 from Thursday 1 May to the same date on which elections will be held across the United Kingdom for the European Parliament. The elections to the European Parliament in 2014 will be held between 22 and 25 May. In the UK we are planning to hold these elections on Thursday 22 May, and an order under Section 4 of the European Parliamentary Elections Act 2002 will be made in due course.
If Parliament approves the draft order before us today, the 2014 election date for 160-odd principal councils in England would be moved—that is, all the London boroughs and metropolitan councils and more than 90 shire and unitary district councils. The order would also move the elections in around 250 parish councils across England. In addition, as a result of this order moving the ordinary day of election, the elections for directly elected mayors to be held in 2014, in Hackney, Lewisham, Newham, Tower Hamlets and Watford—I feel a bit like a train announcer here—will also be moved and held at the same time as the European parliamentary elections.
This is an important change. All electors in the UK will be eligible to vote in the European elections, and 73 Members of the European Parliament will be returned. More than 23 million people will be voting in the local elections scheduled for 2014. That is just over 40% of the electorate. Approximately 4,000 seats on principal councils will be contested. The order has no effect outside England; in 2014 there are no local elections for councils in Scotland or, indeed, Wales.
Following agreement among member states, the date of the 2014 European parliamentary election is being moved from 5 to 8 June to the period of 22 to 25 May. This is to avoid a clash with the Pentecost holiday, which could impact on electors’ availability to vote across member states. This will therefore mean that the UK European Parliament election will be held on Thursday 22 May 2014.
It is appreciated that the arguments about combining local and European elections are finely balanced, but on this occasion we have decided that it is right to bring forward this order so that the two elections can be combined. The Government are clear that, with the European parliamentary elections on 22 May, just three weeks from the date on which the local elections would have been held, the case for moving the date of the local elections and combining them with the European ones is strong. Were the period between the elections longer, the decision might be less clear-cut. I stress that this does not necessarily create a precedent for any future set of elections.
Our aim in all of this must be that we consider the voters’ interests above all other considerations. If the local election date were not moved, there would be two elections within three weeks. In such circumstances the balance of argument, in terms of minimising inconvenience and confusion for voters and of ensuring that the polls are soundly and efficiently administered, lies in favour of moving the date of the local elections and combining the polls.
I want to talk through one or two arguments about things that would occur if we did not hold these elections together. For example, the start of the European election period will overlap with the end of the local election period. This could be confusing for voters —for example, a few days before voting in the council’s elections, voters might receive a new poll card with different details for the European election, and postal votes for the European parliamentary election would be arriving with voters during the week of polling day at the local elections. Anyone who has been involved in elections at any level knows the challenges when you knock on the door and find that people have received different cards for different elections.
Another argument to be put forward is one of resources. As we look at how we can make savings across the piece, it is important that we look at what savings can be realised here. There would be increased costs for others such as political parties and the Electoral Commission in providing entirely separate voter awareness campaigns if we were not to combine the two elections; for example, in contacting voters and in canvassing. The Electoral Commission estimates that holding the 2014 elections together would save £0.95m from its public awareness campaigns budget alone.
There may be difficulty in finding polling stations, as well as in hiring polling stations and staff. Many schools host polling stations. Would we be looking to close schools for two days? All these factors I mention briefly because they strengthen the argument for holding the two elections together.
It is of course true that the procedures become more complex the more electoral events are held on the same day and the more polls are combined, but, on balance, this is preferred to the difficulties and duplication of effort and resource involved in running separate elections within a few weeks of each other.
In addition, experience of combined elections is now high among returning officers and we are confident that the elections will be run successfully together. European parliamentary elections and local elections have been combined in the past without undue problems arising, and I see no reason for that to be different this time. As I have just pointed out, our own electoral staff are more much competent and can converse effectively with those who seek guidance on different ballot papers in terms of what they need to do—though not so much in terms of where to put their cross.
We are not of course proposing to move the local elections in 2014 without consulting those who are most affected and who have specialist knowledge of elections and electoral matters. On 26 March, the Government published a consultation document inviting views on whether we should, subject to parliamentary approval, move the date of the English local elections from Thursday 1 May 2014 to the same day as the European parliamentary election. That consultation closed on 13 May, by which time we had received 155 responses. This included representations from the Electoral Commission, the Association of Electoral Administrators, the Local Government Association and some 64 councils.
While the consultation shows that there are mixed views on moving the date, some two-thirds of the 155 responses, including that from the Electoral Commission, favoured the change of date. The Explanatory Memorandum which accompanies the order summarises consultees’ views and sets out the Government’s response to the consultation and provides the rationale for the change.
Concerns were raised about the increased complexities in the administration of elections and the risk of voter confusion. For that reason, the view was expressed by some that the local elections should not be moved. There were also concerns that such a move would weaken the democratic mandate of local government, as the public focus would inevitably be drawn towards national issues with the importance of local issues being overlooked. It was felt that a proper debate on the separate issues of Europe and local public services would be prevented.
We do not take these concerns lightly, but, after careful consideration based on the responses that we received from, among others, the Electoral Commission, the Association of Electoral Administrators and local authorities, which are responsible for administering elections, the Government are confident that local authorities and the suppliers they work with will have the capacity to manage local and European elections held on the same date in May 2014.
I am also sure that sufficient public awareness work will take place to reduce risk of voter confusion both at the ballot box and when distinguishing between the different issues on which they are being asked to vote. We should not underestimate the intelligence of the electorate to grasp the issues and to be discerning at the polls. Indeed, it could be argued that holding two polls at the same time is likely to increase, rather than decrease, interest in both sets of issues. In its response, the Electoral Commission agreed that the balance of argument lay with the date of the local elections being moved. This view was equally shared by the Association of Electoral Administrators. The Local Government Association and many councils also supported the move to elections on the same day.
This order also addresses consequential issues. It contains the necessary provisions that will enable elections to parish councils to take place alongside the principal council and European elections on 22 May. It extends the term of office for sitting councillors and mayors, although for no more than three weeks, which is an issue that I raised with officials. It provides that a by-election will not be held where a casual vacancy arises in the office of councillor within six months of the European parliamentary election held in 2014. It also provides for annual meetings of joint authorities and parish councils to take place at a date later than currently required by statute, given the later date of the local elections, in particular for the London Fire and Emergency Planning Authority.
In conclusion, the balance of argument is such as put forward in the order, which is both sensible and pragmatic. There are good reasons to hold both elections on the same day. I commend this order to the Committee.
Lord Greaves
My Lords, Liberal Democrats in this House have no objection to this order and are quite happy to support its passage. However, it raises one or two issues about the principle of joining elections together, which I will come to shortly.
I ought to declare an interest—not because I think I have one, because I do not think I have—but I remember when we spent a lot of time in this Room 10 years ago debating elections, which turned out to be joint elections, where there were all-postal vote pilots in some of the northern regions of this country. I took part in those debates, which were well in advance of the elections. There was a formal complaint afterwards from the Labour Party, which wrote to the authorities in this House asking that I should be dealt with in an appropriate manner—perhaps taken to the Tower, I do not know—because I had not declared an interest, because at those elections I turned out to be not only an election agent but a candidate, and indeed got elected to the local council.
The Labour Party has enough problems on its hands at the moment and I do not want to create more, and more time and expense for it in writing letters of complaint, so I will be clear—although I do not think it is an interest—that it is quite likely that I shall be an agent in the local elections next May for at least some candidates, although my seat is not coming up. So that saves the Labour Party all that time and effort and it can worry about its membership rules, trade unions and the rest of it instead.
The consultation on these proposals was quite interesting. The explanation of it in the Explanatory Memorandum is interesting. It seems that about a third of the people who responded in fact suggested that the elections should be kept separate. They put forward what I think are perfectly respectable reasons, such as that,
“combining the elections would weaken the democratic mandate of local government, since the focus of the elections will inevitably not be on local issues, and would dilute localism”.
Now there is a thought. I do not think that is true, actually. Certainly, in the part of the world I live in, where there are combined European and local elections, the local elections tend to have a higher profile than the European elections. One of the arguments for combining them is that people who vote in the local elections might not usually vote in the European elections and that will put the European turnout up—and vice versa.
It is not set out in the Explanatory Memorandum but the word on the grapevine is that many of the organisations and persons who objected to combining the elections were actually local Conservative associations, which are worried about precisely that. They are concerned that in the European elections lots of people who normally do not bother to vote in the council elections will go out and vote for UKIP because they read the Daily Mail or the Daily Express, or whatever other reasons they may have, and this will cause problems for the Conservatives in the local elections. That is a problem for the Conservative Party; it is not one about which we are too bothered. However, it is interesting that there is this confusion.
Baroness Golding
My Lords, I have been an election agent for some 40 years. This is not something that we have not done in the past, and it is something that we should manage quite well in future. I have managed five elections at the same time, in different areas of a constituency, so I know the complications. However, any good election agent should be able to manage this. The only difficulty I have ever encountered is in the division and declaration of expenses. Will there be advice for election agents on the way to divide up expenses?
Lord McKenzie of Luton
My Lords, I thank the Minister for explaining the order. As he will know, the Labour Party responded to the consultation and supported the combination of elections. In 2004 and 2009, we similarly required the local elections to be combined with elections to the European Parliament. Therefore, it would be odd if we did anything other than support the order, particularly given the Minister’s point about the short period between the planned dates.
The supportive comments as set down in the Explanatory Notes are ones that we broadly endorse. We note that the order has the support of the Electoral Commission, the LGA, SOLACE, the Electoral Reform Society and the Association of Electoral Administrators. We are in good company. As the noble Lord, Lord Greaves, explained, the Lib Dems have no objections either. I was delighted that the noble Lord took the opportunity to avoid any confusion over his possible role as an election agent. I am sure that that will save the Labour Party a great deal of time. I was interested to hear the noble Lord’s comments on UKIP. We will have to see. My noble friend Lady Golding made the point that we have done it in the past and it would be odd if we could not support the order today, which we do. My noble friend has raised an important point around the declaration of expenses.
The point has been made that returning officers and local authorities are now experienced in having more than one election on the same day. The research for the commission shows that the public, too, can cope with multiple elections even where there is more than one voting system in play. We note that the commission plans to encompass the combination of polls in its public awareness campaign, and we of course support this and believe that it is very important. I do not think that I will attempt to trouble the Minister further. We support this order.
Lord Ahmad of Wimbledon
My Lords, I thank all noble Lords who have contributed, particularly the noble Lord, Lord Greaves. The noble Lord, Lord McKenzie, also noted his great concern for both the Labour Party and the Conservative Party. However, we rise to the challenge, and if it is UKIP or anyone else, if I may get political for a moment, I say, “Bring it on; we will see you during the election”.
I have a couple of brief points in response to some of the comments. It is also important for the record, when comparing statistics on voter turnout, to note that in 2006—which I remember well, as someone who was then elected to a local authority—we were very concerned about the low voter turnout. We then saw a voter turnout of 37%. This contrasts with 2010, when there was a double-header and it was held with the general election, with a voter turnout of 62.6%. At a time when we need to encourage more people to exercise their right to vote, it is useful to see that when we have combined elections it has resulted in a higher voter turnout.
A small point was raised by the noble Baroness, Lady Golding, about electoral agents. Of course, I bow to her great expertise and experience across the field with the elections she has managed. Of course, there will be specific advice from the Electoral Commission on all relevant matters.
I once again thank all noble Lords who have participated in the debate.
Occupational and Personal Pension Schemes (Automatic Enrolment) (Amendment) Regulations 2013
(11 years, 4 months ago)
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Baroness Stowell of Beeston
That the Grand Committee do report to the House that it has considered the Occupational and Personal Pension Schemes (Automatic Enrolment) (Amendment) Regulations 2013
Relevant document: 7th Report from the Joint Committee on Statutory Instruments
Baroness Stowell of Beeston
My Lords, I am pleased to introduce this draft instrument which was laid before the House on 1 July. I am satisfied that it is compatible with the European Convention on Human Rights.
Automatic enrolment introduces the biggest change to private pension saving that this country has seen for 100 years. It will result in up to 11 million people starting to save, or saving more, for their retirement, with a contribution from their employer. In fact, data published last week by the Pensions Regulator show that since last July more than 1 million people have been automatically enrolled. Automatic enrolment is transforming our savings culture by encouraging and supporting people to take personal responsibility and save for their future, helping to ensure that they have a more comfortable lifestyle in retirement. It is of vital importance, therefore, that we ensure that people have confidence in the pensions that they are automatically enrolled into and are protected from excessive or inappropriate charges.
The draft regulations before us will introduce a new condition that a scheme providing money purchase benefits must meet to be an automatic enrolment scheme. The condition specifies that the scheme cannot allow an employer to make an agreement with a third party under which that third party is paid from the members’ pension pots. This will effectively ban consultancy charges from schemes used to comply with automatic enrolment. In doing this, we do not want to prevent the normal day-to-day running of pension schemes. Trustees and managers of occupational pension schemes and pension providers have therefore been excluded from the definition of third party. This will mean that they can continue to pay for important services for the efficient running of schemes.
We recognise that a small number of schemes which include consultancy charges were put in place before the Minister for Pensions announced the Government’s intention to legislate on 10 May. Therefore, these regulations will not affect pension schemes where there was a legally enforceable agreement in place between an employer and a third party before 10 May 2013. We intend to consult in the autumn on widening the ban on consultancy charges so that it covers all qualifying schemes. Clause 35 of the Pensions Bill currently before Parliament—it is in the other place at the moment—will enable us to do this. Our direction of travel is clear: consultancy charges do not have a place in qualifying schemes.
The concept of consultancy charges was introduced as part of the Retail Distribution Review carried out by the then Financial Services Authority. The review banned the practice of providers paying commission to advisers for recommending their products. Consultancy charging enables employers to pass on the costs of advice provided to an employer to the members who join the pension scheme. While some of the services to employers can improve the outcome for some members, the primary aim in many situations is to support employer compliance with their automatic enrolment duty. Fundamentally, therefore, there is a misalignment between the interests of the employer and the member. The employer chooses the service and the price is agreed between the employer and the adviser, but the fee is paid by the individual member. That fee is paid regardless of whether they receive any particular benefit other than being automatically enrolled into a workplace pension scheme. There is no one in this arrangement who has the incentive to and is capable of driving down costs and ensuring value for money. The member’s only choice is to accept that they have to pay the consultancy charge to the adviser out of their pension or to opt out of pension saving and forgo the employer contribution. That is why we are bringing forward these regulations today.
Between November 2012 and May of this year, the DWP conducted a thorough review of the emerging interaction between consultancy charging and automatic enrolment. This involved the full range of organisations with an interest in the issue, including pension providers, advice firms, employer representatives, consumer groups and pensions experts. The review found that consultancy charges were likely to be used to pay employer compliance with the automatic enrolment obligation.
Baroness Stowell of Beeston
My Lords, I had just finished explaining why we were bringing forward the regulations and had started to explain the review that the department undertook between November last year and May this year.
The review found that consultancy charges were likely to be used to pay for employer compliance with the automatic enrolment obligation. This has been likened to expecting workers to pay for the steps that their employer takes to ensure compliance with health and safety law.
Over the course of the review, a broad consensus emerged that there was a significant risk of consumer detriment with consultancy charges; that is, individuals paying for a service from which they receive no individual benefit. With this risk came a wider risk to the reputation of pensions more generally at a critical stage in the rollout of automatic enrolment.
The review also found that consultancy charges can have a disproportionately negative impact on people who move jobs regularly, because they might repeatedly have to pay higher “initial” scheme set-up charges. In April, the Work and Pensions Select Committee raised concerns about consultancy charges and the ultimate impact on individuals’ income in retirement. The committee recommended that the Government ban consultancy charges in automatic enrolment schemes without delay.
A number of options were considered during the review, including restricting the use of consultancy charges through setting a cap, imposing decency limits and providing statutory guidelines. Our conclusion was that none of these options would protect consumers sufficiently or quickly enough. Even a low consultancy charge will have a detrimental effect on a member if they do not receive any tangible benefit from the advice that they are paying for. Our approach is the simplest rule to understand and enforce, and sends a clear message that we are protecting consumers.
While employers are free to get advice if they want it, the Government do not believe that the cost of seeking such advice should be passed on to the members of the pension scheme. Let us not forget that the Government have established NEST, a low-cost and simple scheme designed for automatic enrolment compliance, and joining that scheme requires no consultancy advice.
Banning consultancy charges in automatic enrolment schemes, which is essentially the effect of the draft regulations, will increase competition in the advice market. Advisers will compete on a more transparent fee basis and deliver value for money for employers. I therefore commend the regulations to the Committee and beg to move.
Baroness Drake
My Lords, the decision to prohibit consultancy charging for any scheme used for auto-enrolment and charges which arise from an amount paid to a third party under an agreement between a third party and an employer is very welcome, and I am pleased that the Government have taken this decision. The decision recognises the vulnerability of pension savers where they have not chosen the pension product but are automatically enrolled in the employer’s choice of scheme and where who has responsibility for protecting the best interests of the saver in contract-based pension provision is at best uncertain.
It is also welcome that the Government have called for evidence on standards of governance and quality in defined-contribution pension schemes. I hope that this decision on consultancy charging is the first of many by the Government which put the interests of the pension saver centre stage.
It is also important to reflect that consultancy charging was initially allowed by the FCA—previously the FSA—and its subsequent abolition, because it is quite clearly not in the saver’s interest, is compelling confirmation of the need for the two pensions regulators, the Pensions Regulator and the FCA, to co-ordinate very clearly on what is the appropriate framework of protection for pension savers in an auto-enrolment world where one has a mix of both trustee and contract-based pension provision and where, increasingly, the future looks as though it is contract based.
It is important to reiterate a point to which the Minister referred: Parliament having secured broad popular support for automatic enrolment—which is certainly manifest in the preliminary evidence of people not opting out from being auto-enrolled into a pension scheme—cannot afford to fail those millions of people who are allowing themselves to be auto-enrolled by not having a framework of protection that ensures that the interests of the saver are centre stage in any regulatory framework. Public confidence on this issue, once lost, will not be easily regained. This is a framework for auto-enrolment. I suspect that we have one chance at securing a rebuild of private pension saving in this country and we cannot afford to get too much of it wrong. I therefore welcome regulations but encourage the Government to be even bolder in forthcoming challenges.
Lord McKenzie of Luton
My Lords, in thanking the Minister for introducing these regulations, let me make it clear that they have our strong support, as the Committee will have gathered from my noble friend Lady Drake.
At the start of her presentation, the Minister made reference to the progress that has been made with auto-enrolment. That is indeed heartening. I think the figure was more than 1 million people already enrolled—I was not quite sure whether that was gross or net of opt-outs. I understand from my noble friend that, thankfully, the level of opt-outs has been quite small.
It was a particular delight to hear from my noble friend Lady Drake in this short debate because she was there at the heart of the creation of auto-enrolment as one of the three members of the Turner commission. We always endeavour to follow her wise words.
We particularly endorse the analysis which points up the misalignment, which the Minister referred to, between the interests of the primary consumer—the employer—and the end customer—that is, the member. As my honourable friend the shadow Pensions Minister Gregg McClymont has made clear, the workplace pensions market is not made up of fully informed consumers. The inertia that this phenomenon fostered is, in part, to be addressed by auto-enrolment. A lack of informed consumers is not sufficiently balanced by good governance arrangements, particularly for contract-based DC schemes.
We see the issue of the complexity of charging as inextricably tied up with the wider issues of governance, especially for defined contribution schemes. My honourable friend has gone further and challenged whether the Financial Conduct Authority’s regulation offers sufficient safeguards for the workplace pensions market, and has proposed an extension of trust-based governance, a widening of fiduciary obligations and bigger schemes to improve the bargaining power of members. He argues that full disclosure of costs and charges is not a sufficient improvement to the current situation but it is a necessary one. We welcome the call for evidence around some of these matters.
As we have heard, in April 2013 the Work and Pensions Committee covered a number of these issues and made the point, with which we agree, that auto-enrolment will mean that many more people in the UK will be saving for their retirement. But given that most will be auto-enrolled into DC schemes, hence bearing most pension-saving risks themselves, the issue of good governance is of heightened importance. The committee says:
“Decisions made by contract-based scheme providers, and the employers who enrol their employees into them, may not always be made in the best interests of the scheme member. Trust-based schemes generally offer members greater protection, as scheme trustees have a fiduciary responsibility to act in the interests of scheme members”.
The committee also pointed out that:
“A confusing array of costs and charges is applied to pension pots by pension providers … and these costs and charges can have a serious negative impact on an individual’s retirement income”.
My noble friend’s comments about the need to maintain and build on the broad popular support for pensions saving that auto-enrolment has thus far engendered are very important.
Like the Minister, the Work and Pensions Committee was particularly concerned about members bearing consultancy charges. As the committee sets out:
“The provision of pensions advice to employers is currently an unregulated activity”,
and it would seem that the Government have no plans to change this, so tackling consultancy charges, which end up being paid by scheme members, has to be seen in this context. We consider that the Government are right to ban these arrangements rather than seek to ameliorate them by capping or strictures from the regulator. As the Minister has explained, such charges can have a particularly pernicious impact on the low-paid and transitory job holders, as the Explanatory Note makes clear.
I have a few brief questions. In fact, I think the Minister has pre-empted two of them. I am not sure whether that is foresight or I am getting predictable. Have the Government considered the risk of trading down in circumstances where employer contributions would be above the statutory threshold but could be reduced to the statutory threshold, with the savings covering the consultancy charges that would otherwise be on-charged to scheme members? I was going to ask what assessment has been made of the ramifications of the cut-off point where an employer has entered into an agreement before 10 May 2013. Those agreements presumably will run for some time in the future. Can the Minister say something about the nature of these contracts and whether they tend to be short or long term? If they can be terminated by notice, there does not seem to be an obligation on an employer to do that under these arrangements. However, the Minister in her opening remarks said that there seem to be just a few of them, so it does not seem to be a particularly big issue.
The Minister has covered my final question, which was to get an update on auto-enrolment. That is encouraging news. We are thoroughly supportive of the impact of these regulations.
Baroness Stowell of Beeston
My Lords, I first thank the noble Baroness, Lady Drake, and the noble Lord, Lord McKenzie, for their support for these regulations. I am grateful to them for that.
In response to the comments of the noble Baroness, Lady Drake, in particular, I will say a little more about the market study into workplace pensions that the Office of Fair Trading launched in January. The aim of the study is to examine whether DC pensions are set up to deliver the best value for money for savers and to take a forward look at the impact of auto-enrolment. On 11 July, the OFT published an update on its progress. This included several areas it wishes to explore further, including the current level of governance over the performance of some schemes, which the noble Lord, Lord McKenzie, raised; schemes with two-tier charging structures in which deferred members pay higher charges; and schemes that do not have a realistic prospect of reaching sufficient scale to generate value for their members. The OFT is also concerned about the way that charges are currently presented and about charges in older schemes that may not represent value for money.
The Government intend to publish a consultation in the autumn, following the publication of the OFT’s report and recommendations. Our consultation will cover a number of issues including a charge cap, active member discounts and extending the prohibition on consultancy charges to all qualifying schemes. These regulations are a first step in a wider move towards addressing the whole area of consultancy charges and their potential effect.
The noble Baroness, Lady Drake, stressed the importance of the FCA and TPR working together. The regulators have already set out how they will co-ordinate and exchange information. The FCA and TPR will jointly publish a document which sets out how regulation of work-based pensions operates in the autumn. This will better articulate the existing regulatory framework. The FCA is updating its pensions strategy and this will inform its business plan, to be published in the spring of 2014.
The Deputy Chairman of Committees
My feeling is that the noble Baroness wishes to go on a bit longer. If she could finish in 60 seconds—
Baroness Stowell of Beeston
My Lords, I had just completed my response to the points made by the noble Baroness, Lady Drake, about the importance of the FCA and TPR working together.
Perhaps I may turn now to the points made by the noble Lord, Lord McKenzie, about the importance of good governance in automatic enrolment, with which of course I agree. There are various provisions to ensure this. In occupational schemes, the trustee already has a fiduciary duty to act impartially and in the best interests of scheme beneficiaries. There are also some requirements in place for people running personal pension schemes. In particular, the Financial Conduct Authority’s Treating Customers Fairly programme says that customers’ interests should be at the heart of how firms do business. The FCA’s “client’s best interests rule” states that,
“a firm must act honestly, fairly and professionally in accordance with the best interests of its client”.
However, there may not be a body within a personal pension scheme with an identified ongoing responsibility for considering whether the scheme is being run in the members’ interests.
As I mentioned earlier in response to the question put by the noble Baroness, Lady Drake, on prioritising savings, DWP’s call for evidence seeks views on the minimum standard that all schemes must be overseen by a governance body with a duty to act in the members’ interests. We are interested in how this could work in practice, including the decision-making powers that such a body would have, how it would fit into existing government arrangements and the resources that it would need to act effectively in members’ interests.
The noble Lord, Lord McKenzie, asked whether the Government will legislate for greater transparency on charges. We have published guidance on default funds for automatic enrolment schemes, which sets out that a breakdown of charges should be provided, illustrating their effect on outcomes. We welcome the steps taken by the industry to improve transparency and disclosure of charges, and we have powers to legislate for greater disclosure to members, employers or the regulator if necessary. Prior to any further action, consideration should be given to balancing the burden of any further requirements on the industry against their effectiveness in protecting consumers. There are a number of areas which may cause concern in this market, including complexity and charging, financial capability among consumers, and principal-agent issues.
The noble Lord, Lord McKenzie, asked about schemes already in place before 10 May and those that are not captured by these regulations. It is not possible to know with certainty how many were in place then, but as I said earlier, we understand that it is a limited number. Pension providers were reluctant to make new agreements for business when they knew that we were reviewing in this area. We will consult on extending the ban to qualifying schemes in our consultation on charges this autumn.
The noble Lord also asked for further information on the updated numbers of those who are now members of the automatic enrolment scheme. The figure of 1 million that I cited is the gross figure for all those automatically enrolled before any opt-outs. The opt-out seems to be running at a low rate, which is good news.
We have considered these regulations carefully this afternoon. As I have said, I am grateful for the support from noble Lords today. The regulations will provide important protection to millions of new pension savers as automatic enrolment continues to roll out.
Antibiotic-Resistant Bacterial Infections
(11 years, 4 months ago)
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Lord Crisp
To ask Her Majesty’s Government what is their assessment of the risks posed by antibiotic-resistant bacterial infections; and what plans they have to reduce such risks.
Lord Crisp
My Lords, first, I thank noble Lords who are taking part in this debate and say how much I look forward to their insights, which I know will come from very different perspectives. I suspect that there will be an enormous amount of agreement. I know that the Government are taking this matter extremely seriously and that, in the words used in my Question, they recognise the risks and are developing plans to reduce such risks. I hope that this debate will enable them to be even more bold and creative in their approach.
I will talk for a moment about that shared understanding, which I will put in very simple layman’s terms. No doubt others will expand on it. The first point is that antibiotics have been a great benefit to humanity in tackling everything from TB and pneumonias to sexually transmitted diseases and bacterial infections of all kinds—not just in this country of course but world wide, including in some of the poorest countries of the world. I happen to chair Sightsavers, which uses an enormous amount of antibiotics in dealing with trachoma in the poorest countries of the world.
Antibiotics are the basis of much modern practice. We assume now that we can tackle infections. Infamously, it was the American Surgeon General who said in 1968 that,
“the war against diseases has been won”.
Those words no doubt came back to haunt him. The problem is that the bacteria are fighting back, in large part due to misuse—people failing to complete courses of treatment and therefore to wipe out the infection. The bacteria did not know that the war was over; evolving and becoming drug resistant, the stronger ones survived. The result, as we know, is that globally we have multidrug-resistant TB, and infections that cannot be treated in countries as disparate and different as India and Israel. This has been known for a long time, and the problems coming forward have been known for a long time. It was the House of Lords Science and Technology Committee’s 7th report in 1998 that first drew attention to this. In the same year, the World Health Assembly raised it as a serious issue.
There has been considerable research over many years. I am indebted to one of the world’s experts, Professor Otto Cars of Uppsala University in Sweden, for setting out the evidence for me. It is compelling. Imagine a world without effective antibiotics. Our English Chief Medical Officer, Dame Sally Davies, said that if we do not take action, we may all be back in an almost 19th-century environment where infections kill us as a result of routine operations. We will not be able to do a lot of our cancer treatments or organ transplants.
It is not just the burden of disease that is at issue here but the economic impact. It has long been known to be significant, but new work coming forward from Professor Richard Smith of the London School of Hygiene and Tropical Medicine, and Professor Joanna Coast of the University of Birmingham, suggests that, when wider impacts are taken into account, the costs are even higher than anticipated. These economic arguments are extremely important in raising the issue up the world priority list. It is significant that the World Economic Forum sees antibiotic resistance as a major threat. There are other important issues around animals that I will not mention in this short debate. My noble friend Lord Trees will say something about them.
I congratulate the Chief Medical Officer on drawing this issue to the attention of the country and of the world in her 2011 annual report. I also congratulate the Government on supporting her to raise the matter at the World Health Assembly at the G8 summit and, I hope, at the UN in September. Her report sets out the issue in detail and notes that there are some drugs that are the last line of resistance, to which we should give special attention now. She and the experts who wrote Chapter 5 of her report drew attention to a number of solutions.
The first is new drugs, but at the moment there are few antibiotics manufacturers and few new antibiotics in the pipeline. Thanks to AstraZeneca, I understand more about the business model and the problems in dealing with drugs of last resort. The simple issue is that they are kept on the shelf; they are in reserve. It is important that we have them, but they do not get used very much and they do not lead to sales. Therefore, the economic model does not work. Even with the more common antibiotics that we use more regularly, we only use them for a short period as therapeutic drugs, not as long-term drugs that will produce a long-term income and therefore provide a return on the massive investment required for development.
AstraZeneca and many others argue that there is a need for very substantial changes to regulation to allow for shorter and easier development times, and even for antibiotics to be treated as a different category of drugs. They also point to the need for investment to secure development. This also makes the argument that vaccines are important in heading off disease. I well understand that not every new drug or vaccine is a significant advance, but there is enormous scope here for Government, and the public and private sectors, to work together to develop a new way of developing these drugs. My noble friend Lady Mar will say a bit more about vaccines in a moment.
Another aspect of the issue is the development and use of new diagnostics. If we can get people into treatment faster, we will be quicker to control the bacteria. At the moment it can be days before technicians know what strain they are dealing with.
The third and perhaps biggest point is about better stewardship and conserving what we have. This is even more difficult, but it is the basis for everything else. The CMO’s report describes good practice that will achieve this. There are 10 top tips for effective antibiotic prescribing that should be followed in this country. Imagine for a moment the situation in every country in the world; every clinic or village in China or India needs a battery of actions. There is a need for education professionals in those areas to have the equivalent of our 10 top tips, as well as for greater public awareness and education. That is no easy task. We should remember that many of us in our country do not take drugs in the way that we should. Also, in those countries we must tackle counterfeit medicines and restrict over-the-counter sales. We should also see changes to harmonise regulation. This is phenomenally difficult, but it is not enough to put our own house in order; we will be affected by what happens elsewhere in the world.
We need all these approaches combined: new drugs, new diagnostics, better practices and stewardship, action across the whole healthcare system and, indeed, across the whole world. Here I come to the point that I really want to talk to the Government about: this needs remarkable political effort. It is about reframing the issue and building political support, and I will be interested to hear what the Government have in mind.
I will make two points. First, this is an enormous threat. Indeed, you can galvanise people around the threat: it is real and it will impact in terms of illness and economy. However, it is also an opportunity. I am indebted to my friend and colleague Dr Ilona Kickbusch, and to Professor Cars, for pointing out that we should treat antibiotics as a global public good and that there is an alternative way of seeing this problem. It is about a vision of a world in which the peoples of the world really do in practice have a right to health and healthcare, something most nations have signed up to—many, like ours, since the UN declaration of 1948. In that world, nations develop, share and look after those things, such as antibiotics, which are a benefit to us all.
We have already seen how this can be done in tackling other threats such as global pandemics. Although there is always controversy about that, nevertheless great progress has been made in creating a network for surveillance and tackling issues. There is more to do. We have also seen it with the millennium development goals, working towards a vision where no woman dies as a result of pregnancy, although there is much more to do there as well. In other words, I am arguing for setting ourselves the goal of preserving antibiotics for the future as one of science’s great benefits for humanity, and for driving this forward politically and technically, in every way in which we can.
My second point is simply that the UK can play an extraordinarily important leadership role here. It is well respected in health. We have the credibility of having a health system which seeks to look after every person within it. We also have credibility because of the world-leading role that has been played in development; here I compliment both this Government and the previous one. We can be bold and ambitious in taking a lead. No nation is better placed to do so, with our connections in the Commonwealth, across the Atlantic, and in Europe. The key is to bring together a group of like-minded countries, as this and previous Governments have done on other things, starting with those who are already taking this seriously. We should set out a vision and pathway, and take on these issues step by step. The Chief Medical Officer has already started this, but it is important to add political weight and depth to her work. It is not just about health but about economics and foreign policy. It is a step in building a better world, where we have and share the means to offer better health to everyone.
I therefore look forward to hearing the Government’s response to these points, and to knowing how they will turn their undoubted commitment in this area into something even bigger and bolder. Will they seek to take a global lead on this? How will they do so? I also greatly look forward to hearing from other noble Lords.
Baroness Masham of Ilton
My Lords, I thank my noble friend Lord Crisp for securing this most important debate. I declare an interest as, over the years, my life has been saved by the use of antibiotics, and I personally know how important they are for the correct infection.
Is there a problem of people sharing medication such as antibiotics, or stopping taking them when they feel better, thus causing drug resistance? After I brought up the subject of MRSA in your Lordships’ House in 1996, I was a member of the Science and Technology Select Committee’s sub-committee on resistance to antibiotics and other antimicrobial agents from 1997 to 1998, chaired by the noble Lord, Lord Soulsby of Swaffham Prior. We went to Washington, Atlanta and Boston. The amount of research being undertaken in America left a lasting impression. I am pleased that there is a vet speaking in this debate. It is most important that there is good co-operation between human and veterinary medicine.
Antibiotic-resistant bacterial infections are a worldwide problem, and given the economic situation we are in, there should be the greatest cohesion. In the community there is a dangerous toxic substance produced by some strains of staphylococcus aureus called Panton-Valentine leukocidin which can kill within 24 hours. The infection can be contracted from gorse bushes, in military camps, colleges and playgrounds—that is, places where young people often gather together. It seems to be more prevalent in the USA and therefore we should be learning from that country. It is vital that a quick and correct diagnosis is made, and GPs and hospital doctors must be aware of the symptoms that suggest an illness could be PVL-positive MRSA.
The overuse of antibiotics and thus the increasing resistance of bugs to them have led to fears that soon we may run out of effective treatments. Microbes are mutating faster than scientists can come up with new antibiotics. According to the World Health Organisation, some 440,000 new cases of multidrug-resistant tuberculosis are diagnosed every year, causing at least 150,000 deaths. A mutant strain of gonorrhoea, which has emerged in Asia, could be more devastating than AIDS. Antibiotic-resistant strains of e-coli are on the rise, particularly among the elderly, and there are risks from common infections such as pneumonia and urinary tract infections.
What can be done to give the pharmaceutical industry incentives to develop more antibiotics? The absence of rapid diagnostic tests for tuberculosis is further compounded by a widespread inability to screen for drug-resistant bacteria. An ideal diagnostic test for respiratory tract infections should be rapid, cheap, easy to use, sensitive and specific, and should screen for many micro-organisms and their antibiotic resistance. The diagnostic platform should be transportable and robust; ideally, it should also be able to be run on solar power for use in remote healthcare settings in developing countries. In Australia there is such a portable box, called the “lab without walls”, so progress is being made. To achieve this across the world, physicians, scientists, biotechnology companies, funding agencies and Governments need to work together to drive the development of improved diagnostic tests for both developed and developing countries.
Here in the UK we have seen the emergence of multidrug-resistant tuberculosis among homeless people. This should be a wake-up call for us all. I have great admiration for the Find&Treat service, which works with the most vulnerable and excluded people in our society to ensure that they can access diagnostic services and complete tuberculosis treatment. Homelessness is an independent risk factor for multidrug-resistant disease, as is birth in east Asia or eastern Europe or a history of previous tuberculosis treatment. Funding for the Find&Treat service is secure only until March next year, and it still has not been able to replace its only current mobile unit, which is on its last legs. The unit goes around hostels for the homeless and other places in order to test the vulnerable. I stress that the effective control of TB is important to wider public health, and interventions must be made in complex cases. I hope that Public Health England will take this on and work with NHS England.
A dual HIV/MDR TB infection complicates patient management, compromises treatment options and leads to poorer treatment outcomes and greater disease transmission. Basic and clinical research is needed to explore any possible causal relationship between HIV infection and MDR TB specifically.
Extensively drug-resistant TB, which is resistant to at least four of the core anti-TB drugs, and MDR TB both take substantially longer to treat than ordinary TB and require the use of second-line anti-TB drugs, which are more expensive and have more side effects than the first-line drugs. Very worryingly, in some countries extensively drug-resistant TB is on the increase. The modern world is now very accessible. There should be no complacency. All Governments across the world should realise the risk to their populations posed by antibiotic-resistant bacterial infection, and should work closely with the World Health Organisation.
The Countess of Mar
My Lords, I am grateful to my noble friend Lord Crisp for enabling us to debate this important subject today. I draw the Committee’s attention to my interests in the register, and I am also a member of the All-Party Parliamentary Group on Antibiotics.
We have been given warnings of the dire effect of the overuse of antibiotics that results in antibiotic resistance for many years. In 2011 Dr Margaret Chan, director of the World Health Organisation, warned:
“The implications go beyond a resurgence of deadly infections to threaten many other life-saving and life-prolonging interventions, like cancer treatments”—
which my noble friend mentioned—
“surgical operations, and organ transplantations”.
As both Dr Chan and the Chief Medical Officer have stated, the R&D for new antimicrobials has practically run dry.
Noble Lords have given graphic examples of the cost of antibiotic resistance. I will try to look ahead and inject a glimmer of hope into the current gloomy scenario, and expand a little on what my noble friend Lord Crisp proposed. If modern medicine is to progress, the infrastructure of academic and industrial antibiotic research discovery and development needs to be rebuilt. We know that the current estimates for one new drug to reach the market range from $100 million to $10 billion, with antibiotics at the lower end of that scale. For 20 new classes to reach the market, the costs are phenomenal.
What can be done? There needs to be an overarching framework within which the very best knowledge is brought together. The key to progress will be the development of well informed guidelines and information to help current and future research activities to focus on well funded innovation. Because the problem is potentially so huge and widespread, there is a need for a global initiative as well as a UK one. For the global initiative, it has been suggested that something along the lines of the post-war Marshall plan, which helped to rebuild Europe, might provide the beginning of a solution. This would have to be paid for at a continental level—for example, by the European Union, the USA and Asian countries.
Antibiotic Discovery UK is a network of leading academic researchers and universities, together with SMEs, that have a common goal of revitalising antibiotic research in the UK. It has recently circulated to the Medical Research Council, the Biotechnology and Biological Sciences Research Council, the Engineering and Physical Sciences Research Council and the National Institute for Health Research a proposal for a cross-research council antibiotic research programme—CRCA for short—modelled on the Farr Institute and the MRC’s AIDS-directed programme of 1987, with the aim of conducting fundamental and developmental research into antibiotics for the prevention and treatment of bacterial infections. The programme plans to include work on basic bacteriology, antibiotic resistance, epidemiology, chemistry, drug design and drug evaluation. The CRCA would add to existing investment by research councils and charitable bodies. It believes that its programme would further enhance the UK’s international reputation and that it would provide a significant stimulus to the UK economy, and in particular to the pharmaceutical sector.
Members of Antibiotic Discovery UK point out that the UK is home to a wide range of outstanding scientists with innovative medical, biological and physical science skills. The CRCA programme would link at least eight universities across the UK and would foster strong links with industry as well as international co-operation. They acknowledge that this is an ambitious proposal but I believe that, if we are to crack this problem, a programme such as this is vital.
A multi-pronged approach such as that proposed by Antibiotic Discovery UK would include antibiotic discovery and development by discovering new molecules, mining past leads and exploiting natural products. It would improve researchers’ understanding of pharmacokinetics so that new combinations of drugs could be developed such as those currently used to treat TB and HIV. This would enhance antibiotic stewardship and research into antibiotic resistance through surveillance, diagnostics, epidemiology and mechanisms of resistance.
There is a clear need better to engage and fund academics alongside industrial partnerships to help to deal with this threat, but no one academic group or single institutional centre has the capacity or the capability to make significant inroads. There is great strength in numbers. Best practice and knowledge can be shared between academics and industry within the network, and innovation can flourish. There is a need for multi-institutional centres of excellence to tackle well validated targets such as cell wall biosynthesis, protein biosynthesis and DNA replication, as they offer multiple targets to hit. We now know that therapy should avoid hitting single targets, which will only result in the further speedy emergence of resistance.
On the subject of novel treatments for antibiotic-resistant conditions, I was interested to read that Professor Tony Maxwell of the John Innes Centre, together with a European consortium of researchers, is researching a compound derived from the South African toothbrush tree which inactivates a drug target for tuberculosis in a previously unseen way. Miracles come from all sorts of places.
The situation is not hopeless, but we need to ensure that researchers are encouraged to work together and that they are adequately funded. This matter is too important to be left to industry alone to deal with.
As I have a few minutes in hand, I will read to noble Lords the e-mail that we have all received today from Sue Davie, the chief executive of the Meningitis Trust. She says:
“I understand you are participating in a Speaker debate on ‘antibiotic resistant bacterial infections’ this afternoon. In light of the announcement today that the JCVI will not be recommending the Meningitis B vaccine, we would be grateful if you could raise the following issues, on behalf of Meningitis Trust/Meningitis UK … We welcome the Chief Medical Officer’s focus on antibiotic resistant bacterial infections and the efforts the government is making on this issue ... It is accepted that one of the best ways of limiting the rise of antimicrobial resistance is to properly use the interventions we do have available to combat infectious diseases—an excellent example of these are vaccines ... Can Earl Howe comment on the interim position statement of the Joint Committee on Vaccination and Immunisation (the independent body which advises the Government on vaccination) which has said that a vaccine which could prevent meningitis B disease will not be made available in the UK? … Meningitis is a disease with a very rapid onset, its symptoms are vague and unspecific. When a case is suspected the medical personnel need to flood the systems of these babies and children with antibiotics ... Kind Regards, Sue Davie”.
There is nothing worse than seeing a baby who lost their limbs because they had meningitis B and were not reached in time with antibiotics. Can the Minister give me a response on that?
Lord Trees
My Lords, I thank my noble friend Lord Crisp for initiating this important debate and draw attention to my various veterinary interests that are listed in the register. As some noble Lords have observed, this topic was the subject of a report in 1998 by the Science and Technology Select Committee of this House, chaired by the noble Lord, Lord Soulsby of Swaffham Prior. It was an important issue then and it is now even more important. A number of reasons have been eloquently articulated. I will point to three recent issues that have drawn attention to its importance.
The first is the Chief Medical Officer’s report, published earlier this year, in which she chose infectious disease and drug resistance as the principal theme. Secondly, she suggested that the subject should be put on the National Risk Register for the UK. Thirdly, in June the UK hosted the G8 summit, and there was a separate meeting of science Ministers—the first such meeting at a G8—at which the Ministers singled out resistance to antimicrobial antibiotics as one of humanity’s most pressing concerns.
Today I will highlight two aspects of the subject. There are many more, including the drug pipeline, which was talked about by several noble Lords. I will focus on the role that the veterinary profession is playing in addressing the issue, which it takes very seriously; and on the global dimension of the threat.
The resistance of bacteria to antibiotics—I will refer to this as antimicrobial resistance—involves a complex interplay of interactions between different bacteria, hosts and antibiotics. Some bacteria exclusively infect animals. Resistance has developed in some strains, which is likely to be associated with the use of antibiotics in animals, and where the consequences will be confined to animals. Equally, some bacteria are unique to humans. A few of them have developed resistance, which, again, is likely to have its causes and consequences principally with humans.
Of course, some bacteria—so-called zoonotic bacteria —infect both humans and animals. The causes of their resistance, and the consequences of it, can affect both animals and humans. Those bacteria can move not only from animals to humans but from humans to animals. The picture is further complicated by the fact there are, as has been well described, antibiotic-resistant bacteria in wildlife and in the environment. There is a flux and flow of resistant bacteria and the genes that confer resistance within the biosphere.
As the Chief Medical Officer acknowledged in her report, and as was stated in a response by Department of Health Minister Dr Poulter to a Question from Glyn Davies in the other place on 27 February 2013, it is the use of antimicrobials in human rather than veterinary medicine that is the main driving force for antimicrobial-resistant human infections. Notwithstanding that, there are many organisations, in my profession particularly, that are working very hard to ensure the responsible and prudent use of antibiotics in animals.
Antibiotics have not been allowed as growth promoters in animals anywhere in Europe since 2006. In the UK, antibiotics are available only on prescription from a veterinary surgeon. The British Veterinary Association and the Federation of Veterinarians of Europe have worked very hard to promote the responsible use of antibiotics and have produced publicity and information, as has the Responsible Use of Medicines in Agriculture Alliance. My own college, the Royal College of Veterinary Surgeons, the governing body, has it embedded in its own professional code of conduct that:
“Veterinary surgeons who prescribe … medicines must do so responsibly”.
The consequence is that a vet could be struck off for irresponsible use.
We must continue to do all that we can to manage the prudent use of antibiotics in humans and animals in Britain and Europe. The forthcoming national cross-governmental strategy for antimicrobial resistance, which involves not only the Department of Health and the Chief Medical Officer but Defra and the Chief Veterinary Officer, is an excellent initiative which will define a coherent plan to address this problem.
However, this brings me to my second major point. The reality is that this is a global problem of massive scale, particularly in China and elsewhere in Asia. We must recognise that, whatever we do about the domestic use of antibiotics, the greatest threats will arise from overseas. This is a consequence of a number of factors. One is the gross use and, one might say, misuse of antibiotics in animals and humans. For example, in 2007, China produced 210,000 tonnes of antibiotics, of which about 100,000 tonnes were used in animals. Adjusting pro rata for the human population, that is 20 times the amount of antibiotics for animals than we used on animals in the UK at that time.
Many antibiotics are available over the counter in India, Asia and elsewhere, not exclusively on prescription. This leads to their misuse, the underdosing or curtailment of dosing regimes, both of which are factors in inducing antimicrobial resistance—as, of course, is the close contact of humans and animals in many of these settings in developing countries. All these factors contribute to high rates of antimicrobial resistance. Again, in China, in a survey of hospital infections in 2009, more than 60% of staphylococcus aureus infections were methicillin resistant—that is, MRSA—compared with less than 2% in UK hospitals.
This alarming genesis of antimicrobial resistance is coupled with the massive and rapid movement of people throughout the world. Just like pathogens themselves, such as the SARS virus and avian influenza, can move, antimicrobial-resistant bacteria can evolve in distant lands and arrive here in the UK within days if not hours. This is the downside to globalisation. When globalisation comes in the door, biosecurity goes out of the window.
We need to harness the economic gains from globalisation. We all think that it is a good thing, which brings economic gains. However, I suggest to the Government that perhaps we need to consider ways in which some of those economic gains of globalisation might be devoted to research in this area, to improving surveillance, to researching and developing rapid and effective detection and diagnostic technologies, and to helping us work with our colleagues overseas to mitigate the global threat of antimicrobial resistance. The good news is that the global nature of this problem is now being recognised. Now we need imaginative measures to counter that threat.
Lord Turnberg
My Lords, this has been a remarkable and important debate. I am grateful to the noble Lord, Lord Crisp, for laying out the issues so clearly, and for the many valuable contributions made by other noble Lords.
The noble Lord, Lord Crisp, spoke very persuasively about the global impact of infectious diseases, especially in the third world, a point re-emphasised by the noble Lord, Lord Trees. However, I am going to narrow my focus to the problems in the UK. There is little doubt that infectious diseases that we once thought had been conquered never really went away. They are rearing their collective head once again. With about 5,000 deaths a year from gram-negative sepsis in the UK alone, we cannot afford to be complacent. No sooner have we managed to get a grip on one set of antibiotic-resistant bacteria, MRSA and Clostridium difficile, than another set has appeared, but the fact is that we managed to have an impact on MRSA through a concerted and focused effort. That suggests at least that we can do something if we put our minds to it.
However, we are now faced with a new set of antibiotic-resistant germs that pose a major threat to the population, in particular to highly susceptible subgroups of the population. These are the gram-negative bacteria, particularly E. coli and Klebsiella species, which make up more than a third of all causes of bacteraemia reported to the Health Protection Agency—now the public health laboratories. It is worth noting that septicaemia due to E. coli has a 30% mortality rate. These bacteria are now the biggest threats, but others are creeping up on us. We are seeing more cases of resistant gonorrhoea, a very common disease, and multidrug-resistant TB, which is much less frequent at least in the UK but still very disturbing—a point well made by the noble Baroness, Lady Masham. The reasons for all these rises are complex and multiple. They include the increase in the number of vulnerable patients—the very young and the very old, and those with diseases that lower their resistance, such as cancers and leukaemia—and the powerful immunosuppressive treatments that they need. Bringing them close together in a hospital or a care home increases their risk. We have heard about the overprescribing of broad-spectrum antibiotics that allow the evolution of resistant strains.
Perhaps the major impact of inappropriate or over- prescribing has been felt in Asia, particularly in China and the Indian subcontinent, with their huge populations, as the noble Lord, Lord Trees, emphasised. Here, there has been a dramatic rise in antibiotic-resistant strains and they are increasingly being imported as international travel grows. There are now no more frontiers that can stop the spread of germs. So what is to be done?
It is possible to reduce the spread of antibiotic resistance. We reduced the incidence of MRSA and C. difficile by a combination of spreading good practice—with handwashing or alcohol hand rubs at the bedside, and nasal swabbing of all admissions to pick up carriers—and better management of intravenous lines and better infection-control measures. They all played a part. The noble Lord, Lord Trees, spoke about the zoonoses. Stopping a few years ago the practice of using antibiotics in animal feeds to promote growth must also have been very valuable. Concerted action can therefore work. We must once more pay attention to the recommendations of the Chief Medical Officer in her admirable report of 2011. Here it was proposed that we should ensure that NHS trusts and their chief executives manage, report and audit infection rates. That was successful before, and we must place even more emphasis on it in the duties placed on NHS England and CCGs. Spreading the message yet again about thoughtful prescribing of antibiotics, both in general practice and in hospitals, has never been more important.
However, we also need some different approaches. We desperately need better and quicker diagnostic tests for bacteria and their resistance. It now takes about 48 hours or more to get a report from the laboratories on what bacteria are responsible for an infection. Meanwhile, one is faced with treating a serious infection blindly or not at all—a point made by the noble Lord, Lord Crisp, and the noble Baroness, Lady Masham. Tests are becoming available, using genetic profiling or next-generation sequencing, that will bring the time for diagnosis down to a very few hours. If we can get there, antibiotic prescribing will become much refined and we will be able to avoid giving ineffective antibiotics. There is also a desperate need for new antibacterials.
It is unfortunately the case, as has been emphasised by a number of noble Lords, that the pharmaceutical company pipelines are pretty low at the moment. The cost of the development of new drugs is prohibitive and too often drug companies are inhibited by overregulation and cost. The noble Baroness, Lady Masham, mentioned that and the noble Countess, Lady Mar, underlined the point. It has been suggested that the Government might encourage investment in R&D by industry through such measures as prolonging the period during which the patents for new antibacterial drugs may be retained, or by a more favourable tax regime for companies developing those drugs. Perhaps we should take note, too, of the ideas expressed by the noble Countess, Lady Mar, about a multipronged attack; I found those very attractive. It seems to me that we must do more in these two areas: more research into rapid diagnostic techniques and more engagement with and encouragement for industry to develop new antibacterials.
My questions for the Minister are as follows: what efforts are the Government making to ensure that NHS England, the CCGs and hospital trust boards are keeping infection control high on their agenda? In what way are the Government ensuring that the laboratories of Public Health England are given the necessary research funds to develop new rapid diagnostic tests for bacterial resistance? Have the Government paid any attention to the incentives they need to provide for the pharmaceutical industry to invest in a search for new antibacterials? I have not spoken about the area of vaccines, although clearly it is very important. The noble Countess, Lady Mar, drew to our attention the issue of the meningitis B vaccine, and I hope that the noble Earl will be able to respond to that.
This has been a valuable debate on an important subject and I look forward very much to the noble Earl’s response.
The Parliamentary Under-Secretary of State, Department of Health (Earl Howe)
My Lords, I shall begin by saying how grateful I am to the noble Lord, Lord Crisp, for securing this important debate, and indeed to all speakers for their thoughtful contributions. The Government recognise that few public health issues are of greater importance than antimicrobial resistance. The scale of the threat was set out this March in Volume 2 of the Annual Report of the Chief Medical Officer on Infection and the Rise of Antimicrobial Resistance. Her call to action highlights the key issues that we need to tackle. These include, for example, good infection prevention and control measures to help prevent infections rather than a reliance on antibiotics, plus good techniques for diagnosing and deploying the right treatment. Equally important is ensuring that patients and animal keepers fully understand the importance of the treatment regimens prescribed, coupled with stronger surveillance measures to identify quickly new threats or changing patterns in resistance, and working to develop a sustainable supply of new antimicrobials.
Noble Lords will know that antimicrobial resistance refers to the ability of certain bacteria to survive after exposure to an antimicrobial that normally would be expected to kill them or inhibit their growth. Antimicrobial resistance affects us all, but some groups in society are particularly susceptible to infections and will feel the impact of antimicrobial resistance more than others. These groups include children, older people, and those with weakened immune systems such as cancer patients undergoing treatment, transplant patients and HIV/AIDS patients. An increase in difficult-to-treat infections will affect everyone as most of us will belong to vulnerable groups at some stage in our lives. Moreover, we know already that mortality is greater with resistant infections.
Antimicrobial resistance has obvious human costs, but it is also costly in terms of healthcare expenditure. It is estimated that antimicrobial resistance costs the European Union approximately €1.5 billion in healthcare expenses and lost productivity each year. This is indicative not only of the scale of the problem but of the fact that antimicrobial resistance requires action at the national and the international level.
At the national level, we will be publishing a comprehensive new cross-government five-year strategy to tackle antimicrobial resistance, which will have three strategic aims. The first is to improve the knowledge and understanding of antimicrobial resistance, through better information, intelligence and supporting data and through developing more effective early warning systems to improve health security. The second key aim is to conserve and steward the effectiveness of existing treatments, through improving infection prevention and control and through development of resources to facilitate the optimal use of antibiotics in both humans and animals. The third aim is to stimulate the development of new antibiotics, diagnostics and novel therapies by promoting innovation and investment in the development of new drugs and by ensuring that new therapeutics reach the market quickly.
A key component of antimicrobial stewardship is infection prevention and control. I would like to take this opportunity to reassure your Lordships that we will maintain a focus on healthcare-associated infections. Existing provisions, such as that requiring all healthcare providers to demonstrate compliance with the code of practice on the prevention and control of infection, will remain in place. The new NHS infrastructure also offers opportunities. For example, antimicrobial resistance has been included in key documents such as the Government’s proposed mandate for the NHS for 2014-15, which is currently subject to public consultation.
The noble Lords, Lord Crisp and Lord Turnberg, and the noble Baroness, Lady Masham, rightly noted the need for improved diagnostics. Public funders of research already invest widely in the development and evaluation of rapid diagnostic tests for infectious agents. In fact, just this month, the NIHR launched a themed call for antimicrobial resistance research and the development of new tests. The research and development of new tests is within the scope of this initiative.
Another example of what the Government are doing is that, from April 2014, the NIHR aims to fund 12 health protection research units for five years. These will be partnerships between universities and Public Health England. A number are expected to cover infectious disease areas and could potentially aim to include research on rapid diagnosis within their research programmes. From 1 September 2013, the Department of Health will provide a total of £4 million over four years to establish four National Institute for Health Research diagnostic evidence co-operatives to catalyse the generation of evidence on the clinical validity, clinical utility, cost-effectiveness and care pathway benefits of in vitro diagnostics. Based in NHS organisations and involving multidisciplinary teams, they will enable collaboration between a range of stakeholders, including providers of NHS pathology services and NHS commissioners. Two of the four DECs have identified diagnostics for infectious diseases as areas of focus.
The Government are well aware that they cannot deliver the action required to tackle antimicrobial resistance on their own. We need a societal shift, where antimicrobial resistance is seen as a priority that everyone can help address. To this end, we will continue to use the annual European Antibiotic Awareness Day to provide online educational materials that the NHS can use for local initiatives. In previous campaigns we reminded people that colds, and most coughs and sore throats, get better without antibiotics. That is because they are caused by viruses and not bacteria, and antibiotics only work on bacteria.
Although the scientific consensus is that use of antimicrobials in human medicine is the main driving force for antimicrobial-resistant human infections, use in the veterinary sector contributes to overall resistance rates. I listened with care and interest to the noble Lord, Lord Trees, on this aspect. We recognise that antibiotics, used responsibly, remain a vital part of the veterinary surgeon’s toolbox, without which animals suffering from a bacterial infection could not be treated effectively. As the noble Lord, Lord Trees, emphasised, the use of antibiotics in veterinary medicine is controlled by veterinary prescription and is equivalent to the arrangements for humans. In this way we are minimising antibiotics being used routinely and encouraging their responsible use. The Government’s position on the use of antibiotics in farming is very clear; we do not support the routine prophylactic use of antibiotics in animal health. I am pleased to say that Defra will be strengthening its guidance to ensure that this point is brought out very clearly. We very much welcome the support of the Royal College of Veterinary Surgeons on these prescribing issues.
Both the noble Lord, Lord Trees, and the noble Lord, Lord Crisp, referred to the vital need for international action. The Government recognise that to achieve many of the objectives of their strategy it is essential that the international community is actively engaged, and I can tell the Committee that the Government have been at the forefront in galvanising action at an international level. For example, this May my right honourable friend the Secretary of State for Health delivered the keynote address at the World Health Assembly, with antimicrobial resistance as a focus. Last month we ensured that antimicrobial resistance was a focal point of the G8 science meeting on 12 June. Furthermore, we held a special event at Chatham House to engage international experts on ways and means to tackle this complex problem. The noble Baroness, Lady Masham, and the noble Countess, Lady Mar, will be reassured to know that incentivising the development of new drugs was covered at this meeting, and I assure the noble Lord, Lord Turnberg, that the UK will continue to progress this issue.
A number of noble Lords, not least the noble Lord, Lord Crisp, referred to the barriers to producing new drugs. The discovery and development of new drugs takes time—up to 10 or even 15 years—and a barrier to developing new antibiotics is, as the noble Lord, Lord Crisp, rightly said, the relatively low private return on investment for antimicrobials relative to making investments in other therapeutic areas. Our work on strengthening international collaboration will be key to new drug development because international agreement to address this issue, as I said, is essential; it is too large an issue to tackle alone. We will build on existing international research collaborations, including public/private partnerships, as well as taking action internationally.
The noble Baroness, Lady Masham, referred to PVL. We agree that the PVL toxin needs to be recognised and treated rapidly. Guidance is available for professionals and is currently being reviewed. However, the available evidence indicates that the prevalence of PVL infections is low in the UK. She also referred to E. coli. E. coli bloodstream infections are increasing year on year. The department’s expert advisory committee asked the HPA—now Public Health England—to undertake enhanced surveillance of E. coli and to have experts advising on prevention strategies. However, many E. coli infections are not associated with healthcare.
Regarding the interim decision by the JCVI on the meningitis B vaccine, I will write to the noble Countess. The JCVI has just published on its website today a call for comments from stakeholders. It will consider those responses before finalising its statement on meningitis B immunisation. The consultation is for six weeks.
The measures contained in our strategy are comprehensive and far-reaching. To ensure that they are brought to fruition, a high-level cross-government steering group will be established to oversee implementation, monitor progress and publish progress reports. The actions that I have outlined set out a broad canvas. We have heard the warnings from the CMO and we are acting on her message. The new UK antimicrobial resistance strategy will set out what needs to be done across a broad front, both nationally and internationally, and, using our combined efforts, we aim to be better placed to confront the spectre of antimicrobial resistance before it is too late.
Education: Part-Time Study
(11 years, 4 months ago)
Grand CommitteeRead Full debate Read Hansard Text
Baroness Bakewell
To ask Her Majesty’s Government what assessment they have made of the potential of part-time study to enable more people to acquire qualifications.
Baroness Bakewell
My Lords, I am pleased to introduce this debate today because it is both timely and urgent. It is timely in the sense that it is the end of the summer term, when thousands of bright young people are making plans to take up what is now the accepted route to university qualifications. It is therefore a good time to challenge the assumption that three years’ full-time study, usually residential, at a university is the only way to go. It is urgent because there is a serious crisis in part-time education, which needs to be addressed. I am pleased that even ahead of the Universities UK review that will be published in the autumn, engagement with the matter should be kept in the public awareness and that the campaign, Part-time Matters, is supported by this debate.
I declare my interest: I am president of Birkbeck and have an honorary degree from the Open University—both institutions with a fine and long-standing record of providing part-time study leading to full degrees for their students and world-class champions of the case for lifelong learning.
First, the facts: enrolment figures for part-time study at both graduate and postgraduate level are falling year on year. The number of part-time undergraduate entrants has fallen by 40% since 2010. Following the annual report of the Office for Fair Access—OFFA—for the 2012-13 academic year, its director, Professor Les Ebdon expressed concern about the fall in part-time study and applications from mature students. The university think tank, million+, called on Ministers to launch a high-profile campaign to promote part-time study. The chair of million+, Professor Michael Gunn, declared that,
“there is a real risk of a downward spiral that will depress social mobility and lead to skills shortages in the long term”.
Who are part-time students? In the main, they are older and more likely to be female and less diverse than full-time students. They are also likely to have other commitments, either in public careers out there in the workforce—some 80% of part-time learners are in employment—or with domestic careers as homemakers: women struggling with the work/life balance and hoping to keep their qualifications up to date. There is also a considerable number of retired people who find delight and fulfilment in late-life learning. There is real potential in growing the numbers in this group. Indeed, it has the blessing of David Willetts, the Minister for Universities and Science, who sees scope for older citizens retraining and adding to their skills or simply engaging in retirement in lifelong learning for its own sake. This is far from the standard profile of the student cohort.
Central to the issue is money. Following fee changes in 2012, part-time undergraduate students have had access to fee loans. However, some part-time fees increased in 2012. The Higher Education Funding Council for England, HEFCE, reported that between November 2012 and January 2013—scarcely three months —21 colleges reported a drop in demand for part-time courses because of reluctance to take on student loans. These moves in student numbers are steep and sudden.
So how is money impacting on part-time study applications? First, students seem to be unclear about what scope there is for loans or employer-funding and over what time repayments are to be made. Students, even if they know about it, struggle to navigate the Student Loans Company. Each and every hiccough in the system acts as a deterrent to student applications.
Secondly, the withdrawal of funding for ELQs—equivalent or lower qualifications—came into effect in 2008-09, and in January 2009 David Lammy, then Minister of State for Education, asked HEFCE to draw up an early review of the impact of that policy. The first evidence indicates that overall fundable numbers had already reduced. The most commonly cited area affected by the EFQ ruling is lifelong learning. That can hardly be surprising—you cut the funding and numbers fall away.
Thirdly, the economy of the country has a direct impact on part-time studies. At a time of redundancies and a relatively stagnant economy, individuals are anxious about their jobs and future prospects. They are often asked to work longer hours, which makes part-time study difficult. There is also evidence that employer-funding is on the decline, suggesting that this is something that employers—wrongly, in my view—see as an extra to their core budgets rather than a fundamental part of their employee welfare and development.
How much does any of this matter? It is crucial for several reasons. The known and existing benefits of part-time study are already understood: it increases social mobility by allowing people from poorer backgrounds to access study that they would not be able to afford full-time, and it allows adults who have missed out earlier by taking employment straight from school to rethink and reshape their prospects, consider a change of direction and gain a more fulfilling and self-directed future for themselves. According to the National Institute of Adult Continuing Education, there is evidence that it boosts skill levels and improves employability. The NIACE also tells us that adult learning contributes to better health: evidence exists that taking up courses as an adult increases the chances of giving up smoking and reduces the risk of depression, especially in women. I can thoroughly understand the latter; the risk of social isolation and stress often experienced by young mothers is all too familiar.
If all this sounds a little like mother love and apple pie, a utopian vision in which we all go on learning and feeling and doing better in our lives, I think it brings us to a more wide-reaching discussion about how education as it currently serves this society is formulated and structured, and why it is not answering all our needs. I was brought up short by a grandson who declared to me, “Your generation”—in which I think he also included his parents—“never asked us if we wanted to go to university. It is always assumed that if we pass exams well, we will go on to three years’ residential at a university. No other options are given any serious consideration”. Indeed, they are not. What is more, there is increasing evidence that this current accepted pattern does not always benefit students or learning. Young people can arrive at university already exhausted by the educational template that they have been following. They give evidence of this by a failure to focus, varying attendance and drop-out rates.
There is strong evidence that part-time students are strongly motivated, have a strong sense of intention in their study and a commitment to its helping improve their outlook, their careers and their sense of fulfilment. That is why, in launching this debate today, I hope to start and continue a debate about how to shift the focus of education better to match the needs of those who would be students.
We need government help to do this, and I believe that, with the argument strongly made, we will get a good hearing. At a recent reception for the Part-time Matters campaign, David Willetts spoke encouragingly of his wish to stop the decline of part-time study. But the message has to go further than a reception in the Cholmondeley Room. Schools, heads, teachers, careers advisers and parents should all be aware of part-time study as an option. Trade unions and professional groups, as well as informal organisations like the WI, should be familiar with the existence of part-time study and be aware of what it can offer and how it can be afforded. In this way, we can check the decline and move to boost educational opportunities for those who might otherwise lose out.
Baroness Sharp of Guildford
My Lords, it gives me great pleasure to follow the noble Baroness, Lady Bakewell, and to thank her for raising this extremely important issue. I agree with her thoroughly that it is one that we need to give as much publicity to as we can.
I, too, should declare an interest in that I am an honorary fellow of Birkbeck. I was awarded that honorary fellowship for my work during the early part of this century on raising the profile of part-time learning and arguing for parity between part-time and full-time study. The grants and loans were all being accorded to full-time students because, as the noble Baroness said, the assumption was that the only time that matters is that between the ages of 18 and 21. I felt it was extremely important that part-time students, not only at the university level but also those in further education, should be given some consideration.
While in many senses I was unhappy about the introduction of full-cost fees when the regulations went through in 2010, one of the good things I kept pointing to was the fact that at long last we had parity. In terms of loans, part-time students now have access to the same loan schemes as full-time students. That was an important victory. It was therefore a matter of considerable shock and disappointment on my part that the major effect of introducing full-cost fees is that it has hit the part-timers of this world rather than the full-timers. We have seen a remarkably small decrease in full-time applications, but a considerable one in part-time applications.
As the noble Baroness, Lady Bakewell, indicated, part-time education is in many ways a hidden sector in this country. If you tell people that there are actually 824,000 part-time students compared with 1,167,000 full-timers—half as many, and one-third in numerical terms—most of them just do not believe it. In full-time equivalence terms, they account for 250,000 students. The drop of 40% in applications is equivalent to Basingstoke dropping off the map, so it really is significant and important.
The sector is an interesting one. It is disproportionately female, at 63% as against 37% male. It is less diverse, with 18% from the black and ethnic minorities compared with 22% in the university sector as a whole. The subjects studied are also disproportionately focused in certain areas: the professions allied to medicine and education. Of course, the Open University dominates the sector. I believe that the total number of full-time equivalents at the OU is 90,000 to 100,000, and again the total number is around 250,000. The university’s mixed introductory courses are extremely popular. Large numbers of the people involved in part-time education are taking undergraduate course modules but not necessarily following through with entire courses. That is important and something that we need to pick up.
Part-time education is liked by employers, who recognise that it improves skills and knowledge and raises productivity and efficiency. However, despite acknowledging this, employers will not, on the whole, pay fees for part-time education. Where they do, it is on the whole for customised courses that specifically fit their own needs or on behalf of the higher-level employees in their unit who they send off on expensive MBA courses and that sort of thing.
Why is part-time education so important for this country? The noble Baroness, Lady Bakewell, mentioned a number of the socialising effects—such as the sense of fulfilment and the benefits for older people—all of which are very important and must not be neglected. However, we also need to be aware of two things. First, as a country, we have a very poor skill profile. We have quite a number at the graduate level but are disproportionately poor at the intermediate level—what is known as level 3 and level 4—and at technician levels. As a country, our skill profile remains rather poor compared to other countries. Secondly, in my generation, you went into a job when you were 21, post-university, and to some extent you trained in that job, carried through with it and ended up with a nice inflation-linked pension and so forth. That is no longer true, and most people will have to change jobs throughout their lives.
If we are going to upskill and reskill this current generation, it is vital that we have the means of doing so. Part-time education—being able to earn and learn at the same time, and upskill and reskill—is vital to upgrading the skill profile of this country. What can we do about it? One thing, certainly, is more publicity. We need to make people aware that part-time education is there and can be pursued. Secondly, picking up on what I was saying earlier about most people doing small chunks of things, we need more flexible courses that students can opt in and out of—more modular courses and mixing and matching distance learning, albeit backed up by the strong mentoring that the Open University has stressed. If we are going to do that, we need a proper credit transfer system. We really need to work on that and get something much more efficient.
I make a plea for more co-operation between higher education and further education. I am appalled at the current situation where these two sectors, which used to co-operate with each other, have been split apart. Many of the universities that used to accredit graduate courses in further education colleges have pulled out from accrediting them, which makes for a very difficult situation. We certainly need to look at these ELQ rules and ease up on them.
I put in a plea for two incentives of some sort. One is for employers. There is a tax credit for R&D, where small companies that spend on R&D can claim an extra tax credit, which means that they can not only claim it as an expense against tax but claim it twice over. We should look at a similar scheme for education and training. If you spend money in America on fees for part-time education, you can claim it against tax. Why should we not be able to claim the money that we spend on training ourselves against tax? I would like to see that happen.
Lord Rees of Ludlow
My Lords, I congratulate the noble Baroness on initiating this debate. My comments will focus on universities as that is the sector I am familiar with. Universities could surely develop more flexibility in two respects. First, there should be a “credit” system that allows students to gain intermediate qualifications as well as to intermit and to transfer more readily between institutions. Secondly, universities should seize the opportunities offered by the internet to extend their reach.
As we know, university enrolment has hugely expanded since the student days of most of us. However, this entirely welcome expansion has not been accompanied by sufficient growth in the variety of the offerings of universities. Nearly all of them still focus on degrees that take three or four years. They are incentivised to aspire to rise in a single league table—which, incidentally, under-weights things that really matter but are hard to measure, such as how rigorous the courses are and how hard the students work. The norm is, of course, for young people to enter university more or less straight from school for full-time study. A downside of higher enrolment levels is that career opportunities for non-graduates are worse than they were in the past.
We should recognise that degree-level competence need not be achieved by continuous study in a traditional residential university. Moreover, there is nothing magic about the specific level of achievement of a degree. Credits, even if not sufficient for graduation, should be formalised. It is surely better that universities should take risks on admission, give students a chance, and let some leave after two years with a credit. Some will continue after a gap, perhaps at another institution. Others may pursue part-time distance learning. Even those who go no further should not be typecast as wastage. An American will say, “I had two years of college”, and will regard the experience as positive.
Higher education is a driver of social mobility. However, as Alan Milburn and others have shown, mobility is stagnating. Young people who have been unlucky in their schooling will not have at the age of 18 a fair chance of access to a selective university even if they have great potential. Worse still, generally they have no second chance. The optimum solution to the problem is to enhance teaching at all schools across the full geographical and social spectrum, but that will take a long time. In the shorter term, we can widen opportunities by learning something from the United States.
In California, for instance, a substantial fraction of those who attend the elite state university of Berkeley come not directly from high school but as transfer students from a lower-tier college. Our most selective universities should likewise earmark a proportion of their places for students who do not come directly from school, but have gained credits by studying at another institution, part time or online. The Open University’s OpenPlus programme, which offers two years of part-time study, is very valuable. It allows students to get up to speed so that they can be admitted into the second year of several other universities.
The importance of mature students, part-time courses and distance learning in the UK’s overall system is surely going to grow. That makes last year’s drastic decline in enrolments, revealed by HEFCE, especially worrying. It is perhaps an unintended consequence of the fee structure, of perceptions of that system among potential students, and of their lack of confidence in taking on debt even if loans are available.
Despite the overall fall, the OU has to some extent bucked the trend with a major campaign to explain the new loan scheme to potential students. We should highlight and acclaim the special role of that great institution. The OU model of distance learning supplemented by a network of local tutors and mentors has vastly more potential in the era of the internet and smartphones than when it was founded. We all have free access to the wonderful material on the OpenLearn website, much of it prepared jointly with the BBC. The OU can surely take a lead in the development of so-called MOOCs: massive open online courses. The razzmatazz around these courses comes from some very successful initiatives by Stanford and other US universities. There are now two major organisations in the US, edX and Coursera, which disseminate courses developed by leading universities.
It is excellent news that the Open University has set up a similar system called FutureLearn. UK universities should eagerly seize the opportunity to widen their impact and support the OU by contributing material to FutureLearn rather than getting locked into one of the US platforms. This is an arena where the UK has huge worldwide potential. The Open University should have a competitive edge globally, especially as some of its private-sector US counterparts have recently suffered reputational damage. Distance learning will have a transformative effect to the extent that it will threaten the future of many traditional mass universities of the kind that exist in Italy and India, which offer little more than lectures to large classes with minimal feedback.
Finally, I will mention another benign spin-off from the internet: the democratisation of research as well as of learning. We are immersed in a cyberspace that is ever more information-rich and sophisticated. Many archives are now available on the web, which is a huge boon to scholars around the world who are not close to a major library. To take a specific example, amateur scholars are reading and transcribing ships’ logbooks from the 18th and 19th centuries, which contain fascinating social history as well as important data on the history of climate change. The involvement of amateurs has been traditional in sciences such as botany, but the scope for citizen-scientists is now far wider. In my subject of astronomy, there are sometimes so much data that the professionals cannot scrutinise them all fully. It is now possible for eagle-eyed amateurs to access these datasets and themselves discover new planets. Thanks to the internet, advances can be disseminated rapidly, even throughout the developing world. Indeed, more projects can now be done co-operatively and globally, rather like improving open-source software.
There are huge opportunities, but to exploit them for maximum benefit our system needs a more diverse ecology and a blurring of the lines between higher and further education, between full time and part time—which is most relevant to this debate—and between residential and online. We need a more effective transferable credit system to facilitate transfers between institutions and to allow continuing professional development. By so doing, we can exploit the benefits of the internet, offer a more realistic second chance to young people who have been unlucky in their early education, and promote lifelong learning for us all.
Baroness Warwick of Undercliffe
My Lords, I, too, congratulate my noble friend Lady Bakewell on securing this debate and agree wholeheartedly with her that it is indeed timely.
Those who recall or took part in the debates following the passage of the Higher Education Act 2004 will know that this House has played a major role in drawing public attention to the importance of part-time higher education. The noble Baroness, Lady Sharp, stands out in particular for her contribution to securing some recognition that higher education policy has long been formulated with full-time, 18 year-old entrants in mind.
During those many debates, as in this one, noble Lords agreed that the economic evidence was unequivocal. The economy and the labour market are changing with increasing rapidity. To keep up, most people will have to adapt to many jobs, and several careers, during their working lives. This can only be more marked as the age of retirement goes up.
My noble friend Lord Leitch, in his 2006 Review of Skills, pointed out that 70% of the 2020 workforce had already completed compulsory education. He argued that to meet the changing needs of employers more than 40% of adults should be qualified to level 4 and above—in other words, equivalent to a degree-level qualification. The figure is up from 29% in 2005. By common agreement, that can be achieved only by increasing the level of skills of those already in work as well as of young learners.
The facts have not changed. What has changed is that, instead of a steady increase in part-time study, we have seen a marked decline. It is not a new phenomenon; it has been happening for a decade. However, as other noble Lords have said, we appear to have reached something of a crisis point. Between 2010-11 and 2012-13, the number of new entrants to part-time undergraduate study in England declined by 40%. At a recent breakfast discussion hosted by the All-Party Parliamentary University Group, we agreed that if this had happened to full-time participation, we would have seen a national outcry. Instead, there has been relatively muted comment in the media and even in Parliament. Why is this?
One answer is that it is far harder to talk about part-time students as a group. Their backgrounds and motivations are varied. They include large numbers of people from low-participation backgrounds, and with low skill levels, but a large proportion are already educated to degree level. The most substantial proportion of part-time study is directly linked to current employment, particularly in the public sector. On the other hand, some are studying for reasons of personal development and a love of learning.
There are a few really striking facts, which Claire Callender and others have done much to explain. Part-time students are more likely to be older and more likely to be female compared to their full-time counterparts. Some 63% of part-time students are female, compared with 56% of full-timers; and 80% are over 25. Two-thirds have family responsibilities and two in five have children, while 92% of full-time students do not. With the exception of Birkbeck, they are concentrated in the less research-intensive universities.
I wonder whether the lack of interest in part-time trends is associated with assumptions and prejudices which are familiar in so many other areas of policy. Are older female students invisible in higher education policy in the same way as older women appear to be invisible in so many other parts of public life? That would certainly be an illuminating area for study.
The varied characteristics of part-time students make it difficult to identify universal explanations for the decline in enrolment, but two factors appear to be particularly important. The first is that for many people considering starting—or returning to—higher education in middle life, their response to the shift in government funding to higher fees is very different from that of young learners. If you have children or dependent parents—or both—a mortgage or rising rent costs and are facing rising living costs, it may be particularly hard to face any additional expenditure. This may be especially true if you have to pay more for childcare and travel to make study possible. You may be weighing this up against the need to make a contribution to a pension for long-term security. It is clear that the introduction of fee loans, though welcome, has not helped as much as we might have expected.
The second factor is the connection between part-time study and public sector jobs. As the public sector shrinks, the proportion of people who are supported by their employers may also be falling. There are questions about whether private companies are willing to invest as much in training or whether they are maintaining their investment but focusing it on a smaller number of people. Certainly, anecdotal evidence suggests that employers may be less willing to subsidise career-enhancing study. The shift from public to private sector employment may be narrowing opportunities.
We need to know much more about what is happening in particular sectors of the economy, such as healthcare and education, where there is a particularly high concentration of part-time students, and where—if anywhere—employees are going for training if not to universities. I commend the Government for commissioning the Universities UK study, but I echo my noble friend in suggesting that it is likely to be the beginning and not the end of the conversation about how best to support and incentivise part-time higher education.
The Government face a choice. Public funding is scarce. Policy options are consequently limited. But I return to my original point. The evidence of economic need has not changed. I would argue that the Government can either pay now to encourage and support more people to study part time or they can pay later in the higher social and economic costs of supporting people who cannot get jobs in a labour market that has changed. There are short-term considerations but there are also long-term imperatives. It cannot be right to see part-time undergraduate—and, for that matter, post-graduate—higher education shrink and do nothing about it.
I have two immediate questions for the Minister. Will the Government consider incentives for employers to make contributions towards part-time higher education for their employees? Will they encourage HEFCE to provide incentives to institutions to maintain or develop part-time provision? Of course universities have to adapt, and I hope that the UUK report will help them think about how to do that, but policy will need to adapt as well.
Baroness Brinton
My Lords, with the permission of the Grand Committee, I will speak sitting down. I thank the noble Baroness, Lady Bakewell, for instigating this important debate.
As others have said, one myth that I often find still needs to be exploded is the public view of a typical university student as being 18 and leaving home to go away and study for three years on a full-time course. As an aide-memoire for the Committee, the seven speakers in this debate all attended Russell Group universities and six went to Oxbridge—very much the tradition for our era. I suspect that none of us studied part time. I was a mature student at Cambridge. The offer for part-time students was very limited and did not fit in with my job at the BBC so I had no choice. I would have loved to study part time.
We need to celebrate a higher education system that has grown and developed over recent years, recognising the needs of prospective students and creating flexible courses that fit in with work and caring duties, whether for children or other family members. Birkbeck College and the Open University in particular have outstanding records in their provision for part-time students in very different ways—something to which other speakers have already alluded.
First, despite some of the comments from other speakers, I want to congratulate the Government on making part-time students eligible for tuition fee loans. That is something that we have advocated from these Benches for a very long time, and I am sure that in the longer term there will be a real benefit to the part-time students who choose to take out the loans rather than having to find commercial loans instead, which I suspect put many off studying in the past. However, the 40% drop that others have talked about is serious. For whatever reason, individuals have not applied, and we need to advertise that that support is available. Will the Government confirm that they will be co-ordinating such a campaign, rather than leaving it to the few institutions that rely heavily on part-time students?
Having said that, I specifically commend the campaigns run by Birkbeck College and the Open University, which are eye-catching and encouraging. One such was the OU advertorial in Metro newspaper about 10 days ago, with a quiz, a number of encouraging personal stories from past and present students and information on how to apply. I saw two people sitting next to me on my commuter train doing the quiz. It really engaged them.
The Open University has also led the way with FutureLearn. The noble Lord, Lord Rees, went into that in some detail so I will not repeat it, but it is a groundbreaking proposal that is now supported by 21 HEIs in this country. It will provide free access for short courses via MOOCs—obviously the phrase of the afternoon—a web-based multi-university experience designed for a global audience. Non-university partners in FutureLearn are also important, including the British Council, the British Library and the British Museum, but the key is the OU’s expertise in distance learning, which has been critical to getting this off the ground. These courses, and the way in which students interact with each other as well as with staff across the various institutions, is the learning environment of the 21st century.
I would like to see an HE and FE sector that works to bring flexibility—real flexibility—to study for qualifications. Someone who works full-time, has had experience of a couple of short courses on the MOOC scheme and has acquired a taste for learning may want to retain that flexibility when they study for a more formal qualification such as a degree or even a shorter course with a number of modules. That is why I am glad that we are at last beginning to see credit accumulation and transfer taking off. Students can study a number of modules, bank them and, at a later date, transfer to another university to complete the next group of modules, and so on. The key to CATs is universities recognising each other’s quality assurance, and I am sorry to say that while a few HEIs are very good at this, the number is too low, and this is certainly not discussed enough.
In the late 1990s I helped to fund a project through my development agency to look at CATs in the east of England. We had a fascinating research proposal with some wonderful recommendations, which then just gathered dust because none of the institutions was prepared to take another on trust. What are the Government doing to encourage more HEIs to work together to develop CATs, so that part-time students really can study at the best time and place for them over a longer period than the usual three to five years for an undergraduate course? There are already mechanisms in place for storing a student’s record in a “personal learning cloud”, so that if they either transfer to a different university or take a break, all the information is kept in one place. The Scottish qualification system does this well, and England and Wales should take a leaf out of its book.
I welcome the Government’s increase in the Access to Learning Fund to £50 million, and I hope that universities will further top it up to give part-time students bursaries or some other chance of finding support that was denied them in the past. Not all part-time students work, and many are making large personal sacrifices to study. More worryingly, the part-time premium grant to HEIs has been halved. This is a key factor in the downward spiral of the number of part-time students, even though the grant is a very internal university-oriented one. It should be remedied as soon as funds allow.
Finally, employers ought to have a key role working with universities to devise the courses, especially as they are equal beneficiaries with the learners. Local enterprise partnerships are important stakeholders in securing more flexible skills provision and in promoting workforce development. I hope that HEFCE is preparing to strengthen the guidelines for widening participation budgets, and making HEIs demonstrate how they are working with their LEPs to promote lifelong learning and flexible higher education that is relevant to their area.
The UK needs more graduates if it is to compete economically. Over 80% of the new jobs created by 2020 will be in occupations with high concentrations of graduates. We have heard already from the UK Commission for Employment and Skills about the need for high-level qualifications. Perhaps another perspective might be that other nations are increasing their skill levels more rapidly than we are. We have sort of been coasting just above the relegation zone of the Premier League, forgetting that other people will come up and overtake us. That, of course, is important to the economy; we need to be able to challenge globally.
Part-time higher education provides an essential opportunity for students to fit study around work and family commitments. This is particularly vital for mature learners and others who need to retain an income from work while studying. Part-time higher education therefore has a special role to play in ensuring that the UK’s future workforce is equipped with the skills required for our economy to remain competitive.
Charles Darwin said:
“To change is difficult. Not to change is fatal”.
The life experiences of those who have studied part-time, often against considerable odds, are a testament to their journey of change, and to the fulfilment of their lives through their new qualifications.
Lord Stevenson of Balmacara
My Lords, I congratulate my noble friend Lady Bakewell on securing this timely debate, and on her eloquent and important speech, delivered, as you would expect from a broadcasting professional, in a very clear way and exactly to 10 minutes; I know that she was worrying about it, but she did very well. I also thank all noble Lords for their contributions, which, again, were of a very high standard. We have too few chances to debate higher education policy, and have to take every opportunity. This, again, has shown how important we think this topic is.
I declare an interest. The noble Baroness, Lady Brinton, was right to research our backgrounds; that shows something. However, I also claim in mitigation that I did a part-time course for six years. I struggled; it was very difficult. I finally succeeded, but I know something of which I am about to speak.
We do not get much in the way of public statements or chances to debate higher education policy. The last time we had anything major was the White Paper, Higher Education: Students at the Heart of the System, in June 2011. It says about part-time students:
“For the first time, students starting part-time undergraduate courses in 2012/13, many of whom are from non-traditional backgrounds, will be entitled to an up-front loan to meet their tuition costs … This is a major step in terms of opening up access to higher education, and remedies a long-standing injustice in support for adult learners. Up to around 175,000 part-time students will benefit”.
As we have heard, that has not happened. It is clear that the Government hoped that the changes would open up access and stem the decline in part-time higher education study, but it appears to have had the opposite effect. It is clear from what we have heard today and the evidence that has been presented that the Government are failing to deal with the serious decline in part-time study The trends are worrying. Were they to continue, they could have a genuinely damaging impact on our overall skills base, which has been referred to. Towns and regions across the UK that depend on people with higher-level qualifications will not have them to fill available jobs.
We have heard in the debate about the benefits of part-time study, and the way in which it transforms and provides significant benefits for those studying part-time rather than full-time. It helps employers, society and of course the individual. It is interesting that levels of employment stability are high for part-time students, with 81% working throughout their study. Employers value part-time study as a good model to develop work-readiness in graduates and to provide existing employees with skills and knowledge. Graduates have said in surveys that part-time study has helped them develop as a person and improve their self-confidence, so there are personal benefits as well. There is no question that, if we are to provide the skills that we have heard we need in this country, part-time has a role to play and is important in itself.
We have also heard about the characteristics unique to part-time undergraduate students, but more generally in the part-time population. Many, some 80%, are over the age of 25 compared with full-time students. Nearly two-thirds are female, as we have heard, compared with 56% of full-timers. However, most have to struggle to fit family and work commitments around their studies. Entry requirements and the qualifications the students pursue are also different. Some 81% of part-time students, being employed, have to juggle many responsibilities and obviously encounter problems.
We often hear about the difficulties at Birkbeck and the Open University. The assumption made is that the bulk of the part-time student population studies there, but the facts show that 51% of all part-time undergraduates study at 10 universities, and 77% study at 40 of the UK’s 165 universities, so it is a widely spread mode of study.
The impact of the 2012-13 funding reforms has been explained. There was a 40% fall in the number of part-time students; Basingstoke fell off the map. That is a striking metaphor. I am grateful to the noble Baroness, Lady Sharp, for drawing it to our attention. I must try to remember it when we come to discuss these issues. The fall was largely because of changes in the fee structure and in the relative unwillingness of part-time students to take out loans.
We should look at this in more detail. Two-thirds of part-timers do not qualify for loans, so the higher fees have to be paid from their own pockets. High fees generally make part-time study a risky investment. University tuition fees have a negative impact on participation, and we know from general research that fee increases tend to cause a general decline in participation, particularly among students from lower socioeconomic backgrounds. Because many of the students are already in work, financial returns for part-time study tend to be lower than for younger, full-time students, and that has to be taken into account. Given that many people in part-time study have other responsibilities and costs, including mortgages, it is inevitable that an income-contingent fee loan will be a problem.
What should we do about this? It is clear from the debate that if we do nothing, it is very likely that both the demand for and the supply of part-time study will continue to decline. Part-time provision could possibly disappear in some higher education institutions, which will threaten the genuinely held belief in the value of lifelong learning. That is to be regretted. My noble friend Lady Warwick made the very important point that the need to acquire skills, and the benefit from doing so, have not changed, yet the numbers are plunging. Basingstoke is rapidly disappearing. We must do something.
Some of the solutions that have come up today would be helpful. As the noble Lord, Lord Rees, said, there is a need for a rethink on credit accumulation, and a need to build on that as a way of getting FE colleges and universities to collaborate. That must be a way forward in future. It is clear from the evidence generated by the Open University that providing a lot more information and advice at every level, with greater collaboration across education and skills sectors, will have an impact on those who might be considering part-time education. We should learn from that. The Government should take on these responsibilities.
We need more understanding of why the 40% drop has happened. It is fairly clear that it is to do with the financial system and the costs that would be borne by individuals, but we must understand better the change in the employment situation; whether people are coming from employment in the public sector or private sector; whether that would have an impact on whether they were released to do so; and whether their fees are paid. As a number of noble Lords said, we need a wider debate about higher education more generally—whether it should be full-time or part-time, residential or online, concentrated or lifelong. These are all important issues. They have not been discussed enough and they should be brought forward.
The wider issue that we started with, which was raised by my noble friend Lady Bakewell, is how we convince people across the country that part-time education is something of value, and that if we do not act soon, it will be lost.
Baroness Garden of Frognal
My Lords, I, too, am most grateful to the noble Baroness, Lady Bakewell, for the opportunity to consider this important subject. The UK has a strong tradition of part-time education, encompassing both degree-level study and vocational qualifications. Institutions such as the Open University and Birkbeck, of which the noble Baroness is president and about which she spoke so eloquently, are an integral part of our education landscape. They continue to lead the field in the provision of part-time study. Of course, qualifications provide a public recognition of achievement at the end of that study.
In higher education the Government have made significant progress in creating a flexible, dynamic system that offers students maximum choice in where, when and how they study. Our reforms have delivered a sustainable funding model as well as a renewed focus on teaching excellence and student choice. We have introduced more financial support for students and graduates and we have made a strong commitment to social mobility. UCAS data show that entry rates for disadvantaged 18 year-olds reached a new high for England in 2012.
However, we recognise that the fall in part-time entrants is a cause for concern and I share with the noble Lord, Lord Stevenson, my noble friend’s dramatic analogy that we are losing a Basingstoke in this—and I am sure that none of us would wish to lose Basingstoke. We are working with the sector to explore the reasons for the decline but, as the noble Baroness, Lady Warwick, pointed out, it is very difficult to talk of a “group” of part-time students because of their very wide diversity.
Higher education is an excellent long-term investment and one of the best routes to a rewarding career. The desire to study at university remains strong. For 2013 the application rate for 18 year-olds from England is at 35.5%, the second highest on record. I have also heard the comments, from around this Room and elsewhere, that young people are often not offered valid alternatives to full-time higher education, and more needs to be done in careers information advice and guidance to point out that there are alternatives to three years of full-time university. We recently had a week concentrating on apprentices. I have been out to visit some, and it was quite interesting to hear how many of them were saying that their parents and schools objected when they said, “What we want to do is an apprenticeship”. We need alternatives to those three years at university. It seems essential to me that we beef up all those opportunities when young people are leaving school particularly.
Research clearly illustrates that, even in these difficult economic conditions, the average net lifetime earnings benefit for those with a degree compared to those with just A-levels is comfortably over £100,000. We recognise that part-time adult education is an important route to higher-level learning and skills. It enables flexible study and plays a significant role in raising and updating the skills and qualifications of people already in employment. My noble friend Lady Sharp mentioned the need for upskilling and reskilling. That is one of the real aspects of the needs of our workforce in these days, and of course part-time study can play a very significant part in that. Research carried out in 2012 demonstrated the positive effects of part-time higher education for individuals, employers and the wider economy. It found that part-time study boosts economic, cultural and social development, and indeed can transform people’s lives.
The Government are working hard to create a more level playing field for part-time students. I was grateful for the acknowledgement by my noble friends Lady Brinton and Lady Sharp of the attempts to level the playing field by way of funding. As a key plank of our higher education reforms, new part-time students became eligible for non-means-tested tuition fee loans for the first time in 2012, responding to long-standing sector demand. This has significantly increased the number of students eligible for government support, but what we have to ask is why that is not reflected in the number of students actually taking it up. The provisions on the repayments start date for part-time students were made more generous, following representations from this House, but I agree with the noble Baroness, Lady Bakewell, that more clarity over the funding available is imperative.
Unlike for full-time students, the Government have placed no limit on the number of part-time students whom institutions may recruit, so institutions can expand their provision if there is demand from prospective students. Undergraduate part-time entrant numbers have been declining since their peak in 2008-09, the year when the previous Government introduced the equivalent and lower qualifications policy. As the Committee knows, that means that students qualifying for a qualification equivalent to or lower than the one that they already hold are not eligible for student support, and their institution does not receive HEFCE funding in respect of them. Both my noble friend Lady Sharp and the noble Baroness, Lady Bakewell, flagged up the problems of the ELQ in relation to enabling funding for students who would wish to take part-time funding. We hope that this will be part of the Universities UK review, which we await in October, because it has become a real issue. However, with all these options, we have to consider the priorities and what is affordable within spending limits.
The Government and the sector are working together to explore what more we can do to support part-time study. We need to understand the evidence on the part-time market. HEFCE is monitoring changes in demand and supply. As I have mentioned, Universities UK is undertaking a review which it will publish in October. The noble Lord, Lord Stevenson, commented that we do not debate higher education often enough in the Chamber; I am quite sure that that review will give us an opportunity once again to raise this very important subject. We hope that it will encourage the adoption of best practice and offer recommendations to support part-time study.
We are also increasing our efforts to communicate the benefits of higher education and the financial support available to part-time students. Both my noble friend Lady Brinton and the noble Baroness, Lady Bakewell, mentioned the importance of communication. Our communications activity for 2013 has elements focused specifically on part-time applicants. This includes our student finance tour, which will be visiting further education colleges up and down the country, and digital advertising on key websites visited by prospective applicants, which have already been mentioned.
The Student Loans Company is open for applications for part-time student finance nearly four months earlier than last year. Its partnership with The Student Room provides dedicated information on finance for part-time students. For the first time, the UCAS website carries messages highlighting financial support for part-time study and features a new search tool which lists the Open University’s part-time courses. The next phase of this tool will allow all other members to display their part-time courses on UCAS.com, because, as the noble Lord, Lord Stevenson, pointed out, many universities offer part-time provision.
The noble Lord, Lord Rees, and my noble friend Lady Brinton focused on the exciting development of the MOOCs, the massive open online courses. Many UK universities are now developing free online courses that are attracting thousands of new learners. In collaboration with a number of partner universities, the Open University is developing the UK’s first online MOOC platform, FutureLearn, to be launched later this year. I entirely agree with the noble Lord, Lord Rees, that a UK version of this would be an exciting development and mean that we would not always be dependent on what the US is providing—although it is very often a leader in such fields. Opportunities such as these help to facilitate mobility, increase our knowledge economy and support lifelong learning, which, as we know, brings benefit to the country and enriches lives.
My noble friend Lady Sharp mentioned the changes in employment over the years and the fact that people do not now go into one secure job. The chances are that they will change job any number of times and therefore need to upskill and reskill to keep abreast. We were hearing today from employers who find it almost impossible to recruit the number of skilled local employees that they need in spite of the job opportunities being there. Something is definitely not going right in the transition between schools and work.
My noble friend mentioned credit transfers, as did the noble Lord, Lord Rees, and my noble friend Lady Brinton, and transfer between universities, as happens from time to time with some universities in the US and other parts of the world. I remember years ago working on national vocational qualifications for transfer of units there between awarding bodies. It seemed to be relatively straightforward, but I have to say that it was anything but. I also remember, 20-odd years ago, working with universities on possibility for credit transfers. Universities cherish their autonomy. It became increasingly obvious that this would be a very bitty operation and that it was unlikely that we would secure the motivation among all universities to co-operate in that way.
My noble friend Lady Sharp mentioned a possible tax system for employers. We understand that the UUK review will explore ways to incentivise employers to support part-time study—the noble Baroness, Lady Warwick, mentioned this, too—and the Government will carefully consider those recommendations.
The noble Lord, Lord Rees, also mentioned universities setting aside places for second-chance students. We come back to the same problem—universities are in control of their own admissions policies and it is for them to consider applications from all non-traditional applicants. Of course, many universities already consider those with non-traditional qualifications, but that is very far from universal.
The noble Baronesses, Lady Warwick and Lady Bakewell, mentioned the fact that very often part-time study is an attractive option for women. The Government are committed to making higher education accessible for all. There has been tremendous, rapid achievement for women but I note the rather negative connotation that the noble Baroness, Lady Warwick, put upon it. As for higher education supporting access, by 2014 universities are expecting to spend £684.5 million on access, including financial support, outreach and student success. Obviously, the contribution of employers and partnerships between HEIs and local enterprise partnerships will be critical if we are to get the results that we wish.
Our world-class colleges and universities have responded well to the Government’s reforms. There is a new focus on the student experience, greater social mobility and greater flexibility in ways of studying and in funding. According to the World Bank, the funding system is exemplary, and the OECD says that ours is the only sustainable system in Europe. But we have much more to do. We will be working with the sector to monitor the changing demand for part-time study and to promote the opportunities available.
I sincerely thank the noble Baroness for introducing this productive debate. We have much more to discuss but this has certainly started us on the path to ensuring that this remains a high-profile topic. I thank all noble Lords who have made such valuable and incisive contributions.
West Papua
(11 years, 4 months ago)
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Lord Harries of Pentregarth
To ask Her Majesty’s Government what is their assessment of the human rights situation in West Papua.
Lord Harries of Pentregarth
My Lords, violations of basic human rights in West Papua are not only continuing but becoming more frequent. In 2012-13 there were numerous incidents of West Papuans being shot, arrested and tortured simply for taking part in peaceful demonstrations. Leaders of the West Papua National Committee—the KNPB—are particularly targeted. To give just one example, at a peaceful demonstration on 1 May this year, three Papuans were shot—killings which were rightly condemned by both the UN High Commissioner for Human Rights, Navi Pillay, and Amnesty International. A list of 30 such incidents involving arrests for peaceful protests in just two weeks in April and May this year was sent to the OHCHR in Geneva by TAPOL on behalf of eight international organisations concerned with West Papua.
It will therefore be no surprise to learn that in 2012 alone there were some 200 political arrests and that there are at least 40 political prisoners in jail. Raising a West Papuan flag, for example, can lead to a charge carrying a life sentence. At the same time, sweeping operations by the Indonesian military in the highlands of West Papua continued throughout 2012-13, displacing thousands of villagers, with homes being burned and subsistence crops destroyed, as reported by the Asian Human Rights Commission. Despite the fact that foreign reporters and NGOs are severely restricted in their attempts to enter and report on what is going on —an issue that other noble Lords will raise—these facts are becoming ever more widely known in the world outside.
I know that our Government are aware of and concerned about these human rights abuses, as they have made clear in their Answers to several Parliamentary Questions. However, is it not also a matter of concern that an Indonesian counterterrorism unit, Special Detachment 88, trained by the UK, is believed to be operating in Papua, targeting leaders of the independence unit? We know that the training for this detachment includes issues of human rights, but we do not know whether that has had any effect at all on its operations. In view of the fact that human rights abuses are increasing, will the Minister ask the Foreign Office to undertake, as a matter of urgency, an impact assessment of the training that this detachment is receiving to see whether in fact it is making any difference at all?
Juan Mendez, the UN special adviser on the prevention of genocide, wrote in 2008 that West Papua was among those countries whose populations were “at risk of extinction”—a very serious charge. With the huge influx of Indonesians from Jakarta, the West Papuans are in danger of becoming a minority in their own country.
What are the Indonesian Government and the Indonesian elite in West Papua doing about this very serious situation? The policy in recent years has been to divide the country into two provinces, West Papua and Papua, give a degree of local autonomy to each one, deliver economic benefits and hope that this will lead to an end to the increasing unrest. The International Crisis Group, in its thorough and balanced 30-page report of last August, provided as part of the Library’s helpful briefing for this debate, evaluated that policy in these words:
“To date the law has failed to produce either improvement in the lives of most Papuans or better relations with the central government”.
Because even the Indonesian Government can see the failure, a special organisation, the Unit for the Acceleration of Development in Papua and West Papua, called UP4B, has been set up through presidential decrees to achieve what its name suggests. The polite language of the International Crisis Group’s report, in the chapter entitled “UP4B: Good Intentions, Diminished Hopes”, cannot disguise the fact that this policy continues to fail very badly. There is failure at the economic level—very little of the huge wealth being generated in this oil and mineral-rich country is being channelled to the people whose land it is—and there is a fundamental failure at a political level to engage in a political process with representative leaders of the indigenous people. Does the Minister agree that there is no serious chance of progress in West Papua unless the Government in Jakarta set up a serious process of engagement with West Papuan leaders, and will they urge them to do so?
I know that Indonesia is an important ally in the worldwide fight against terrorism and has made big strides in recent years towards genuine democracy in some parts of its legitimate territory. Our own country, like Australia, has important business links with it. West Papua has vast oil and mineral wealth; BP alone has a £7.5 billion stake in it. We can all understand the pressures of realpolitik coming from both Governments, to whom we need to relate, and international capitalism, whose money is needed for development.
However, the truth cannot be hidden forever. The 1962 New York agreement signed between the Netherlands, Indonesia and the United Nations guaranteed an “act of self-determination” for the people of West Papua. In 1969 that so-called Act of Free Choice took place. On 13 December 2004, when I was Bishop of Oxford, I asked the Minister at the time, the noble Baroness, Lady Symons of Vernham Dean, about what happened in 1969:
“Is she aware that Suharto’s Indonesia handpicked a little more than 1,000 people, out of a population of 800,000, and forced them to vote 100 per cent for union with Indonesia? Is she further aware that the secretariat of the UN advised the UN Assembly to accept the result of that vote as fair, even though it had agreed to be a guarantor of the fairness of the election? Does she agree that the present unrest in West Papua and the violence by the Indonesian Government are in part responses to the failure at that time?”.
On behalf of the Government, the Minister replied:
“I agree with the right reverend Prelate’s summing up of the position … He is right to say that there were 1,000 handpicked representatives and that they were largely coerced into declaring for inclusion in Indonesia”.
Sometimes, a chink of truth comes through. In her reply, the noble Baroness went on to say that the largely coercive vote was 35 years ago and that since then,
“the 2002 special autonomy legislation has been passed … It grants, for example, 70 per cent of oil and gas royalties originating in Papua—as well as 80 per cent of forestry, fishery and mining royalties—to the people of Papua”.
She concluded by saying that,
“these measures ought to be given a chance to imbed in order for us to see whether the greater autonomy thereby granted eases the situation”.—[Official Report, 13/12/04; cols. 1084-85.]
The first question that arises in my mind is whether that 70% and 80% of the royalties has been going to the West Papuan people. Is there any evidence of this? More fundamentally, the special autonomy measure has now been in place for 13 years. It has had plenty of time to embed and show results. What is revealed is the total failure of the policy itself, because it fails to address the fundamental issue, namely the political aspirations of the indigenous people. Given that the former UN Under-Secretary-General, Chakravarthi Narasimhan, admitted publicly in 2004 that the 1969 so-called Act of Free Choice was in effect a sham, will the Government join with International Parliamentarians for West Papua and International Lawyers for West Papua in asking the UN to conduct an inquiry into what happened in 1969 and then to instigate a referendum on the issue in West Papua itself?
Given the 2010 referendum on self-determination in South Sudan and the upcoming referendums on independence in New Caledonia—Kanaky—Bougainville and Scotland, and bearing in mind what happened in East Timor, would it not be prudent, as well as absolutely right, to press for a true, internationally monitored referendum? This issue is certainly not going to go away, however much the Indonesian Government might wish that it would.
Lord Kilclooney
My Lords, I congratulate the noble and right reverend Lord, Lord Harries, on securing this debate today. This is a subject that I knew nothing about until I came to the House of Lords. I place it on the record that the people of West Papua owe much to the noble and right reverend Lord for the way in which he has raised this subject throughout the past 10 years since I first came across it. It is a subject that is rarely mentioned in the press and the rest of the media or by the Government. It is not only a tragedy but, in the context of many tragedies around this world, one of the worst that I have come across—and living on the island of Ireland, I know what tragedies are.
One of the great problems of the modern world is that the Islamic and Christian worlds are given the impression that they are in conflict. I reject that. As a Christian myself, I accept that Islam and Christianity both believe in God and both accept the reality of Jesus—one as a saviour and the other as a prophet. We have much in common and should not be seen to be in conflict or presented by some people as being in conflict. After all, it was the western world that came to the rescue of Islam in Kosovo, where my son fought; in Bosnia, where my daughter fought; and even in Kuwait, where we relieved the Islamic people of Kuwait when they were invaded. We should take credit for these instances where we came to the rescue of Islam, and should not always allow ourselves to be portrayed as people who are opposed to it.
Of course, Islam is facing a great crisis, mainly between the Sunni and the Shia, and not just in Syria. It is happening right across the Middle East and north Africa, in Pakistan and in Indonesia, where the Shia are encountering problems with the Sunni majority. Indonesia is one of the great countries of the world today. It is the largest Islamic country in the world. It has a growing economy, so the United Kingdom requires a good relationship with that great nation. It is 86% Islamic and 9% Christian, and within it is West Papua which, as was mentioned by the noble and right reverend Lord, Lord Harries, has a population of around 800,000 of whom 55% are Christian and 40% are Muslim. It is the Christians in West Papua who are experiencing problems so far as freedoms are concerned. I recommend highly to anyone who reads the Hansard report of this debate that they should look at the House of Lords Library briefing pack because it is excellent. It goes into every detail of the atrocities that are taking place in West Papua. I could not go into that detail in the time available today, but I recommend the document.
The history of West Papua is rather sad because, after the Dutch left, the Indonesians invaded it in 1961. By 1969 the United Nations had shown an interest, saying that there should be, as the noble and right reverend Lord, Lord Harries, said, an Act of Free Choice. However, I underline what has just been said: there was no free choice. In fact, the Indonesians selected 1,000 chosen people to vote on behalf of the entire West Papuan population. They selected who could vote and more or less told them how to vote. They said that that was how democracy worked, that West Papua had expressed its opinion and that it wanted to be part of the Indonesian nation. Regrettably, there are now almost daily atrocities that are never reported in the media. The silence of the world on the tragedy of West Papua is amazing. There is hardly any government structure in the province, and certainly no one that you can really talk to in order to get the consent of the population. The international bodies and the United Nations itself, with their disregard of what is going on in West Papua, have been shameful in their attitude. They have ignored the tragedy of that part of Indonesia.
Does the Minister agree that the people of West Papua—I stress “the people”—never voted to be part of Indonesia? Does she accept that there are continual killings and a denial of human rights in West Papua today? It is time that we had clear answers to these allegations. When did Her Majesty’s Government last raise the issue of West Papua with Indonesia? I ask that because it is very important. In fairness, I think that the Prime Minister, Mr Cameron, did raise it, but I want that confirmed in the debate today.
Of course, it is hard to know what is going on day to day in West Papua if the press are forbidden to visit it in order to see what is happening and report on it openly. Freedom of the press is one of the essentials of democracy, so it is important that the press are given access to West Papua. As we know from the Belfast agreement talks, there can be a security solution or there can be a political solution. In a divided society like West Papua, there is no security solution. The more you apply security pressures, the more the opposition to the established Government will increase. The way forward must be through political dialogue, and I suggest that in their own interests the Indonesians, for whom I have great sympathy and whom I support—I repeat that it is a great country that we need to be friendly with—should develop a dialogue with West Papua. People may ask, “But with who? Who are the leaders in West Papua? How can you negotiate with them or have a dialogue?”. I suggest that the Indonesian Government should start a dialogue with the church leaders under the chairmanship of an independent statesman drawn from outside. That would be a beginning.
Lord Hannay of Chiswick
My Lords, I, too, pay tribute to the noble and right reverend Lord, Lord Harries, for tirelessly raising this issue in this House and thus doing something to remedy the paucity of the comment that one gets about this pretty worrying situation.
I declare a previous interest: from 2001 to 2009, I visited West Papua—which for the purposes of this debate, as the noble and right reverend Lord said in his introduction, is taken as comprising the two Indonesian provinces of Papua and West Papua—annually as a member of an independent panel set up by BP to offer the company advice on what can loosely be described as the performance of its corporate social responsibility in connection with the development of a large natural gas field situated under the waters of Bintuni Bay in the Bird’s Head region of West Papua, and a liquefied natural gas plant on the southern shore of the bay.
This panel, headed by former US Senator George Mitchell, visited Papua every year. We had talks with government and parliamentary leaders and NGOs in the capitals of the two provinces, Jayapura and Manokwari. We visited the sites for meetings with BP and its contractors and we held what the Americans would call town hall meetings in each of the 10 or so directly affected villages neighbouring the sites. We then discussed our findings with Indonesian Ministers and international agencies such as the World Bank in Jakarta, and presented the company with our recommendations. While I would not claim to be a genuine expert on West Papua, I have some familiarity with the region and its problems.
It is certainly extremely welcome that the noble and right reverend Lord, Lord Harries, has initiated this debate. That there have been and still are abuses of human rights in West Papua, mainly committed by members of the Indonesian armed forces and police, is really not in doubt. But because of what I regard as the Indonesian Government’s misguided policy of banning visits to the provinces by international journalists and NGOs, too little is known about these abuses, their nature and the background to them. Where secrecy prevails, rumour and allegations flourish, which is why I regard the Indonesian Government’s policy as misguided.
One part of the background that needs to be borne in mind is the massive size of West Papua and the sparsity of its population. They may be the poorest provinces of Indonesia but they are also the least populous. Those areas where the most abuses have taken place—the two provincial capitals, the mountainous regions along the international boundary with Papua New Guinea, and the area around the huge copper and gold mine being operated by Freeport-McMoRan at Timika—are often separated by hundreds of miles of trackless jungle from other, largely peaceful parts of the two provinces.
To address the point made by the noble Lord, Lord Kilclooney, about faith relationships, another dimension is the peaceful coexistence across most of the provinces of communities of Catholics, Protestants and Muslims. In the villages around Bintuni Bay, it was normal to find Catholic and Protestant churches and a mosque in the same village.
As one of the Muslim imams said to us when the panel talked to him, “Please do nothing to disturb the amity in which our communities have lived for many centuries”. That was sage advice, and the Indonesian Government, often beset elsewhere in the country with acute interfaith tensions, would do well to heed it.
What can be done to avoid the human rights abuses that take place? Part of the solution lies in better training for, and tighter control over, the Indonesian military and police. I look forward to the Minister responding to the point that was made by the noble and right reverend Lord, Lord Harries, about the training that we give them, the effect that it has and whether we have any evidence that it is actually producing better performance. Just as important as that is to make a living reality, not just a paper reality, of the regional autonomy that Indonesia has granted to its provinces. Raising the living standards and the access to healthcare and to education of indigenous populations, which are among the poorest in the world, is another.
Above all, the Indonesian Government need to demonstrate respect for the cultural particularities and identity of indigenous Papuans. These are real and based on centuries of history. Any attempt to homogenise the provinces to a kind of Indonesian norm, or to encourage substantial inward migration from other parts of Indonesia, would inevitably raise tensions and lead to the sort of incidents at which human rights abuses have occurred and are still occurring. As the example of East Timor showed, a policy of repression is only too likely to be counterproductive; it is far better to pursue the objective of reconciling Papuans to their continuance as a part of Indonesia by generous policies of regional autonomy and economic development. To be fair, these are the proclaimed policies of the Administration of President Susilo Bambang Yudhoyono, but too often in the past practical application has diverged from these admirable objectives.
What role should Britain play in all this? We should certainly not just snipe from the sidelines when allegations of human rights abuses are brought up, although we should not turn a blind eye to them. We should also do our best, I suggest, through our aid programme, the provision of training and scholarships and the enlargement of responsible inward investment—such as I believe BP has provided in the Tangguh project, which is now undergoing rapid expansion—to create the conditions and the capacity-building that will encourage Papuans to believe that a peaceful and prosperous future is not beyond their reach. I hope that the Minister can say something about the way in which the Government are playing a positive role in West Papua, both now and in the future.
Lord Avebury
My Lords, the noble and right reverend Lord, Lord Harries, reminded us of the betrayal by the UN of the people of West Papua after Indonesia invaded and occupied the territory in 1961; it then connived with the so-called Act of Free Choice, when 1,000 handpicked men were coerced into ratifying the annexation. Today, unfortunately, the UN seems just as helpless in dealing with the gross and persistent violations of human rights inflicted on the occupied people, of which a great many examples were given recently to the Human Rights Committee, including a 53-page report from Amnesty International. Another was a report by TAPOL, which campaigns for democracy and human rights in Indonesia, and I declare an interest as its honorary president, having been connected with it and its distinguished founder, Carmel Budiardjo, for the 40 years of its existence.
This detail describes some of the 200 political arrests in the territory in 2012. A number were shot, some of them fatally, while allegedly resisting arrest. Those who continue to speak about self-determination for the territory, as they have every right to do under Article 1 of the International Covenant on Civil and Political Rights, risk prosecution under Article 106 of the criminal code, which prescribes life imprisonment for any attempt to separate a part of the state. I hope that the Prime Minister will invite President SBY to visit the UK in September next year so that he can see how we deal with demands for self-determination in this country.
The Indonesians should recall their own experiences with East Timor, mentioned by the noble Lord, Lord Hannay, which achieved independence, and Aceh, which gained a substantial degree of autonomy, after long and bloody struggles. In both cases, the results were achieved through dialogue, as I remember from having been an adviser at the talks between the Indonesians and the Free Aceh Movement between 2000 and 2002. That process, and the agreement subsequently moderated by former President Martti Ahtisaari of Finland, could form a model for eliminating the causes of human rights violations in West Papua, rather than Indonesia pursuing futile attempts to eradicate the movement for self-determination by military force and draconian laws.
The results of the present policies are illustrated by a report from Human Rights Watch focusing on violence, impunity and the denial of access to foreign journalists and the UN special procedures. The UN special rapporteur on extrajudicial executions requested a visit in 2004 and again in 2008, but has never received a reply. This came up at the Human Rights Council, but in the 208 paragraphs of the Government’s reply to the list of issues raised, there was no reference to the egregious denial of the UN special procedures’ right of access to perform their duties.
Navi Pillay, the UN High Commissioner for Human Rights, issued a statement in May calling on Indonesia to allow visits by journalists and by the UN special procedures. A visit by the UN special rapporteur on freedom of expression, which had been scheduled for January, was postponed indefinitely. The UK was among the states that echoed the demand that they be admitted, and I hope my noble friend can tell your Lordships what further steps can be taken by the UN Human Rights Council, or what else can be done, to deal with the open defiance of the UN’s authority. I recognise that it would be difficult to get agreement on raising the powers of the UN’s human rights mechanism, but does my noble friend agree that if there are no coalitions of the willing ready to impose penalties on recalcitrant states, it is only to be expected that those states will ignore the Human Rights Council, as Indonesia does?
Indonesia’s Government say that there is freedom of the press, that people criticise the Government and that there is no bar even on separatist opinions. On the other hand, Amnesty says that peaceful political activists continue to be arrested and detained. Of the 76 political prisoners recorded by Papuans Behind Bars, no fewer than 42 are charged under Article 106; there are probably more, because in a number of cases the charges are unknown.
The situation in West Papua is almost certainly a lot worse even than we are able to describe, because of the barriers to access, particularly in respect of the UN special procedures. The special representative to the Secretary-General on human rights defenders was there in 2007, which was the last such visit. She found that a climate of fear prevailed,
“especially for defenders engaged with the rights of the Papuan communities to participation in governance, control over natural resources and demilitarization of the province”.
That provides a clue as to why Jakarta is so paranoid. As we heard from the noble Lord, Lord Hannay, West Papua is a land of immense mineral and forestry wealth and the Indonesians do not want outsiders poking their noses into the way that companies such as Freeport, which operates the largest gold and copper mine in the world, are causing permanent environmental damage and riding roughshod over the rights of local people, with the backing of the Government.
The Constitutional Court ruled in May that an Act that allowed the state to claim forest land previously owned under customary law by indigenous people was unlawful. If that has force, there should be equality of arms between the Government-backed multinationals and the indigenous people. I would be grateful if my noble friend would inquire into the effect of this ruling on the dispossession of indigenous people in previous years.
I am sorry that Indonesia is not a country that concerns the FCO, according to its annual report on human rights and democracy; nor is West Papua even mentioned in the section of that report dealing with indigenous rights. I respectfully suggest that human rights abuses in West Papua are serious enough to justify a much higher priority than the Government have accorded them in the past and that the issues raised in this debate demand their urgent attention.
Lord Collins of Highbury
My Lords, I, too, thank the noble and right reverend Lord, Lord Harries, for initiating this important debate. Indonesia has been undergoing a process of democratic transition. Certainly, the human rights situation in Indonesia has improved over the past 15 years and there is no doubt that its Government remain committed to further progress, as indicated by their signing up to a range of international conventions.
Like the coalition, the previous Labour Government believed that the complex issues in Papua can best be resolved through peaceful dialogue between the people of Papua and the Government of Indonesia. The previous Government supported the territorial integrity of Indonesia and encouraged its Government, through genuine engagement with Papuan representatives, to make real the 2001 special autonomy legislation.
However, as we have heard in today’s debate, the picture in West Papua is not one of progress but one of increased violence and repression. Indonesia’s treason laws continue to be used to punish free expression. Peaceful demonstrations are banned and attacked by the security services. In the past 12 months there have been numerous incidences of Papuans being shot, poisoned, arrested and tortured for taking part in peaceful demonstrations and other activities associated with independence aspirations.
As the noble and right reverend Lord, Lord Harries, reminded us, the most recent example was the peaceful demonstrations on 1 May 2013 to mark 50 years of Indonesian control over West Papua. Three Papuans were fatally shot. Following this, a demonstration was planned to commemorate the three people who were killed. The local police banned the demonstration, which took place anyway. The demonstration was repeatedly attacked by police, and four members of the West Papuan National Committee, including its chairman, were arrested and reportedly tortured.
In contrast to these actions, the Indonesian Government, as we have heard, talked of the special autonomy measures established through presidential decree in 2011, which they claimed would accelerate development in Papua and West Papua. Programmes related to the enhancement of food security, poverty eradication, community-based economic development, education, health and basic infrastructures are, they say, their key focus. However, as the noble and right reverend Lord, Lord Harries, asked, where is the evidence?
Almost exactly two years ago, the noble Baroness’s predecessor, the noble Lord, Lord Howell of Guildford, stated on the Floor of the House:
“If we can get expanded commercial and economic activity, effective inward investment and the expansion of trade, this will pave the way for a more open society and a more effective policing of human rights”.—[Official Report, 19/7/11; col. 1193.]
I ask the Minister whether, two years on, she still holds to that assessment and, if so, what action could the EU and the British Government take to ensure speedy and genuine economic development with proper autonomy for the people of West Papua.
Despite the welcome progress on human rights generally, in the report of the UN Human Rights Council’s universal periodic review 12 months ago, the UK Government noted the increase in violence and called for renewed efforts to address the challenges in Papua and West Papua. Can the Minister give us an assessment of what sort of progress has been made since that report?
In the same report, the US expressed concern about the failures to create and enforce the framework of accountability for abuse by the military and police, and the failure to protect certain religious minorities. As we have already heard in the debate, the Human Rights Committee on 11 July concluded its consideration of the initial report on Indonesia’s implementation of the provisions of the International Covenant on Civil and Political Rights, which is one of the most important human rights treaties that Indonesia has ratified.
The committee also highlighted the ongoing violence in Papua and deplored the excessive use of force by the Indonesian security forces. It, too, highlighted the fact that there is no effective mechanism to hold members of the military accountable. As we have heard, some 70 extrajudicial killings had recently taken place in Papua, but no one was prosecuted. Impunity had become a structural problem in Indonesia. Criminal prosecutions and sanctions were appropriate measures to combat police violence and had to be implemented. The committee’s clear view was that such violations were likely to continue until Indonesia takes measures to develop effective complaints procedures.
Indonesian military tribunals are in most cases not open to the public and therefore lack transparency, impartiality and independence. The Indonesian Government have claimed that these tribunals are generally accessible to the public, but that is strongly challenged by human rights groups. NGOs who attended the review expect the committee to make strong recommendations to the Government to review the military court law. Will the Minister, on behalf of Her Majesty’s Government, reinforce that call?
On freedom of the press, the Indonesian delegation claimed to the committee that the local media in Papua are free to publish any news—despite, as we have heard in the debate, continued evidence of intimidation, threats and violence against local journalists. As the noble Lord, Lord Kilclooney, reminded us, the international media are barred from entry. In recent years, the international community has had to witness the extrajudicial killing of journalist Ardiansyah Matra’is and the violent attack against Banjir Ambarita. The UN Human Rights Committee review deplored the lack of freedom of expression in Papua. The Indonesian Government delegate, who also happens to be in charge of the Unit for the Acceleration of Development in Papua and West Papua, responded by saying that,
“freedom of expression is not absolute”.
The Government see this limitation of freedom of expression as necessary to maintain state sovereignty and the territorial integrity of Indonesia, a point that was also made by the noble Lord, Lord Hannay.
The committee’s experts quite rightly sought clarification regarding the declaration made by Indonesia upon its signature of the convention concerning limitations to the right of self-determination. What was the scope of the reservations? The covenant had to be implemented in all regions, regardless of their autonomy, and the Government were bound to ensure that all its provisions were fully implemented, even in regions where by-laws were in contradiction with some the provisions.
The noble and right reverend Lord, Lord Harries, mentioned the Indonesian counterterrorism unit, Special Detachment 88. Trained by the UK, it is believed to be operating in Papua to crack down on the Papuan independence movement, including the alleged assassination of its leaders. The activities of this unit in West Papua have been extensively covered in the Australian media, such as the October 2012 article by ABC News, as highlighted in the excellent Library briefing. I ask the Minister whether Government have plans for the ongoing funding of Special Detachment 88 training through the Jakarta Centre for Law Enforcement.
Finally, I repeat the words with which I started my speech: dialogue and discussion with the genuine representatives of the Papuan people is vital if progress is to be made, peace to be restored and economic development to be achieved.
The Senior Minister of State, Department for Communities and Local Government & Foreign and Commonwealth Office (Baroness Warsi)
My Lords, I thank the noble and right reverend Lord, Lord Harries of Pentregarth, for proposing this debate on the human rights situation in the Indonesian provinces of Papua and West Papua.
Last year was momentous for relations between Indonesia and the UK. Following the Prime Minister’s visit in April 2012, I travelled to Indonesia in late May and saw for myself the huge progress this multiethnic state has made since its transition from autocracy to democracy. I visited Aceh, now recovering from the twin blows of a long-running conflict and the devastating tsunami. I met students and parliamentarians and we had discussions about extremism and human rights, as well as other issues.
Last year culminated in the state visit to the UK of the Indonesian President, which has set the bilateral relationship on a new footing. Indonesia is a G20 partner and regional powerhouse. It is playing a positive role in regional security dynamics, and the Indonesian President is showing global leadership through efforts including co-chairing the High-Level Panel on the Post-2015 Development Agenda with the Prime Minister.
Today our reinvigorated relationship is grounded in strong political, security and prosperity interests. But as Her Majesty the Queen said at the state banquet during the President’s visit,
“the partnership between Britain and Indonesia is also shaped by common values”.
It is a relationship that should be—and, indeed, is—viewed as a partnership through which we can each assume the role of a critical friend. It is in this spirit that we discuss issues of concern, including human rights in Papua.
As noble Lords are aware, the political situation in Papua is hugely complex. While it is portrayed by some as a clear-cut issue, this is simply not the case. Over the past decade or so, the human rights environment in Indonesia has been transformed. It now has a press and civil society that are free and vibrant, and has been on a positive journey in the region, especially on the issue of human rights. However, as the Indonesian Government themselves acknowledge, challenges remain in certain areas, including Papua.
President Yudhoyono has stated on a number of occasions that he supports a welfare rather than security approach to Papua, and we have seen members of the security forces who commit abuses being held to account. This is progress. Political rights are regularly exercised in local and national electoral processes, but we accept that challenges remain. Notwithstanding the significant funds that have been pumped into the region, access to education and healthcare is often poor, particularly for women and girls. Domestic violence rates are disturbingly high and freedom of expression is all too often stifled, as has been mentioned many times today.
As noble Lords have done today, the Government condemn all violations of human rights, no matter who the victim. Violations in Papua have been committed by the security forces as well as by those who claim to be striving for the rights of Papuan people. Verifying the details is often difficult given the remoteness of the region. We have heard from the noble and right reverend Lord, Lord Harries, about Papuans who have tragically paid with their lives. We also saw the appalling murder of eight Indonesian military personnel in February this year. Non-ethnic Papuans based in the highlands have been attacked and killed, and a German tourist was shot in May 2012.
The restrictions placed upon those voicing their political opinion are also cause for concern. Lengthy jail terms have been handed down for holding peaceful protests, and I pay tribute to the NGOs and their staff who work tirelessly to support these prisoners. Freedom of religion and belief and freedom of expression were raised at the universal periodic review. The invitation to the UN special rapporteur on freedom of expression to visit Indonesia is a positive step, and we firmly hope that this visit takes place soon.
I echo the concerns raised by the noble Lord, Lord Collins of Highbury, about journalists, NGOs and international organisations—including the International Red Cross, which has extremely limited access to Papua —and we have raised these with the Government of Indonesia at all levels. As the noble Lord, Lord Hannay, reminded us, without opening Papua up, there is a risk of misreporting or incidents being misrepresented. Incidents will remain hard to verify as long as Papua remains closed.
The Government are resolute in demanding that human rights be respected by all in Papua. We make this absolutely clear to the Indonesian Government at the highest levels. In the past 12 months alone, my right honourable friend the Prime Minister and President Yudhoyono discussed Papua when they met in November during the state visit—I can confirm that on the record. The human rights situation in Papua also features regularly in our discussions with the Indonesian Foreign Minister and the governor of Papua. British embassy staff visit the region regularly. As my noble friend Lord Howell of Guildford informed the House last year, in May 2012, as part of the universal periodic review, we, along with other UN members had an opportunity to comment on human rights progress in Indonesia.
On the human rights report, my noble friend Lord Avebury asked why it was not a country of concern. It was in fact covered under the heading of “Freedom of religion or belief” as one of the areas of concern we had about Indonesia. The noble Lord, Lord Kilclooney, raised the issue of human rights violations generally, and how far these concerns had been raised. I have already explained how these issues have been raised at the presidential level. I can, however, tell him that last September the ambassador visited Papua and met senior military and police officials, emphasising the need to respect human rights and ensure full and transparent investigations into any violent incidents, and only in April of this year, the British ambassador discussed the situation in Papua with the new governor of the province.
Human rights are fundamental and based on universal values. They are not there to be invoked only when economic conditions allow. Even so, a myriad of social, political and economic influences often lie behind human rights abuses, and these must also be addressed. The UK will therefore continue to encourage meaningful progress on governance issues, including the full implementation of the special autonomy law for the provinces of Papua and West Papua. We also support the increased focus on economic and social development to which the Government have committed themselves in order to address the widespread poverty in the region, especially among ethnic Papuans.
The noble Lord, Lord Collins, referred to the position of previous Governments on the political status of Papua. Of course, ours remains the same: the UK supports the territorial integrity of the Republic of Indonesia and does not support calls for the independence of Papua. Like the noble Lord, Lord Kilclooney, I recognise that the events surrounding the 1969 Act of Free Choice continue to be a focus of controversy for many with an interest in Papua and West Papua. The UK was not party to the process and we have no plans to support a review of the Act. All relevant UK documents relating to this period are now a matter of national record.
The noble and right reverend Lord, Lord Harries, and other noble Lords spoke about Special Detachment 88. Our training and engagement with the Jakarta Centre for Law Enforcement Co-operation, which includes officers from Densus 88, takes place within a framework of respect for the rule of law and a commitment to upholding human rights obligations in compliance with UK and international standards. All of the training delivered by the UK is rooted firmly in the importance of upholding human rights in counterterrorism investigations. Each training course contains a specific module on these obligations. There have been impact assessments; I think that there was one in 2011. However, for operational reasons we would not release an impact assessment on CT operations overseas.
Specific questions were asked about funding. I confirm that in the financial year 2011-12, the UK’s counterterrorism programme provided in the region of £400,000 of support to the Jakarta Centre for Law Enforcement Co-operation to deliver a package of six different classroom-based training programmes. We also deliver a regional course that brings together senior law enforcement officers from around south-east Asia to focus on the co-ordination and management of multi-jurisdictional investigations aimed at disrupting terrorism and transnational crime. Funding for our programme for the JCLEC has been agreed for the year 2013-14, and we will be providing £319,000. The noble and right reverend Lord, Lord Harries, spoke about revenue flows because of the special autonomy status. Our understanding is that revenue flows have indeed been going to the local elected authorities in Papua.
The noble Lord, Lord Hannay, asked about military accountability. We have seen steps towards greater accountability in cases of military abuse, but there is still a long way to go. Convictions for those involved in the appalling abuses, some of which then appeared on YouTube, were a step forward. The noble Lord also asked what practical things the UK was involved in. DfID is providing £10 million of funding from 2013 to 2015 which is focused on programmes in Papua. We are also working to deliver sustainable development and we will fund a number of NGOs and civil society groups to develop capacity in the civil society sector.
The United Kingdom has an important and wide-ranging relationship with Indonesia, aspects of which I have outlined this evening. It is a relationship that allows us to raise areas of concern in a constructive, frank and open manner, including human rights violations. However, we do so in a balanced manner, regardless of who is the perpetrator or the victim.
We all agree that the situation in Papua is of concern and that we should continue to speak out against violations, whoever commits them, which contravene human rights and international law. Greater accountability and transparency are needed regarding abuses committed both by the Indonesian security forces and by Papuan armed groups. All those with a stake in Papua’s future need constructively to engage in peaceful dialogue as a way to resolve their grievances. I firmly believe that it is possible for Papua to enjoy the same level of peace, stability and prosperity that is seen elsewhere in Indonesia. That is, after all, in the interests of all Papuan people. However, it will take commitment from all sides. We believe that the Indonesian Government are genuinely committed to addressing these challenges and we hope that others will join us in supporting their efforts.
House of Lords
International Development: Diseases of Poverty
(11 years, 4 months ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Baroness Jolly
To ask Her Majesty’s Government how much of the £30 million allocated to fund the development of new technologies to impact on diseases of poverty, announced in March 2012, has been awarded to date.
Baroness Northover
My Lords, DfID is committed to tackling diseases of poverty through supporting the development of new technologies. Business cases for product development partnerships have been prepared and allocated funding is expected to begin this year, as planned.
Baroness Jolly
I thank my noble friend for her response, but how much has been spent in the past five years on biomedical and scientific research into HIV/AIDS and TB, and how much is planned to be spent in the next five years? I have tried to find this information; perhaps she can also tell the House where DfID’s 2013 onward research strategy is to be found.
Baroness Northover
DfID has provided approximately £60 million for biomedical and scientific research into HIV/AIDS and £39 million for TB research over the past five years. Spending for the next five years is dependent on the results of the ongoing product development partnerships competition. If my noble friend looks online, she will find DfID’s research strategy priorities and commissioning practices, which were published earlier this year as part of the International Development Committee’s annual accounts inquiry. This information is also in the Library.
Baroness Kinnock of Holyhead
My Lords, while a malaria vaccine is the biggest need at this time, it receives virtually no research funding. Currently, 10 times more is spent on a cure for male baldness than on a cure for malaria. Does the Minister agree that the research conducted by pharmaceutical companies focuses, as Bill Gates has said, on what is most lucrative and not on what is most needed? Does she agree with him that it is unlikely that the global poor will ever be profitable enough to attract the interest of the pharmaceutical industry?
Baroness Northover
The noble Baroness gets to the nub of the problem. This is why special effort must go into supporting research in these areas because it is, of course, the poorest who suffer from these diseases and cannot pay the prices for the drugs. I think about 1% of any investment went into this area of neglected tropical diseases, which is of course why Gates took it up. At the moment, he funds 49% of the research being taken forward. That is a template for what we are doing and why we are supporting it.
Lord Chidgey
My Lords, with DfID’s support, health organisations have been successful in developing a wide range of new health technologies to address the diseases that we are clearly aware of in developing countries, including TB and malaria. Can my noble friend tell us how successful the outcomes have been, and how confident she is in the results, given that countries such as the DRC and Nigeria together account for some 40% of the deaths from malaria, yet they have the most inadequate data of any country?
Baroness Northover
DfID’s research investments have helped to develop a range of treatments plus tests across these areas. For example, there is a diagnostic test for TB which is now available in 29 countries and a child-friendly, life-saving anti-malarial is now available in 39 countries—just to give my noble friend an indication of positive outcomes. We are also working very hard at country level to improve the quality of data to strengthen accountability because he is quite right: if we are to measure this properly, it is very important to have such data coming in.
Baroness O’Neill of Bengarve
Is the Minister aware that in addition to the money that is going through DfID for these purposes, the Medical Research Council—I declare an interest as the chair of its ethics committee—supports a great deal of research into tropical diseases and has two research centres in Africa?
Baroness Northover
Indeed, the United Kingdom is extremely strong in this field. The Wellcome Trust is a major player in this regard and we have the strengths of the London School of Hygiene and Tropical Medicine and the Liverpool School of Tropical Medicine, so we contribute significantly in this area. I pay tribute to what the MRC does.
Baroness Masham of Ilton
My Lords, is the Minister aware of the organisation here in London called Find and Treat? It has a mobile X-ray unit and goes out to homeless people in hostels and other places to X-ray them for TB. Its X-ray unit is now on its last legs and it desperately needs a new one. Could she ensure that money is available here because TB is just as bad here as it is in third-world countries?
Baroness Northover
I remember colleagues being tested in one of those centres locally. I will take this back to the Department of Health and get an answer for the noble Baroness. It is obviously important to address TB here, where it is an increasing problem, as well as in developing countries.
Lord Hunt of Kings Heath
My Lords, I refer noble Lords to my health interests in the register. Does the noble Baroness think that the introduction of value-based pricing for pharmaceuticals in this country will lead to more research in those areas where at the moment there clearly is not a return for the pharmaceutical companies? They are often called orphan drugs. If they were incentivised it could lead to greater help for these diseases in poorer countries that noble Lords have been discussing.
Baroness Northover
I know that the noble Lord is very concerned about value-based pricing in the United Kingdom. We have to take a few steps back in terms of the support that needs to be given for the development of these treatments overseas. This is on a totally different scale. There is, in effect, no market, as the noble Lord’s colleague said, and we need to ensure that there is support for research and development before even the prospect of a market is taken forward.
Lord Hughes of Woodside
My Lords, great damage is being done to vaccination programmes by religious fanatics who preach that vaccination is in some way an imperialist plot. Is a lot of money being spent on education to disabuse people of that idea?
Baroness Northover
Again, the noble Lord highlights an important area. Polio is on the edge of being eradicated but in Pakistan and northern Nigeria, as the noble Lord will know, religious fanatics have killed some of those trying to roll out the programmes there. The Bill and Melinda Gates Foundation is working extremely hard to tackle this but, obviously, it is a very delicate problem.
The Countess of Mar
My Lords, does the noble Baroness agree that prevention is better than cure and that a vital component of this is clean water and good nutrition? What is DfID doing from that point of view?
Baroness Northover
DfID fully recognises that malnutrition goes with diseases of poverty and is therefore trying to tackle both poverty and malnutrition. As the noble Countess says, clean water and sanitation are vital in ensuring that children, in particular, manage to survive these diseases.
Homelessness and Rough Sleeping
The Parliamentary Under-Secretary of State, Department for Communities and Local Government (Baroness Hanham)
My Lords, the reasons for homelessness and rough sleeping are complex. This is an important issue which we are taking action to address, including by investing £470 million to support prevention and recovery services. This includes £34 million for the mayor’s office for rough sleeping in London; changing the law so that homeless families can be placed quickly in suitable private sector accommodation; and joining-up actions across government through the ministerial working group on homelessness to tackle the causes of homelessness.
Lord Dubs
My Lords, I thank the Minister for the Answer. Will she confirm that a disturbingly large proportion of the homeless and rough sleepers are ex-prisoners and that if they do not get homes they are more likely to be reconvicted and sent back to prison? Will she comment on the difficulties facing a prisoner who is discharged with a £46 discharge grant having to wait a week under the Government’s policy before they can claim benefits?
Baroness Hanham
My Lords, I do not have the exact percentage but I acknowledge that there must be, and will be, some ex-prisoners among the homeless and rough sleepers who may go back to prison. When they leave prison, their benefits are calculated in the normal way.
The Earl of Listowel
From the Cross-Benches, I ask how care-experience young people are represented in the rough sleepers’ figures. Will the Government consider bringing forward an amendment to the Children and Families Bill to place a duty on local authorities to enable young people leaving care to stay with their foster carers, where they choose to, to the age of 21, instead of being obliged to leave at 18, whether they like to or not, as is the current situation?
Baroness Hanham
My Lords, my understanding is that for children leaving care, local authorities are obliged to keep acting for them until they are 21 if they are homeless. So they are already being looked after. We recognise that a number of children under 21 leave care. The 15 to 18 year-olds, in particular, are well cared for but we know that we have problems with the 18 to 25 year-olds. I am advised that in the specific area of children leaving care, local authorities have responsibility for those until they are 21.
Lord Cormack
My Lords, further to the point made by the noble Lord, Lord Dubs, does the Minister agree that if we are truly determined to ensure that young offenders and others are properly rehabilitated and do not reoffend, it must be incumbent on us to ensure that they have the means to survive when they come out of jail?
Baroness Hanham
My Lords, I totally agree with my noble friend and I accept that benefits are a requirement. I am afraid that I cannot respond on how they are assessed at the moment and I will write to both noble Lords on that.
Lord Kinnock
My Lords, when the evidence from the National House-Building Council is that the bedroom tax is forcing people out of even low-rent social housing, which is still too expensive for new tenants to take up, could it not be said, fairly, that the Government are, through their policies, making their own contribution to the increase in homelessness and rough sleeping?
Baroness Hanham
My Lords, there is no evidence of the bedroom tax having affected homelessness. Local authorities have a responsibility to look after people as they make the changes to downsize. It is important to point out that most families, especially those in the private sector, do not have the luxury of having spare bedrooms, particularly those who are being subsidised by the country.
The Lord Bishop of Birmingham
The Minister will be aware of the good practice of the multi-agency response to homelessness among 16 and 17 year-olds in Birmingham at the St Basils Youth Hub but, with the recent support expressed by the Housing Minister for the End Youth Homelessness Alliance, how will the Government meet the alliance’s challenges for family support, employment and affordable, safe housing for that category of people?
Baroness Hanham
I am aware of what the right reverend Prelate the Bishop of Birmingham is talking about. The policies of the Government will support the question that he has asked.
Lord Roberts of Llandudno
Does the Minister agree that so many of those who are homeless and rough sleepers are the most vulnerable and fragile in society and that we must do everything possible in order to give them confidence in their communities? Is the present Home Office campaign not also against immigrants, with those billboards going around saying, “Go home or face arrest”? Does that not cause a great disturbance in our communities, possibly also for the homeless people who may feel under threat?
Baroness Hanham
My Lords, there are two important questions there. On the first, about rough sleeping, as noble Lords know and as I have made clear in this House, the Government are intent on stopping rough sleeping. There is the No Second Night Out initiative, in London, The Passage and other initiatives by organisations such as St Mungo’s and St Basils. There is support for rough sleepers and we do not expect them to have to stay rough sleeping for very long.
Regarding the second matter raised by the noble Lord, this is a new initiative that has just been undertaken by the City of Westminster to try to encourage those who should not be here and have not got accommodation to think about going home. It is intended to be helpful; I do not think that it is meant to be intimidating but to address the reality of the situation, as there are people coming here without jobs and accommodation.
Lord McKenzie of Luton
My Lords, are we not at the start of seeing the horrors of what the bedroom tax will produce? We know that homelessness will be fuelled by that tax. The Government have suggested that it is possible to stave off the effects of the bedroom tax by taking in a lodger—what advice would the Minister give to a family forced to consider this course of action?
Baroness Hanham
My Lords, there are people who would welcome having that single-room accommodation —there are students, people in the Armed Forces who are here for a short time, and people who do not have other accommodation. Those options are there if people choose to rent out a room. It would be subject always, of course, to their tenure, lease or arrangements with the local authority, but it is perfectly possible for them to do that. The situation with regard to having a spare room is such that we have to recognise that the welfare bill is enormous, it is £210 billion, and contributions need to be made to that.
Thames Tideway Tunnel
(11 years, 4 months ago)
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Lord Berkeley
To ask Her Majesty’s Government what steps they are taking to ensure that any support provided by HM Treasury for financing the Thames tideway tunnel project has minimal impact on customers’ bills and provides value for taxpayers.
The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Lord De Mauley)
My Lords, we believe that the private sector should finance the tunnel. However, there are some risks that it may not be able to bear at an acceptable cost. We are willing in principle to provide contingent financial support that encourages private sector investment and offers an incentive to delivery partners to manage project risks and minimise costs. The Government are working to ensure that the tunnel offers value for money for customers and taxpayers, while being financed and delivered efficiently.
Lord Berkeley
I am grateful to the Minister for that Answer. But how will the Government explain to 6 million households that they are required to pay £80 a year extra on their water bills for 100 years or so to a company which last year paid no corporation tax but managed to pay £231 million in dividends to its offshore owner and which has reduced its assets to the extent that it cannot fund the project, with the Government not only guaranteeing it but agreeing to pay for it if they have to? How can this really be good for customers or the taxpayer?
Lord De Mauley
My Lords, we are faced with the problem of London’s sewers being at or close to capacity and millions of tonnes of sewage overflowing each year. The solution costs a great deal of money—more than £4 billion—so we need a sophisticated way to finance it. Thames Water pays its tax, and the entity which builds the tunnel will pay its tax, but water and sewerage companies have to make huge investments in infrastructure, the tunnel being a classic example. Therefore, while all companies are eligible for capital allowances, water companies perhaps appear to benefit more from them than others. We expect Thames Water’s customers’ bills to rise by about £70 to £80 a year to pay for the tunnel, which would still leave them paying below the national average. Removing capital allowances would of course mean that those bills would increase further.
The Earl of Selborne
My Lords, surely an infrastructure project of this lifespan, expense and complexity should deliver more than just a cleaner river. Is my noble friend confident that the project will deliver flood-risk management, drought management, nature conservation and reuse of water, all of which future generations would certainly expect from a project of this size?
Lord De Mauley
My Lords, my noble friend makes an important point. Of course, the primary purpose of the tunnel is to reduce the impact of sewage pollution on the river, thus, I think, indirectly contributing to recreation by giving us a cleaner river. However, my noble friend’s question leads me to the broader point, which is that the tunnel on its own is not enough. We also need sustainable drainage systems. I was visiting some very innovative solutions today in Herne Hill. Those solutions are not able to deal with the whole problem on their own either, but they can directly contribute to flood—particularly surface water—and drought management, conservation, recreation and better public places.
Baroness Kramer
My Lords, I fully recognise the need for the tunnel but is the Minister aware that most of the boating and swimming on the tidal Thames is upstream of Hammersmith and that, even with the tunnel and additional improvements, there will still be discharges of raw sewage in this area? Therefore, can he tell me why the tunnel is stopping at Hammersmith?
Lord Davies of Oldham
My Lords, when, some three decades ago, the Conservative Government privatised water, did they expect that a company such as Thames Water would pay no corporation tax in the past year, as has been stated, despite considerable profits and a major distribution of dividends, and that it would then come to the taxpayer for necessary investment on this major project? What will be the basis of equity in these terms as far as this private company is concerned?
Lord De Mauley
My Lords, I thought I had addressed that question when I answered the noble Lord, Lord Berkeley. Thames Water does not avoid paying tax. HMRC’s capital allowance regime allows companies to delay—not to avoid—paying corporation tax, based on how much they invest. Capital allowances are simply the allowed amortisation of an asset for tax purposes and they exist to encourage companies to carry out crucial investment. The mechanism enables tax to be paid over the lifetime of the asset. If capital allowances did not exist, that would mean either less investment or higher bills for customers.
Lord Deben
Does my noble friend accept that this is an old-fashioned and unacceptable answer to the problem? It is like the Three Gorges dam: it is not the way to do it. Will he please undertake that before any public money is put into this scheme he makes sure that better schemes, which may not be so convenient for the water company concerned—I declare an interest in the water industry—but are more environmentally sensible than this wholly out-of-date proposal, are thought of by the Government?
Lord De Mauley
My Lords, while I agree with my noble friend on many things, I do not agree with him on that. After years of work by Governments of both hues, we do not consider that there is a viable, cheaper solution that would simultaneously address the current sewer overflow problems relatively swiftly for the foreseeable future and deliver value for money.
Lord Campbell-Savours
Is not the question asked by the noble Lord, Lord Deben, the question being asked by the whole of the British environmental movement, which says that this was the wrong solution and that sustainable developments were possible as an alternative? Why are we wasting £4 billion on this project when there was another solution?
Lord De Mauley
My Lords, over the past decade studies have looked at options which include green infrastructure solutions such as sustainable drainage systems. The purpose of the Thames Tunnel Evidence Assessment, published by my department in 2012, was to ensure that due consideration had been given to the full range of evidence available on all the proposed solutions to address sewage in the Thames and to provide an assessment of the nature of that evidence.
Lord Harris of Haringey
My Lords, is not the fundamental problem that since privatisation the privatised water utilities have failed to make the investment that is necessary, including in sewers? What are the Government doing to address that in terms of the regulatory environment?
Lord De Mauley
My Lords, I am sorry, I simply do not accept the premise of the noble Lord’s question.
Alcohol: Minimum Pricing
(11 years, 4 months ago)
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Lord Taverne
To ask Her Majesty’s Government, in the light of the number of alcohol-related deaths among women in their 30s and 40s, whether they will reconsider their policy on alcohol unit pricing.
Lord Taverne
My Lords, I beg leave to ask the Question standing in my name on the Order Paper. In doing so, I declare an interest as a trustee of the Independent Scientific Committee on Drugs.
The Parliamentary Under-Secretary of State, Home Office (Lord Taylor of Holbeach)
My Lords, last week the Government published their response to the recent consultation on the alcohol strategy. This sets out our next steps for reducing alcohol-related harm. These include banning the sale of alcohol below the level of duty plus VAT and tightening up restrictions on irresponsible promotions. Minimum unit pricing will not be taken forward at present but it will remain a policy under consideration.
Lord Taverne
My Lords, alcohol has been shown to be much the most harmful of all the addictive drugs if one takes into account its social as well as its physical impact. As the latest figures show, the physical impact is becoming more serious and it seems likely that liver disease will soon overtake heart disease as the biggest killer. In 2008, the Government’s own research department showed that increasing the price of alcohol led to a steep decline in alcohol consumption and was a most effective way of dealing with it, and lots of other research confirms that. Why, then, have the Government changed their mind? They announced their intention to increase alcohol pricing and it was widely welcomed. Why do they ignore the evidence on this urgent issue when there is scientific evidence showing that action would save lives, reduce hospital admissions and reduce crime?
Lord Taylor of Holbeach
My Lords, the Government are not ignoring the evidence; in fact a study published recently by Sheffield University is very interesting in this subject area. That is why the Government have introduced the whole business of duty plus VAT—so that, for example, low-alcohol beer cannot be sold below 40p a can and strong lager below £1.15. This has been a long-standing problem which Governments of all types have not been prepared to deal with. This Government have a strategy now to deal with it and I hope that it has the support of the House.
Baroness Hollins
My Lords, my interest is as chair of the Board of Science at the British Medical Association. I understand that research commissioned by the Department of Health shows that this policy on its own will not have any impact. How much of an increase in price does this new policy represent? I estimate that the policy will mean a minimum shop price of 21p per unit for beer and 28p for spirits—considerably less than the 45p minimum unit price previously being considered.
Lord Taylor of Holbeach
My Lords, I have some figures that might inform the House. In 2008—the latest figures that I have available—retailers sold 220 million litres of alcohol below cost. Six out of seven supermarkets sell alcohol below cost. That is what we are tackling with duty plus VAT. It is part of a combination of strategies to reduce alcohol and binge drinking in this country.
Lord Morris of Handsworth
My Lords, in the light of the number of substance-related deaths, will the Government consider returning to the policy of requiring cigarettes to be in plain packaging? The House will recall that this is the policy on which Mr Lynton Crosby has never lobbied the Prime Minister.
Lord Taylor of Holbeach
My Lords, that is a slightly different issue from alcohol but I can see the relation between the two. As for Mr Lynton Crosby, I have no doubt that Australians have been able to give lessons to all of us. I am sure that the Labour Party is taking great note of its sister party in Australia as regards how to deal with the party leadership.
Baroness Williams of Crosby
The evidence is quite clear that minimum unit pricing has two dramatic effects. First, it cuts the level of alcohol-related deaths and sharply reduces admissions to hospital, as my noble friend has said. Equally importantly, it drives drinkers steadily towards lower-strength alcohol from high-strength alcohol—which has nothing to do with the Minister’s proposal about VAT and all the rest of it. Given the latest evidence from Saskatchewan and from Sheffield University with regard to the United Kingdom, will the Prime Minister and the Cabinet readdress this issue, at a time when many thousands of English and Scottish people suffer from the effects of serious alcohol, including not least in domestic violence?
Lord Taylor of Holbeach
I reiterate to my noble friend that the minimum unit pricing policy remains under consideration. It has not been shelved.
Baroness Smith of Basildon
My Lords, I am surprised by that answer. On several occasions I have asked the noble Lord from this Dispatch Box about this so that I might understand why the Government have moved from absolute certainty that they would introduce minimum alcohol pricing to equivocation and a consultation, and now seem to be moving to total rejection. Following David Cameron’s evasive answers at the weekend, the lobbyist and Prime Minister’s adviser, Lynton Crosby, has stated that he has never spoken to the Prime Minister about plain packaging for cigarettes. Can the Minister give us the same assurance about minimum alcohol pricing? Do the Government consider that Mr Crosby should now declare all his lobbying clients?
Lord Taylor of Holbeach
The noble Baroness has been in government and I am sure that she knows the procedures and the way in which Ministers behave in relation to advisers. I give that assurance in the knowledge that my right honourable friend the Prime Minister will vouch for that himself.
Public Bodies (Abolition of Victims’ Advisory Panel) Order 2013
(11 years, 4 months ago)
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Lord McNally
That the draft order laid before the House on 25 April be approved.
Relevant documents: 1st Report from the Secondary Legislation Scrutiny Committee, 1st Report from the Joint Committee on Statutory Instruments, considered in Grand Committee on 15 July.
Road Safety (Financial Penalty Deposit) (Appropriate Amount) (Amendment) Order 2013
(11 years, 4 months ago)
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Earl Attlee
That the draft order laid before the House on 5 June be approved.
Relevant documents: 4th Report from the Joint Committee on Statutory Instruments, considered in Grand Committee on 10 July.
Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) (No. 2) Order 2013
(11 years, 4 months ago)
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Lord Newby
That the draft orders laid before the House on 25 June be approved.
Relevant documents: 6th Report from the Joint Committee on Statutory Instruments, considered in Grand Committee on 17 July.
Offender Management Act 2007 (Commencement No. 6) Order 2013
(11 years, 4 months ago)
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Lord McNally
That the draft order laid before the House on 10 June be approved.
Relevant documents: 4th Report from the Joint Committee on Statutory Instruments, 6th Report from the Secondary Legislation Scrutiny Committee, considered in Grand Committee on 22 July.
Local Audit and Accountability Bill [HL]
(11 years, 4 months ago)
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16:13 - Division on Amendment 1 - Ayes: 172 / Noes: 191 - Amendment 1 disagreed.
16:37 - Division on Amendment 2 - Ayes: 172 / Noes: 192 - Amendment 2 disagreed.
Lord Wills
“Auditor’s right to documents and information of significant private contractors
(1) A local auditor has a right of access at all reasonable times to audit documents from significant private companies that the local authority have contracted services to during the last financial year.
(2) Local auditors only have a right of access to audit documents from private companies, under subsection (1), that relate to the service provided to the local authority by that company.
(3) A local auditor must make available on request any audit documents, obtained under subsection (1), subject to the provisions of the Freedom of Information Act 2000.
(4) In this section “private company” shall be interpreted to mean any legal entity, including joint ventures, not-for-profit organisations, mutually-held organisations and charities.
(5) Five years after the coming into force of this section, the Secretary of State must commission and publish a review of the effectiveness of subsections (1) to (3) and of the costs to local auditors, private companies and local authorities arising from it.”
Lord Wills
My Lords, this amendment is designed to bring greater transparency to the relationships between local authorities and the private contractors to whom increasingly large amounts of public services are being contracted out. Billions of pounds are at stake in these contracts and the recent revelations about the electronic tagging work carried out by private sector firms for the Ministry of Justice are just the latest example for the case for greater transparency in these arrangements.
I moved a similar amendment at both Committee and Report, when I set out the merits of greater transparency in tackling fraud and corruption, incompetence and inefficiency and in terms of citizens’ rights to know about the services provided to them and the taxpayers’ right to know about the services they pay for. I do not need to detain your Lordships today by rehearsing those arguments again at length.
The Government appear to believe that there are already sufficient provisions for transparency for this amendment not to be necessary, but the fact that local authorities themselves are covered by the Freedom of Information Act does not always provide the necessary transparency for private sector bodies carrying out public sector work, as I argued at Committee and Report, nor does the right of electors to inspect accounts and audit documents, important though that right is and has been for the many years.
At the heart of the Government’s resistance appears to be a belief that transparency increases cost. I addressed this argument at length on Report, by analysing the Government’s figures, which suggest that such costs are likely to amount, if at all, to an increase in a tiny percentage of the sums involved. The Government have not, so far, questioned my calculations. I also pointed out that transparency can save money often by revealing fraud and corruption, incompetence and inefficiency. However, I recognise that Ministers fret about things which sometimes they do not always need to fret about and, in an attempt to set their minds at ease, I have made two changes that I hope will go some way towards meeting the Government’s concerns.
First, in this amendment, there is a provision for a review after five years to see whether the Government’s concerns about costs among other things are justified. Secondly, I have inserted “significant” into the amendment to make it clear that it is not intended to cover the provision of services by small businesses, nor the work of town and parish councils, as in those cases this amendment might be unnecessarily onerous. I hope that, even at this late stage, Ministers might reconsider their position on greater transparency in this area and that these changes might encourage them to do so. I beg to move.
Lord Tope
My Lords, Liberal Democrats campaigned hard for freedom of information long before the Act was passed and have since been consistent and enthusiastic supporters of its provisions. It follows therefore that we start with considerable sympathy for the issue that the noble Lord, Lord Wills, is pursuing. This is the first time I have spoken on his amendments and I am grateful to him for pursuing the issue at all stages of the Bill.
It is timely because we are now seeing in local government a significant and substantial change towards commissioning. It is not quite the same as outsourcing, as has been referred to, but it is largely brought about by budget pressures and is a change that is coming anyway. Now and in the years to come we will see local authorities all over the country of all political persuasions increasingly commissioning services not just from commercial contractors, but from the third sector, joint ventures, charities and so on. I am pleased that the noble Lord has therefore included in subsection (4) of his proposed new clause a reference to,
“joint ventures, not-for-profit organisations”,
and so on, because that is at least in part the direction in which we are heading. For all those reasons, I am pleased that we have the opportunity to debate his amendment. I am also pleased that he included “significant” for reasons that he explained. I assume it will mean that all the smaller sub-contractors, for instance, will not necessarily be covered by this, and that is welcome too.
Lord Campbell-Savours
My Lords, I will briefly intervene to follow up some of the comments of the noble Lord, Lord Tope. From 1986 onwards, I argued in the Commons for revision of the law governing the provision of information to the public. It was during a very interesting period following the arguments in the mid-1980s over Tony Wright and the reform of the Official Secrets Act.
One of the reasons we argued for freedom of information was that we believed that it would change the conduct within local authorities. My noble friend’s amendment would extend those rights of access to a group of organisations that effectively are carrying out the functions of local authorities. In saying, “change the conduct”, I refer back to the comments of the noble Lord, Lord Tope, on the additional cost. However, no-one has been able to quantify the benefits financially to local authorities of being more transparent in their operations. I frequently used freedom of information requests to press local authorities and other public bodies on the way that they conduct themselves. After a series of freedom of information requests, one sometimes notices a change in the way that a local authority conducts its affairs. Very often, it means greater efficiency, the saving of public money and a happier general public paying their council taxes.
When the Minister winds up, I do not think that he should see the issue simply in terms of costs; he should think about the actual benefit to the taxpayer of a system that is far more transparent in its operations.
The Earl of Lytton
My Lords, I had intended to add my name to the amendments tabled by the noble Lord, Lord Wills. I regret that probably I advised the clerks too late for that to happen. I start, therefore, by apologising to the noble Lord.
As did the noble Lord, Lord Tope, I declare my interests as a newly polished and appointed vice-president of the Local Government Association and a possibly somewhat more tarnished president of the National Association of Local Councils. The issue is one of not adding unnecessarily to costs, as the noble Lord pointed out. Part of me says that whenever locally—or at whatever level—a greater throughput of taxpayers or public money is being used, it is right that the level of scrutiny is proportionate. The reference to “significant private companies” is perhaps slightly less than I would have liked. I would have liked the figure itself to have been objectively significant rather than the company providing the service being significant. I am not sure that I know what a significant company is in this context, whereas I am clear as to what a significant figure might be.
However, it is right that auditors should have a degree of discretion in looking at this. As I said at an earlier stage in the Bill, we may be looking at quite small organisations that, for whatever reason—perhaps because of some project they are undertaking—may be responsible for deploying fairly significant sums. It is right that those should be subject to scrutiny. There is no place here for opacity in the way in which figures are presented. Therefore I very much support the principle of this amendment.
I will digress, if I may, onto the freedom of information issue. I am aware that one of the get-outs in relation to providing freedom of information data is when the request is considered to be vexatious. The standard of “vexatious” as a term of art seems to be a matter of self-assessment to a degree by the body that is providing that information; at least, that is how it seems to me. The noble Baroness opposite is shaking her head slightly; if I have got it wrong, I apologise. However, it seems to me that that is capable of a degree of latitude. I certainly have seen evidence of “vexatious” used as a reason for not providing information—although not in the context of local government—and the term ought to be made a little clearer. In general terms, I support what the noble Lord, Lord Wills, has put forward and am grateful to him for continuing to bring it to the attention of the House.
Lord Palmer of Childs Hill
My Lords, first, I declare an interest as the current chairman of a local authority audit committee. I shall chair a meeting later this evening. I shall add a touch of reality to the comments made by other noble Lords.
The first subsection of the amendment moved by the noble Lord, Lord Wills, states that the local auditor is to have right of access to the books and records of contractors. In the real world, any local authority worth its salt has in all its contracts a clause allowing it access to the documents of its auditors or the processes that those local auditors use. If a local authority does not have that, shame on it. What we are perhaps trying to do here is to put into legislation something that is a normal commercial attitude that local authorities or corporate bodies should do anyway. As my noble friend Lord Tope said, commissioning is coming on in so many local authorities, and the measure and size of some of the contracts will be very significant. With these large commissioning items, it is not the legislation that should be relied on but the normal contractual terms between the local authority and the contractor. The Government and the noble Lord, Lord Wills, are right to highlight that local authorities should deal with this with their contractors. As my noble friend Lord Tope said, when the Government review these matters, even after this Bill is passed, they should perhaps seek to encourage that within local authorities.
Subsection (3) of the amendment states:
“A local auditor must make available on request any audit documents, obtained under … the Freedom of Information Act 2000”.
That worries me somewhat because, if something is too rigid and too demanding, the net result in practical terms is that people do not put it down on paper in order not to be subject to freedom of information. That might discourage the local auditor from carrying out its job in a deep way. I am all for transparency, but it should be transparency as the auditor feels is right rather than being enshrined in law. Although I understand where the noble Lord, Lord Wills, is coming from, and I appreciate the amendment, I hope that it will encourage the Government to review matters before the Bill becomes law.
Lord Beecham
My Lords, I join others in declaring membership of the LGA vice-presidential mafia. I am also a member of Newcastle City Council’s audit committee. I strongly support my noble friend’s amendment, as did the noble Lord, Lord Shipley, a former leader of Newcastle City Council who, alas, is not in his place.
I congratulate the noble Lord, Lord Tope, on the ingenuity with which he has contrived some wriggle room to justify supporting the Government this afternoon as opposed to doing what the noble Lord, Lord Shipley, would perhaps have done had he been here and opposing them, but I do not think his arguments carry very much weight. He is particularly concerned about the cost of these matters, but the audit is carried out on these services whether they are provided as of now by the local authority or by an external body. There ought to be a level playing field in that respect in any event so that there will be a cost of proper auditing by the district auditor and it should not add to the burden that is currently experienced.
The argument that the noble Lord adduces about the need to assess the situation is perfectly fair, but of course it is provided for in the amendment. One could argue that my noble friend has been excessively generous in saying that the review should take place after five years. It may be that a shorter period will be short enough to assess the functioning of the system and, if there is still a question as to the costs, the costs. However, the principle of my noble friend’s amendment is clearly right.
Lord Wallace of Saltaire
My Lords, I start by thanking the noble Lord, Lord Wills, for our useful discussions about Amendments 1 and 2, both after Committee and again earlier this week. I also acknowledge his commitment to this agenda and the enthusiasm with which he pursues it.
Amendment 1 seeks to give auditors a right to access audit documents of significant contractors to local authorities and to make these available on request. Amendment 2 is concerned with extending freedom of information rules. The debate we have just had has extended over both amendments and, to some extent, I have to answer both amendments, even though the noble Lord chose to separate the two last night.
I acknowledge that there is a wider issue here, as the noble Lord, Lord Beecham, has just said, about the appropriate levels of audit, transparency and accountability for private providers of public services—whether they be for-profit companies, not-for-profit voluntary organisations or others. This issue has grown over the past 25 to 30 years as successive Governments of all parties have outsourced public services, both from the national and from the local level. As the noble Lord, Lord Beecham, pointed out, recent publicity over inadequate performance has heightened public interest and interest in this House, although I should note that almost all the recent cases publicised have been about nationally negotiated contracts, not local contracts. Noble Lords may have noticed that the Atos contract with DWP on work disability assessment included provision for DWP audit. That has now discovered certain weaknesses for which Atos has apologised.
I encourage the noble Lord to pursue this issue further. I will repeat what I said on Report: both Parliament and the Government need to look at this issue in general. With my Cabinet Office hat on I would say that the Cabinet Office is actively looking at the issues of commissioning and contracts and how to make sure that we are raising standards across Whitehall. The new Commissioning Academy, the Government’s champion for the non-profit sector, is part of how we are working at learning from mistakes that have been made, both under this Government and under our predecessor, and raising the level of approach. It would be highly appropriate for Parliament to look at this in parallel with the Government. As I suggested on Report, I encourage the noble Lord, Lord Wills, to consider whether he should bid for a sessional committee, for example, which would examine the changing relationship between non-governmental providers of public services and local authorities and national authorities to see whether we can find consensus across the parties on how we approach this issue.
On the wider issue, nevertheless, I have to say that the case has to be made. I suspect that the noble Lord, Lord Wills, was, in his commitment to greater transparency and freedom of information, in a minority in the previous Government. I recall that the Prime Minister Tony Blair said that the Freedom of Information Act was the biggest mistake that they had made. I share, as do all those in my party, a commitment to transparency in government, and the coalition Government have done their best to extend transparency. In many ways, however, there is rather further to go, particularly when one comes to the relations between the private sector and the public sector—the private for-profit sector, which pleads commercial sensitivity and additional costs from the extension of the sort of transparency and audit which the noble Lord is approving.
This specific amendment is not necessary because the Bill already gives these powers to local auditors. Clause 21 enables local auditors to access whatever documents and information they think are necessary to undertake their functions under the Bill. That includes documents held by local authorities’ contractors if the auditors consider that these are necessary in order to undertake their functions. That covers all the functions in the Bill, not just the audit of the financial statement but all the additional functions that are unique to local public audit such as the consideration of questions and objections from the local electorate and the issue of public interest reports. Schedule 11 to the Bill also includes provisions which enable local auditors to disclose information necessary to answer those questions and objections. The Government’s code of recommended practice for local authorities on data transparency recommends a minimum set of data to be published locally. All local authorities now publish expenditure over £500 and many publish their contracts. No audit firms have yet indicated that the current access rights are inadequate or lacking.
That being the case, I argue—I hope the noble Lord recognises that I do not argue the resistance to his amendment primarily on cost grounds—that the case is not made on this amendment. We all recognise that there is a wider issue about the overall transformation over the past 25 years of the relationship between government as provider of funds and the private, profit and non-profit sectors as the provider of those services in return for funds. However, I agree strongly with my noble friend Lord Palmer of Childs Hill, who said that much of this is covered in the contractual relationship. We are all learning about how to improve that contractual relationship. The Government, particularly within the Cabinet Office, are working on how to extend best practice across the Government nationally as well as assisting local authorities. Having given all of those assurances, I hope that the noble Lord feels able to withdraw his amendment on the condition that we will continue to discuss and examine this very broad issue.
Lord Wills
My Lords, this has been a short but useful debate. I am grateful to all who have spoken in it and for the fact that everyone—except the Minister—has broadly supported the amendment. I congratulate the two new vice-presidents of the Local Government Association on their contribution on this subject. I am also grateful to the Minister and the noble Baroness, Lady Hanham, and their officials for their willingness to engage continually with me on this subject. I have benefited from our discussions.
I am grateful, too, that the Minister expressed his continuing willingness for the Government to keep looking at this issue. That is a step forward from the Committee stage and the Report stage. Although the Government have not accepted the amendment, I am grateful for what I take to be a slow, almost imperceptible, warming of their position on it. However, looking at this issue is not the same as doing something about it. It is not the same as taking advantage of what is likely to be quite a rare legislative opportunity to bring greater transparency to this important sphere of public life.
The Minister mentioned two primary reasons for resisting the amendment. One was commercial sensitivity. However, he will be well aware that the Freedom of Information Act 2000 has an exemption for commercial sensitivity—subject, of course, to a public interest test. So, with all respect to him, I am not sure how far he would wish to pursue that argument.
The Minister then focused on the idea that the amendment is not necessary. Both he and the noble Lord, Lord Palmer of Childs Hill, relied for their position on the fact that good local authorities should have this aspect covered anyway in their contractual relationships with private sector companies providing outsourced work. The noble Lords are, of course, right. Good local authorities should have this covered. If all local authorities were good local authorities, my amendment would not be necessary. But they are not. They make mistakes and they overlook things, as we all do. In Committee I gave examples. I notice that the noble Lord, Lord Palmer of Childs Hill, did not say that all local authorities do this. He said, quite rightly, shame on those that do not, but he conceded that there are those that do not. I think that the Minister himself said that “much” of this—not all of it—was covered under the contractual arrangements. That is precisely what the amendment seeks to remedy. It seeks to ensure that all local authorities bring greater transparency to this crucial area of public life, where billions of pounds of taxpayers’ money are at stake. We have seen already how necessary this is.
In the light of that, I am afraid that I shall have to resist the Minister’s invitation to withdraw the amendment. Because the Government are warming to this idea, I hope that this House can send a signal to the other place about the importance of transparency and perhaps encourage the Government, when the Bill gets there, to move further on this issue. I therefore beg to test the opinion of the House.
Lord Wills
“Freedom of information
(1) In the Freedom of Information Act 2000, at the end of Part 1 of Schedule 1 (public authorities), insert—
“7 A local auditor of a local authority.”
(2) Five years after the coming into force of this section, the Secretary of State must commission and publish a review of the effectiveness of this section and of the costs to local auditors, private companies and local authorities arising from it.”
Lord Wills
My Lords, I moved an identical amendment to this at both Committee and Report stages of the Bill. I will not rehearse again all the arguments I set out at both stages or the merits of greater transparency, which we discussed in the debate on the previous amendment, the advantages of tackling fraud, corruption, incompetence and inefficiency, or the principled arguments in favour of citizens having the right to know about the services provided for them to the maximum extent possible and of taxpayers knowing as much as possible about the services for which they pay. However, I stress again that this amendment sets out not to promote an increase in transparency so much as to tackle a decrease in transparency which is brought about by the new arrangements under the Bill.
As I said on Report, the Audit Commission, which is being replaced by the provisions of the Bill, was covered by the Freedom of Information Act. My understanding is that in addition to information that it held for its own purposes, which of course was covered by that Act, other information held by auditors would also have been regarded as being held by the commission in certain circumstances, and therefore would also be covered by the Freedom of Information Act—for example, when the Audit Commission was investigating a complaint against a specified auditor, when it was conducting a quality control assessment of an auditor’s work or when it had required an auditor to provide information for the discharge of wider commission functions such as making judgments on local authorities’ use of resources. In such circumstances, such information would have been deemed to be held by the Audit Commission, and therefore would be subject to the Freedom of Information Act. These are important categories of information that cover significant areas of public interest and concern. Yet, as far as I can see, no public authority as defined in the Freedom of Information Act has inherited those responsibilities from the Audit Commission under this Bill. Therefore, under this new regime, such information will no longer be covered by the Freedom of Information Act. I think that it should be.
This restriction of transparency damages the public interest and the amendment seeks to prevent that happening. At previous stages, this amendment received support from all sides of the House and has the support of the Local Government Association. Only the Government have stood out against it. In the light of our previous discussions on this issue and the previous debate today, I hope that they will now change their minds. I beg to move.
Lord Beecham
My Lords, my noble friend is absolutely right to point out that this is simply a question of preserving, or perhaps reviving, the level terms on which freedom of information has hitherto applied. It is different from the previous case that we debated. No question of cost is likely to be germane to the amendment. It is simply there to ensure that the transparency currently available within a local authority’s documentation is extended to those with which it contracts, subject to the Freedom of Information Act provisions and exemptions. There seems to be an unanswerable case for ensuring that that degree of transparency will apply as it applies now, before the Bill is enacted. I concur with my noble friend who urges on the Government acceptance of this provision, which is different from the previous amendment and to which I can see no possible objection, even from Liberal Democrat Members of your Lordships’ House or, indeed, elsewhere.
Lord Wallace of Saltaire
My Lords, the Government are keen to promote transparency. As I have previously suggested, they are sometimes keener than their predecessors were to promote transparency and accountability around outsourced services. However, we agree with the Justice Select Committee’s recommendations in its post-legislative scrutiny of the Freedom of Information Act and consider that the better approach is to preserve transparency through contractual provisions, rather than the formal extension of the Freedom of Information Act at this time. In 2012 the Justice Select Committee considered in detail during its post-legislative scrutiny the challenge of how to deal with contractors of public authorities. The committee concluded that,
“contracts provide a more practical basis for applying FOI to outsourced services than partial designation of commercial companies under section 5 of the Act”.
Lord Beecham
If it is the Government’s intention to see how the system works and then possibly take further steps, why do they not accept the amendment on the basis that it will incorporate in another place a sunrise clause, giving it the opportunity to proceed without primary legislation, which would otherwise be involved?
Lord Wallace of Saltaire
My Lords, this Government, unlike their predecessors, are concerned to minimise the number of burdens on business, contractors and on the voluntary sector. After all, we are dealing with a large number of non-profits. We want to see whether the system works before adding more regulation.
Let me end by reiterating that increasing transparency is important but we do not see that the amendment moved by the noble Lord, Lord Wills, provides the right approach at the current time to the problems that we face. Local people already have the right to ask questions and raise issues with the auditors, and the Government are committed to keeping under review the current approach to encourage local authorities and contractors to interpret their obligations more broadly and, if necessary, consider other approaches.
Lord Wills
My Lords, I am grateful to my noble friend on the Front Bench and to the Minister for his response, but I am baffled by it. He has not argued on the fact that it is a decrease in transparency, does not maintain the status quo and does not provide citizens with the right to know, in the way of the old regime. Yet the Minister wants time for this decrease in transparency to bed in.
Lord Wallace of Saltaire
My Lords, I do not accept the noble Lord’s contention that it is a decrease in transparency. As I remarked on the Atos cases, on which there has been some publicity, the way in which contracts are now being formulated provides for a considerable expansion in transparency in how they are negotiated, and with access to the public authority as contractor. We simply do not accept what the noble Lord is arguing.
Lord Wills
I am grateful for the Minister’s intervention but he has still not answered the question. It is clear that the Minister cannot guarantee—I will sit down if he can do so—that all local authorities will formulate their contracts with private sector contractors in a way that guarantees the transparency that he says he wants. I am happy to sit down if he can guarantee that. The Minister is not moving in his seat. Of course, he cannot guarantee it.
Lord Wallace of Saltaire
There is a difference of philosophical approach between the two parties and the current position of the Labour Party. The Labour Party is rather more centralist and authoritarian and wishes to tie everything up together. We are trying to provide more flexibility and more autonomy. That is why we are attempting this slightly less centralised and over-regulatory approach.
Lord Wills
I agree that there is a difference between the two sides on this. However, it is not about authoritarianism but about whether we trust a bunch of politicians or the citizen with the right to transparency. The whole point of freedom of information is that it gives the citizen the right. The Minister wants to give private sectors and politicians the chance to stitch it up between them without giving the citizen the right to scrutinise it. That is the difference between the two parties. It has nothing to do with authoritarianism.
However, the Minister has still not addressed the point that this is a decrease in transparency. He has not said, for example, how the coalition will decide, when it reviews the arrangements that the Bill will bring in, whether transparency needs to be increased. By its definition it will be almost impossible for the coalition to find out and I am curious about how the review will be conducted.
The Minister focused his remarks on the relationship with the private sector but the amendment covers not only that relationship but local district auditors. That is the key point. The citizen and the taxpayer need transparency in the operation of the people who scrutinise the delivery of public services. I remind the Minister that the Grant Thornton report on Mid Staffs showed how important it is that there should be transparency in the work of those who monitor and scrutinise the delivery of public services. The Government say that they have learnt the lesson from Mid Staffs but the Minister, whatever he says, has just proved that they still have not learnt the lessons about the merits of transparency.
However, I notice the Minister’s careful words. He said that “at this time”, “at this stage”, he is reserving his options. It may be that between now and the Bill going to the other place the Government will change their mind and it will not be “at this time” any more but “at another time”. With that and the disappointingly unsatisfactory response from the Minister in mind, and in the hope that your Lordships’ House will send a signal to the other place, I ask leave to test the opinion of the House.
Baroness Hanham
“Omit sections 69 and 70 (transitional provision: local government bodies in Wales and Welsh NHS bodies).”
Baroness Hanham
My Lords, Amendment 3 is a further minor consequential amendment to the Public Audit (Wales) Act 2004 following the closure of the Audit Commission.
The Public Audit (Wales) Act 2004 transferred a number of powers from the National Audit Office and the Audit Commission to the Auditor-General for Wales. This Bill already repeals some sections within the Public Audit (Wales) Act 2004 which refer to the Audit Commission. Sections 69 and 70 provide transitional arrangements to enable auditors of Welsh local government and NHS bodies who were appointed by the Audit Commission to continue for the whole of their term, despite the Public Audit (Wales) Act 2004 transferring responsibility for auditor appointment from the Audit Commission to the Auditor-General for Wales.
Section 69 also makes transitional provision to enable the Audit Commission to complete any studies which include a local government body in Wales that were under way at the time of the transfer. The Welsh Government have now confirmed that the transitional period has been completed and that these provisions can be repealed. I beg to move.
Lord Beecham
My Lords, I am sure they will be putting up the flags in the valleys and hills of Wales tonight in celebration of this government amendment, which I am happy to support.
Baroness Hanham
My Lords, I beg to move that the Bill do now pass. It is my pleasure to thank the Members of the Committee who have helped us through the Bill over the past few months. I am extremely grateful to everybody who has taken part and, as always with Bills leaving this House, I think it has been strengthened as a result. It might be worth reflecting that in response to issues raised during the debate, the Government have made 15 individual amendments, not including minor, technical amendments, and we have also made clear our intention to amend the Bill in the other place to enable the non-mandatory central procurement of auditors on behalf of relevant authorities. We are also considering other points in relation to the data-matching powers, so there have been significant interventions and significant help and I thank all noble Lords, on the opposite side and in the coalition, for all they have done to see us through the past few months.
Financial Services (Banking Reform) Bill
(11 years, 4 months ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Commercial Secretary to the Treasury (Lord Deighton)
My Lords, the Bill is a central part of the Government’s response to the financial crisis of 2007-09. Noble Lords will recall the terrible events of those years. Britain saw the first bank run in over a century. Depositors in Northern Rock queued in the streets to take their money out. The biggest bank in the world, the Royal Bank of Scotland, teetered on the brink. RBS and HBOS had to be bailed out and the Government had to inject £65 billion of taxpayers’ money to save the banking system from collapse.
Huge though this direct cost to the taxpayer was, the full costs of the crisis were still greater. Gross domestic product fell, peak to trough, by 7.2% as the supply of credit dried up and tight credit continues to be a problem for many businesses and families. This is why the Government have had to intervene to support credit supply through measures such as Funding for Lending, Help to Buy and the Business Finance Partnership. These will help to address the consequences of the crisis. To tackle its causes and to prevent a repeat, the Government are taking forward a programme of reform built on three pillars.
The first pillar is reform of financial regulation. This was achieved through the Financial Services Act 2012, which received Royal Assent last December and came into force this spring. The second pillar is structural reform of the banking industry. That is the focus of the measures in the Bill before us today. The third pillar is reform of banking standards and culture. The Parliamentary Commission on Banking Standards—the PCBS; I am afraid there will be quite a few abbreviations today—last month made important recommendations in this area. The Government have accepted the PCBS’s principal recommendations and where those require primary legislation they will be incorporated into this Bill through government amendments at Committee stage.
Let me first turn to the measures already in the Bill. The bulk of these implement key recommendations of the Independent Commission on Banking, or ICB, chaired by Sir John Vickers. As noble Lords will know, the Vickers commission was established in 2010 to consider both structural and non-structural reforms to the banking sector. It reported in September 2011 and recommended, first, the ring-fencing of retail from investment banking. The ICB also proposed measures to improve banks’ ability to absorb losses and to ensure that losses can be made to fall on banks’ creditors and not the taxpayer if a bank fails. These measures included higher capital requirements for ring-fenced banks, a bail-in power and preference in insolvency for bank depositors over other creditors. The Government accepted virtually all the ICB’s recommendations.
This Bill will implement the ring-fence as recommended by the ICB. It defines core activities—that is, taking deposits—which must be inside the ring-fence, and it defines excluded activities—that is, trading in investments as principal—which must be outside the ring-fence. As the ICB recommended, activities that are neither core nor excluded may be either in or out. The Bill makes safeguarding the continuity of services connected to deposit-taking a part of the Prudential Regulation Authority’s general objective. It requires the PRA to make rules to ensure the independence of ring-fenced banks from their wider corporate groups. In response to the recommendations of the PCBS, we have amended the Bill in the Commons to electrify the ring-fence. I will come on to the details of that shortly.
The Bill also makes deposits protected by the Financial Services Compensation Scheme preferential debts in the event of insolvency. This will increase the FSCS’s expected recovery in the event that a bank fails and the FSCS has to pay out, reducing the risk of contagion and protecting the taxpayer. The ICB also recommended that if a bank fails the authorities should have the power to bail-in creditors, imposing losses on them rather than letting those losses fall on the taxpayer. The forthcoming EU bank recovery and resolution directive should deliver a bail-in tool at European level and a requirement for national authorities to ensure that their banks have in issue a minimum amount of credibly bail-inable liabilities, necessary to ensure bail-in is effective and credible. This Bill gives the Treasury power to set the framework within which the PRA imposes requirements on banks to have in issue minimum amounts of bail-inable debt.
In addition to the ICB’s recommendations, the Bill also reforms the governance of the Financial Services Compensation Scheme manager to ensure proper oversight and accountability for its use of public funds. It extends to subsidiaries of the Bank of England exemptions from Companies Act accounting requirements given to the Bank itself where the Bank considers that necessary for reasons of financial stability. It also allows for the costs of the Treasury’s participation in international organisations dealing with financial stability to be recovered from the industry.
Before reaching this House, the Bill already received very substantial scrutiny. The Government published the Bill in draft last October for pre-legislative scrutiny by the PCBS, which of course included several Members of this House. In light of the PCBS’s report on the draft Bill, the Government made a number of changes both before the Bill was introduced to Parliament and while it was before the House of Commons. In the Commons, the Bill was scrutinised line by line over the course of eight Committee sittings and had two days of debate on Report. For a Bill of just 35 pages, that was intensive, detailed scrutiny.
Throughout this process the Government have consistently adopted a constructive approach. We have welcomed suggestions from all quarters on how the Bill might be improved. Where we found those suggestions valuable, we have amended the Bill accordingly. For example, in pre-legislative scrutiny the PCBS argued that the regulator’s objective for ring-fencing could be made clearer. We accepted this suggestion and amended the Bill before its introduction and again on Report in the Commons. The PCBS also called for specific requirements for ring-fenced bank independence to be put in the Bill. We agreed and amended the Bill in a way that the PCBS acknowledged arguably went even further than it had suggested. The PCBS proposed that the PRA be required to report on ring-fenced banks’ sale of derivatives to clients. We will amend the Bill to this effect while it is before this House.
On the procedures for exercising delegated powers, the Government not only accepted recommendations made by the House of Lords Delegated Powers Committee, but also accepted a further amendment tabled by the Opposition in Committee in the Commons.
Perhaps most significantly, as I alluded to earlier, in response to the recommendation of the PCBS, the Government amended the Bill in the Commons to provide for a power for the full separation of an individual banking group. This is what the PCBS termed “electrifying” the ring-fence. The power we have added to the Bill will substantially reinforce the ring-fence. It will allow the regulator to require a banking group to separate completely its retail from its wholesale banking operations. This power can be exercised if the regulator believes that a ring-fenced bank is insufficiently independent of the rest of its group, or that the group’s conduct might in some other way threaten the regulator’s ability to safeguard the continuity of core retail banking services. As the PCBS recommended, given the momentous consequences for a banking group of a requirement to separate, the regulator can only use this power with the consent of the Treasury.
As noble Lords will know, when this power was debated in the Commons, questions were raised about the process for exercising it set out in the Government’s amendment. Some argued that the procedure was too complicated or lengthy. The Government have listened to these arguments. We accept that the process for requiring a group to separate could usefully be streamlined. We will therefore bring forward amendments to that effect while the Bill is before this House. And we will listen to the contributions of noble Lords to ensure that the process in the Bill meets the objectives that the PCBS set out, and which the Government share.
The Government remain unpersuaded, however, that a reserve provision for full separation across the entire industry would be appropriate. A firm-specific reserve power will reinforce the ring-fence by deterring banks from seeking to undermine or weaken it. However, to move to industry-wide separation would be to abandon the ring-fence altogether, in favour of an alternative structural reform. Let us be clear: this would not be a sanction, it would be a different policy. That alternative policy was considered in detail by the ICB, which rejected it. As noble Lords will know, the ICB concluded that full separation similar to Glass-Steagall would entail very significant additional costs, for doubtful—or even negative—additional benefits to ring-fencing. The Government have accepted the ICB’s recommendation and are therefore implementing the ring-fence through this Bill.
Like the ICB, the Government believe that the ring-fence will succeed. A future Government would, of course, be within their rights to come to a different conclusion, and to shift to an alternative policy. But if they did, the only proper and democratic way to implement that new policy would be to return to Parliament with new primary legislation which could be properly debated and scrutinised. The proposal made by the PCBS would potentially lead to full separation with no more than a short debate in Parliament and a vote. This would stand in extreme contrast to the extensive consultation and scrutiny that the current policy has gone through.
We have also recently heard proposals from the PCBS on the issue of the leverage ratio. The PCBS has suggested that control over the leverage ratio should be taken out of political hands and given to the regulator. The Government strongly support the principle of a binding minimum leverage ratio, as agreed in the Basel III accord. We believe that it is entirely appropriate for minimum standards to be set in statute. This applies to all the minimum requirements in Basel III, which we continue to push to have implemented through EU legislation.
This does not mean that there is no role for the regulator. Judgment-based regulation means the regulator having the ability to impose additional requirements if it feels that these are necessary to achieve its statutory objectives. Only last month, the PRA required a number of banks to meet higher leverage standards sooner than the Basel III deadline. The PRA thus demonstrated that it already has the power to impose higher requirements on leverage. So beyond minimum requirements set in statute in line with international standards, day-to-day control over the leverage ratio lies in the hands of the PRA.
Structural reform of the banking industry is the second pillar of the Government’s reform programme. The third pillar is reform of banking standards and culture. As noble Lords well know, the Government have welcomed the recent report of the PCBS, one main theme of which was to strengthen individual accountability in financial services. The PCBS argued that the existing approved persons regime has failed in this, and that new measures are needed to replace it. The PCBS also called for criminal sanctions for reckless misconduct in the management of a bank.
The Government have accepted these recommendations. While the Bill is before this House, we will therefore bring forward amendments to introduce a new senior persons regime. We will reverse the burden of proof for senior persons so that they will be accountable for any breaches of regulatory requirements in their areas of responsibility, unless they can prove that they took all reasonable steps to prevent them. We will also amend the Bill to give regulators the power to make rules governing the conduct of anyone employed in financial services, and to extend the time limit for enforcement action from three to six years.
Lord Forsyth of Drumlean
I am most grateful to my noble friend. Perhaps I should declare an interest as a regulated person. This new criminal offence of reckless misconduct is to apply—according to the excellent report which was produced—only to the senior management of banks. Can the Minister explain why, if someone is responsible for major systemic difficulties arising from the collapse of a bank, this new criminal offence should be limited only to the management of the bank and not apply to regulators or Treasury officials?
Lord Deighton
I thank my noble friend for that interesting observation. The purpose of the Bill is to look at the management of the financial institutions themselves rather than the system. I would welcome that discussion later, in Committee, if my noble friend would like to take it further.
As a further deterrent against misconduct, the Government will table amendments to make reckless misconduct in the management of a bank a criminal offence. Those found guilty will face the possibility of prison sentences. Together, these measures represent an historic overhaul of the system for holding bankers to account for their actions. However, rules and sanctions alone will not guarantee good conduct. The PCBS argued that effective competition between banks is essential to ensuring high standards of behaviour, and the Government agree. We will therefore amend the Bill to give the PRA a secondary competition objective. This will give the PRA a greater role in championing competition in the banking market, to the benefit of consumers.
One key barrier to competition in banking, and in particular to new entrants and smaller firms looking to challenge the big high street banks, is the big banks’ control of payments systems. The Government will therefore introduce amendments establishing utility-style regulation of payments systems. To ensure the safety and stability of payments services, we will also bring forward amendments to provide for a special administration regime for payment and settlement systems. This will require critical payment and settlement services to be continued even in insolvency, until the firm recovers or alternative provision is available.
While the Bill is before this House, the Government will also make some technical amendments to provisions on the pension liabilities of ring-fenced banks and introduce amendments to modernise the rules for building societies, helping to create a level playing field between building societies and banks while preserving the distinct nature of the building society sector.
In the other place, the Government set out our intention to use this Bill to require the Bank of England to produce a resolution strategy for each major UK bank—that is, a plan for how the authorities propose to respond in the event that that bank failed. We still believe that resolution plans are necessary, but given that the European Council of Ministers and the European Parliament have recently published proposals for the EU recovery and resolution directive that include similar provisions, it may be more appropriate for this requirement to be imposed through transposition of the directive than through the Bill. The Government will continue to review this issue in the light of European developments while the Bill is before this House, with a view to bringing forward amendments if necessary.
We can all agree that this is legislation of the highest importance. It is essential that we address the causes of the terrible banking crisis of five years ago, whose consequences remain with us today. The Bill is a vital step towards ensuring that this crisis is never repeated. Its current provisions represent a once in a generation reform of the structure of British banking, while forthcoming amendments will revamp the accountability regime for bankers’ conduct and standards. I look forward to constructive engagement with all sides of this House over the months ahead. To support noble Lords’ consideration of the Bill, last week the Government published drafts of the principal secondary legislation exercising delegated powers under the Bill, and I will ensure that my officials are available to noble Lords to discuss any details of the Bill. I am pleased to present the Bill for the consideration of noble Lords. I beg to move.
Lord Eatwell
My Lords, I am most grateful to the noble Lord, Lord Deighton, for introducing the Bill. In his introduction he acknowledged the work of the Independent Commission on Banking and the Parliamentary Commission on Banking Standards in developing the thinking behind the policies that this Bill is intended to implement. The whole House is grateful to noble Lords who are members of the parliamentary commission for all the hard work they have done to formulate a new banking policy for this country. We look forward to hearing from three of them later today. The right reverend Prelate the Bishop of Birmingham is, I think, standing in for the most reverend Primate the Archbishop of Canterbury, from whom we hope to hear at a later stage. I hope also that we can hear at a later stage from the noble Lord, Lord Turnbull.
This Bill is the outcome of the Treasury’s intermediation, let us say, of the recommendations of the independent commission and, to a more limited extent, of the parliamentary commission. Less kindly observers might suggest that, instead of one of intermediation, the Treasury’s role might be described as watering down those recommendations. Every dilution by the Government increases the risk in the banking sector. It would assist the House enormously if, when the noble Lord, Lord Newby, sums up, he would list precisely those areas in which the Government have significantly toughened up on the recommendations that they have received.
Anyone who read this Bill without having studied the various documents issued by the independent commission, the parliamentary commission and the Treasury over the past two years would have absolutely no idea what the Bill is intended to achieve. The Bill essentially is an enabling Bill, which establishes the powers to do certain things—particularly with respect to the establishment of a ring-fence in the banking sector—without specifying exactly what is to be done. Noble Lords may search in vain for an indication of where the ring-fence might actually lie, how electrified or permeable the ring-fence might be, what would be the equity capital or primary loss-absorbing capital requirements and the leverage ratio—I prefer the British pronunciation—inside and outside the ring-fence, and so on. All those and many other matters are to be determined by order or handed over to the relevant regulator.
Yet those issues are central to any evaluation of the value of this legislation in the reform of one of Britain’s most important industries. The Government published last week a number of draft orders that illustrated how important aspects of the concept of a ring-fence will be made operational. That document illustrates just how fearfully complex those vital orders will be. To ensure that this crucial secondary legislation—and, indeed, what the parliamentary committee refers to as tertiary legislation—is suitably scrutinised, will the Government implement the parliamentary commission’s proposal that a small ad hoc joint committee of both Houses of Parliament be established on an ongoing basis to scrutinise secondary legislation and the proposed use of delegated powers?
It is clear that the Bill before your Lordships’ House today relates to but a fraction of the measures that either the parliamentary commission has recommended be included in it, or the Government have stated they intend to include. By the way, those are not the same thing, given that the Government have already rejected some of the parliamentary commission’s proposals.
We know that from the second report of the parliamentary commission there were 25 draft amendments. Some of those have been accepted but many have not. What is to become of those amendments?
There are then the important proposals on banking standards and culture contained in the remarkably thorough final report of the parliamentary commission. In their reaction to that report, the Government suggested that 13 of the conclusions will require implementation by means of primary legislation. There is a wide range of other matters that might properly be discussed at this Second Reading. So what will be accepted, and what will not? What form will all these amendments take? We do not know because we do not have them before us today. This Second Reading is being conducted largely in the dark. We wait for the Government to reveal their hand. When will this happen? When the Government publish their raft of amendments, will they publish a commentary on their significance to facilitate debate on this vital but complicated matter?
The Government estimate that the private cost of the Bill for the banking industry will lie in the range between £3.5 billion and £8 billion. Much of this cost is the removal of the implicit guarantee enjoyed by financial institutions too big to fail and is thus an economically appropriate reallocation of costs. Risk is being properly priced. In so far as the extra cost falls on ring-fenced banks, we can be sure that under current circumstances it will be passed on to retail customers and SMEs, increasing what is already an unreasonably marked-up cost of credit.
There is a serious need for increased competition in the banking industry to mitigate the impact of these extra costs. Since the crisis, defensive amalgamations and forced mergers have reduced competition from what was already a seriously inadequate level. This legislation introduces no fundamental change to the competition regime in banking. Account portability is a valuable addition to consumer choice, of course, but it is not a game changer in terms of competitive challenge. In addition, prudential regulation in our sensitive post-crisis world is proving an almost impenetrable barrier to entry for those who wish to establish new banks. The PRA will have competition as an objective, but where will that objective come in the hierarchy of objectives when it is considering a particular application? What are the Government going to do to bring about a game-changing shift in competition in retail banking in this country?
There are two major issues that do not seem to me to have been closely examined either by the independent commission or the parliamentary commission: regulatory arbitrage and the impact of banking structures on the performance of the real economy. In the run-up to the crisis, the activity of European banks raising deposits in the US and recycling them into the US shadow banking sector undermined the impact of US leverage regulations. The ICB refers tangentially to the importance of regulatory arbitrage, but I do not find its assertions convincing. Could the same recycling arbitrage happen to the UK’s ring-fence? Surely branches of EEA banks operating in the UK could undermine ring-fencing by providing the universal and potentially cheaper banking services that UK and EEA subsidiaries are no longer able to provide. What steps will the Government take to protect the UK ring-fence against such regulatory arbitrage?
Understandably, the thinking behind this Bill concentrated on the problems of the stability of the banking sector and, in particular, on ensuring that essential banking services are maintained during a crisis. This legislation also provides the opportunity to address a wider question: what structure of banking industry would best serve the needs of British industry as a whole, including manufacturing, the creative industries and internationally traded services aiding them to grow and compete in the global economy? Is the current structure that we are shoring up in this legislation really appropriate to the needs of the rest of UK plc? Is there a need for a British investment bank to supplement the Green Investment Bank and the infrastructure bank? Is there a case for regional banks? If the answer to both these questions is yes, will the Minister tell us how such institutions would fit into the ring-fenced structure proposed in the Bill?
An unfortunate aspect of the Treasury’s analysis has been the continued reliance on risk-weighted assets as the reference point for equity capital and potentially loss-absorbing capital and for the gradation of prospective measures with size. This reliance must be abandoned. As currently formulated, risk-weighted assets are a flawed and discredited measure. Consider, for example, the recent assessment by BaFin, the German banking regulator, on the capital requirements of German banks, as reported in the Financial Times on 28 May.
“Germany’s largest banks were €14bn short of the capital needed to meet incoming Basel III banking rules at the end of last year … BaFin’s estimates suggest that banks have mainly improved their capital ratios by … recalculating the risk weightings attached to some assets … Reducing the quantity of risk-weighted assets on the balance sheet means a bank can report a better capital ratio even if the amount of capital has not changed”.
If you do not like the numbers, just change them.
Three weeks ago, the Basel committee announced a major reconsideration of the role of risk-weighted assets, given that the measure is now so widely discredited. However, the Government’s response to the parliamentary commission’s final report states:
“The Government shares the concerns raised by the Commission and many other experts that flawed risk-weightings played a major role in the last crisis”.
That is all well and good, but after turning a single page, we read:
“Risk-weighted capital requirements should remain the primary measure of prudential capital regulation”.
This Government are deeply confused. A fundamental problem of risk-weighted assets is that they are excessively complex. As everyone knows, complexity is the friend of evasion, whether in taxation or regulation. However, a simpler measure is available: the leverage ratio. The parliamentary commission has recommended a leverage ratio of 4%. The United States has announced that it will be 6% in the US. The Treasury insists on sticking to 3%—why?
A higher leverage ratio of course reduces the return on bank equity—hence, by the way, bank bonuses—but it also significantly reduces risk. Why are the Government postponing handing determination of the leverage ratio to the Financial Policy Committee until 2018, despite the Bank of England repeatedly asking for this power now?
The vagueness of the ring-fence is exacerbated by the need to define various terms. What is an SME? If non-ring-fenced banks can inject capital into ring-fenced banks in times of need—a benefit claimed by the independent commission—cannot capital flow out when needed elsewhere, increasing the possibility of damaging contagion? If banks are also allowed to sell derivatives within the ring-fence, rather than act as agents, does this not reintroduce the fee-based culture that has already done so much damage in retail banking, whether in the form of PPI or selling to SMEs derivative protection that was anything but?
Surely it is not enough to claim that mandated activities do not pose a threat today, since activities that are safe today may prove very dangerous tomorrow. These dangers may even be part of systemic phenomena that are no fault of the individual firm. These and many more issues raise the core question of the permanence and permeability of the ring-fence. It is central to the attainment of the objectives of this Bill that the fence is impermeable; and it is vital for future confidence and investment in the banking industry that the fence’s location is clear, well-known and reasonably permanent.
The PCBS’s proposals on the electrification of the ring-fence are vital to the credibility. The Government have accepted the “first reserve power”, whereby a group containing a ring-fenced bank that is deemed to actively undermine the ring-fence could be forced to divest itself of the ring-fenced bank or the non ring-fenced bank—in other words, splitting them up. However, as we heard from the noble Lord today, the Government have rejected the inclusion of the second reserve power, whereby the ring-fence would be abandoned and full separation of all domestic and commercial banking strictly enforced.
Surely the Government have got the matter the wrong way round.The decision to split up a single group would have severe financial and competitive consequences and would undoubtedly entail a lengthy and expensive legal and political battle. It is such a nuclear deterrent that there will be a high expectation that it will never be used. It is not a credible threat. However, if banking as a whole might be split, there is a powerful incentive for mutual monitoring. Accordingly, the incentives motivating the sharpest minds in the industry, ensuring that their colleagues do not undermine the interests of the banking industry as a whole, would be aligned with the statutory objective. What could be better than that?
There are many more complex issues in this legislation which we will debate in Committee. I totally understand the Government’s desire to have this legislation on the statute book as soon as possible, and we on this side will do everything we reasonably can in support of that endeavour. However, this is the most significant reform of the structure of UK financial services in the past 40 years, and we must get it right. That is why we will scrutinise the legislation line by line and demand the early and comprehensive publication of secondary legislation to better judge the true implications of the Bill.
It is vital that this legislation succeeds. If it is watered down, or if it is too complex and does not succeed, it may well do more harm than good. As the parliamentary commission commented in its final report:
“The banking industry can better serve both its customers and the needs of the real economy, in a way which will also further strengthen the position of the UK as the world's leading financial centre. To enable this to happen, the recommendations of this Commission must be fully implemented in a coherent manner”.
Sadly, the Government’s response to the independent commission and the parliamentary commission has been anything but coherent. This incoherence has grave implications for Britain’s financial services industry. On this side, it is our intention in Committee to restore coherence to the Bill.
Baroness Kramer
My Lords, on a hot day such as today and so near to Recess, my noble friend Lord Sharkey and I, who will be working together on the Bill, have tried somewhat to divide up the issues between ourselves so that noble Lords are spared at least some degree of repetition—although I have to admit that it will not always be completely appropriate.
I will associate myself particularly with three issues that my noble friend Lord Sharkey will focus on in greater detail. The first is competition, perhaps the most significant long-term reform to the banking system and one which the current version of the Bill virtually ignores. While the regulators and the Government are now open to competition in, frankly, a complete reversal of historic attitudes, it will be a generation before new banks will be in a position to seriously challenge the dominance of the big four if we rely on organic growth alone. I was quite shaken to hear some senior members of the banking world describe the future very much in terms of a bar-bell: there will be the big four, a group of little ones down the other end and almost nothing in the middle. That will be a continuation of the uncompetitive situation that we face today. As I have said, my noble friend Lord Sharkey will come forward with some ideas on how we can try to accelerate that change, which everyone now acknowledges is necessary. It is fundamental to our banking system.
I will address two other issues, the first of them very quickly. In the Financial Services Act 2012, this House seriously tackled the issue of payday and high-cost short-term lenders in what we all name the Sassoon-Mitchell amendment, which gave very extensive powers to the FCA to crack down on rollovers, interest rates, fees, duration—indeed, I would argue, all the powers necessary to prevent exploitation by this industry. Some comments by Ministers in this House have suggested that the Government might have somewhat watered down their position, although I have heard denials from other Ministers. However, before we return in October we will see the draft version of the new FCA rules. If they are not satisfactory to this House we will have the opportunity to use the Bill to provide the strength that we all think is appropriate.
The third issue, which is not often addressed in banking, is absolutely fundamental and, I suspect, the biggest threat to our future; my noble friend Lord Sharkey will address it in more detail. That is, that the issue of the central clearing platforms for derivative contracts will be a huge source of concentrated risk. Some recent articles by Bloomberg say that the greatest security or strength of the protection under these contracts is largely through the collateral that companies are required to post. They suggest that the banks are finding some fairly clever ways for junk to be used, going through the alchemy process to provide collateral under these contracts. Therefore, I am not sure what the answer is, but this House must not duck that issue, and the Bill is an opportunity for that debate.
I was privileged to be a member of the Parliamentary Commission on Banking Standards, and our four reports covered a wide range of issues in the banking system. It was always intended that those issues should be addressed in this Bill. I appreciate that the Government have made a commitment to address them, and will present to us an extensive series of amendments, as is outlined in their response to the report. However, we will all want to see the detail, rather than just the generality.
I am concerned that much of the content of the Bill will, essentially, come in the form of secondary and even tertiary legislation. I join the noble Lord, Lord Eatwell, in supporting the proposal from the banking commission, and I am glad that he has done so. However, so much of the core and the heart of what the Bill is attempting to achieve will be in the secondary and tertiary legislation that we must have some special mechanisms to enable Members of this House to understand fully what the content is, and what that content implies, and to raise challenges at a point when the Government can take them on board and we can come to a satisfactory conclusion.
Many questions hang over the whole process of reform. For example, in response to the commission’s report, the Government have given us a commitment to review whether RBS should be broken up. Until we see that review, we will not know whether it will be a substantial piece of work which this House can accept or one that we shall have to challenge.
The Chancellor has announced that there will be a new regulator to deal with the payments system—the plumbing of banking—which has been one of the huge barriers to bringing in new competition. It is quite right that the Government should focus on that issue, but we need to see what powers the regulator will have, and whether those powers will extend to, for example, changing ownership of the payments system, and to dealing with more technical but still critical issues such as full account portability.
I appreciate that the Government have said that they will act on new rules governing the approved persons regime, the new senior persons regime, criminal sanctions for reckless misconduct in the management of a bank, and the deferral, cancellation and clawback of remuneration—but will those new rules be as strong as intended? I suspect that until we see the actual language, this House will want to reserve its judgment.
I am particularly concerned that the amendments we have seen so far to electrify the ring-fence look exceptionally cumbersome and inadequate. I hope that that is not a foretaste of the other amendments that will come before us. To quote Andrew Tyrie on that one amendment,
“the Government’s amendments would render the specific power of electrification virtually useless”.—[Official Report, Commons, 8/7/13; col.75.]
I am glad that the Government are to go away to think about that and come back with a new version. I ask them to really take that seriously, and ensure that future amendments represent their quality thinking, not their first thinking. The work of this House requires a great deal of trust on all sides in order to tackle a challenge as serious as that of banking reform.
Rather like the noble Lord, Lord Eatwell, I feel strongly that we must consider the recommendation from the parliamentary commission, which has been rejected by the Government, not just to provide powers to separate an individual bank that misbehaves around the ring-fence but to look at separating the entire industry. I am not a particular fan of separating the whole industry, but I believe strongly in the ring-fence, and I am certain that the banking industry recognises that if there is widespread abuse, if there are issues on every front, and if the Government and the regulator have to go after every individual bank through the courts, with all the legal powers that will be thrown up on the other side, it will become almost impossible to enforce the ring-fence.
I regard the reserve power to split the entire industry—in fact it would facilitate Parliament’s taking that action, as it is not a power given to the regulator but one that passes to Parliament—as essential to ensure that the industry not only polices itself but recognises that there is a nuclear deterrent. It is crucial that the industry learns to respect both the regulator and the Government. Historically, we have seen such manipulation of the system by the industry that we have to make it very clear that that is not the pattern that will be permitted.
I very much support the commission’s views, and that of the Vickers commission, on higher capital requirements and on using a leverage ratio, although I recognise that there may need to be carve-outs for particular circumstances nationwide—that is one of the obvious examples. The issue that we have to confront is that, if we allow risky big banks, which can crash our entire economy, to continue to play a major role in our system, as they must, we must make sure that steps are taken to limit their ability to fail. We must make sure that they have adequate capital, in effect to make them safe. There is no other way in which we can protect both the taxpayer and the economy.
The banks will say with justice that if there are higher capital requirements, it becomes harder for them to make riskier loans, so they have choices over which businesses they abandon and which business they focus on. I am frustrated that many have chosen not to focus on small business under those circumstances, but I recognise that those choices are difficult. But the response to that has to be to bring in new players to provide that kind of lending and credit, not to allow the banks to be riskier than they should be for a safe economy. So the focus has to be on developing deeper and broader capital markets that can serve small businesses, to bring on the peer-to-peer players in this arena. Last week, this House passed the relevant orders to provide regulation for that industry. We need to bring in smaller, specialised, non-systemic banks, so that reliance on the big banks to provide the riskier end of credit is significantly reduced and we can require of them that they put their houses in order and are adequately capitalised.
My concerns about allowing a more lax capital measure is enhanced by my suspicion of bail-in bonds, which I understand is not shared by others. It is not that I am opposed to the concept of bail-in bonds, but Governments worldwide are relying on them very heavily to provide security to the banking system. Who is going to hold these bonds? We cannot allow other banks to hold them, or we are back to an interconnected system. Pension funds and insurance funds—and I have started to talk to some of them—may be attracted to hold some of these bonds, but only at the cost of cannibalising their shareholdings in banks, so that gets us no farther forward. Given that this is meant to be a solution to cover every systemically important bank across the globe, I would like to hear from the Government about who they think is going to hold these kinds of instruments and whether it will be a sufficient amount for them to play the role expected in providing safety for the banking system and protection for the taxpayer.
There are two other areas which I hope to pursue. The first is community development financial institutions, which I have talked about in this House before. The big banks are increasingly abandoning lending to disadvantaged individuals and to new and micro-businesses. They lack the capacity to be able to analyse these credits in the detailed way that is necessary, to provide handholding—and, frankly, after a look at the risk involved in these portfolios, many decide that this is not a business that they want to pursue. I am willing to accept that they do not play as much in this market, if we can provide an alternative that can. In the United States, it is provided by a completely separate sector, which serves disadvantaged communities and micro-businesses alone—the community development financial institutions. I suggest that we have to build this; it requires a genuine alliance of the Government, perhaps using a business bank, and the big banks—and, in the US, carrots and sticks have been used to make sure that the big banks provide capital and know-how to these little local institutions. Charities and social enterprises, as well as the Church of England, are potential players in this arena.
Particularly pertinent to this Bill, in order to ensure that the big banks can provide capital to these community institutions, the United States has negotiated a carve-out under Basel III for loans from the big banks to community development financial institutions. The UK is in a position to take advantage of the carve-out, but I understand that we have not done so. I consider that this is an opportunity not to be missed and I hope very much that the Government will address the issue.
I am conscious of the time so, finally, I congratulate the Government very much on the announcement made today on the agreement that they have reached with the big banks regarding the disclosure of lending data by postcode. We pressed for that in the debate on the Financial Services Act 2012. The Government promised it and they have delivered. The data will show lending across 10,000 individual postcodes and we will be able to see where the market has failed and where there is unmet need. Dealing with unmet need in regard to banking surely has to be part of banking reform.
We have a great deal of work ahead, but banking reform is crucial to our economy. I suspect that there will be a lot of agreement on these issues across all Benches as they are not particularly party-political. I also suspect that they are issues on which Members of this House will frequently speak with a single voice. The Bill is our chance to make sure that the legislative framework is in place to provide good banking to support our economy in the future.
The Lord Bishop of Birmingham
My Lords, I am grateful to the noble Lord, Lord Eatwell, for his kind remarks about members of the banking commission who sit in this House, not least my friend the most reverend Primate the Archbishop of Canterbury, who, sadly, is not in his place today but fully intends to be so many times in the autumn when the commission’s work will be discussed in this House in more detail. Perhaps I can partially stand in his place as we spent many years in different parts of the oil industry before entering another sort of multinational work.
We appreciate the practical themes in the Financial Services (Banking Reform) Bill and the opportunity that it provides to implement the recommendations of the Vickers report and, more recently, of the Parliamentary Commission on Banking Standards. As the Community Investment Coalition put it, the Bill provides an opportunity,
“for Britain to continue as a leading global financial centre, while at the same time protecting ordinary working people”.
I thought that that conveyed rather well the complexity of the issues with which we are dealing.
As we face up to the essential and urgent reform of a sector that should indeed play a major part in our national well-being and prosperity we are presented not only with proposals for regulation and structural change but with the broader themes of cultural change, including appropriate standards for the industry. Those who have heard the discussions on the Radio 4 programme “The Bishop and the Bankers”—it is available on iPlayer and has two more sessions to go—have been reminded that the capitalist system on which we all depend for our welfare can, in its search for efficiency and other objectives, become dehumanised and disconnected from the needs and culture of individuals. Therefore the structural proposal to ring-fence retail banks is most welcome, but only—as has been noted already today as well as in another place and by the commission—if the electric current in the fence is strong enough to ensure compliance with our intentions.
The proposal to include a competition element in the Prudential Regulation Authority is also attractive, but will it go far enough? I hope that in promoting real alternatives to the present arrangements we will keep our vision precise and technical—as I am sure many speeches today will be—but that we will also keep in view the long-term possibility of a much better arrangement for the country as a whole. As we focus both on the struggle of ordinary people to manage with what little money they have, and on the need for micro, small and medium-sized businesses to stay on their feet in competitive local and export markets, strong arguments are being made not only for a new regional bank but for more support for credit unions and other local arrangements, with the potential, particularly as regards the latter, to put an end to the corrosion of payday lending and the unacceptable effects of the poverty premium.
To get an image of what this might look like we could consider one bank which operates in this country from overseas whose philosophy originally was for the manager of a region to go to the top of a church steeple and from there to survey all that he or she could see. He or she would then be responsible for all the businesses and finance within that area. It not only provided local autonomy but located responsibility for professional decisions where they might best be made. On the retail side, it should also be noted that in Birmingham there are still 100,000 people who do not have a personal bank account. We should also want to endorse the proposals made within these discussions that the accounts of those who have them should be portable. Portability of accounts might be made possible within the industry so that competition and client service can come together for the benefit of those who use those banks.
I have referred to coherence and comprehensiveness. I wish to add at this stage in the debate, perhaps a little earlier than we need to, the important theme which the Minister mentioned regarding the change of culture around our discussions—in the background and sometimes in the foreground—as we emerge from the immediate scandal and crisis in the industry. As noble Lords will know, there is in the industry a growing understanding of and openness towards discussion at all levels, as well as, dare I say it, a little vulnerability on these matters.
In my own area of the West Midlands, senior regional bankers from all the main banks have been prepared to meet regularly under Chatham House rules to ask difficult questions of themselves and their businesses. It is notable that one major player, which has already been mentioned this afternoon, has added to its obvious corporate values of “Client first” and “We must work together” the extraordinary line that, “We must do what is right”. That gets us into a very interesting area of culture: not just our values, behaviours and mission statements but—I would go so far as to say—what it means to be virtuous. Another global leader, in a seminar held within the past six weeks for all its world-wide risk managers, allowed the whole morning to be spent on the question, “What does society want from us?”. These are little signs of openness to a new culture that will undergo and deliver some of the practical measures that your Lordships will be discussing in the Bill and in response to the commissioners. Our own body, the Church Commissioners, is leading a discussion on what it means to have a good bank, which my friend the most reverend Primate described as living,
“with a culture that is self correcting and self learning, a culture that is more like a body than a system, and so develops the conscience, will and direction that enable the common good”.
As we help develop structures that are fit for purpose, and that might look quite different from what we have been used to, I hope they will become ethical structures. I hope that they will not just keep to easy-to-sign-up-to corporate values but go further into the deeply challenging discussions about personal virtue. Alasdair MacIntyre, the philosopher, would say that we must acknowledge robustly the belief that human life is more precious than any possessions and recognise that human solidarity is an integral part of the common good.
It is time to get back to the detail, which I will leave to the speakers who follow me. I and my colleagues on these Benches trust that the industry will wholeheartedly embrace a professional standards process, with independent leadership and all the practical things that we will talk about in the next few minutes and days; and that step by step—with any necessary amendments to the Bill and a full adoption in the autumn of the parliamentary commission’s recommendations—we will all take responsibility for achieving a healthy, vigorous, profitable and accessible but virtuous banking system.
Lord Lawson of Blaby
My Lords, I am particularly happy to follow the excellent speech of the right reverend Prelate the Bishop of Birmingham, not least because he stressed the importance of changing the culture of banking. That is accepted across the board. It is certainly accepted in the United States and it is accepted by everybody in this country. Indeed, when the Parliamentary Commission on Banking Standards was set up—like my noble friend Lady Kramer, I was a member of that commission—the Prime Minister said that we needed to address standards and culture. That is a problem that I was concerned about.
Unlike the right reverend Prelate the Bishop of Birmingham, I do not have the ability to preach, so we had to decide how to change the culture by legislation. It was not so easy, but we tried a whole battery of proposals that we hoped would do something to help change the culture. I will mention one or two specific things during the course of my remarks. In speaking about the Parliamentary Commission on Banking Standards, I shall say some things that are slightly critical of my noble friend Lord Deighton. I was sorry that he did not find time to pay tribute to our chairman, our honourable friend the Member of Parliament for Chichester, Andrew Tyrie. It was an extraordinary effort. We produced an enormous number of recommendations in a large number of reports. Incidentally, my noble friend Lord Deighton said that the commission produced some important recommendations in its report last month. We produced five reports and there were important recommendations in most of them. I am sure that that is what he meant to say. We all worked quite hard, including incidentally the most reverend Primate the Archbishop of Canterbury. He, too, worked very hard, despite the fact that he also had a day job. Nobody worked harder than Andrew Tyrie. It has a lot to do with him that, with all parties represented, we managed to secure a unanimous report. That gives it much greater weight than would otherwise be the case.
I shall focus on certain areas, some of which, although not all, have already been discussed in the debate. One of them that has not been discussed explicitly, on which we made a recommendation and which has on the whole been accepted by my right honourable friend the Chancellor of the Exchequer, George Osborne, concerns the split of the Royal Bank of Scotland Group into a good bank and a bad bank. He has agreed to set up an inquiry, which will report very soon. I very much hope that it will come to the right conclusion. That is very important indeed to our economy in its present condition.
The idea of a good bank/bad bank split is not at all new. It was done in the case of Northern Rock recently; and it has been done on other occasions in this country and in other countries overseas. It is the classic answer to the sort of problem we are facing. It is particularly important in the case of the Royal Bank of Scotland Group. It is the biggest bank in our country that supports, or is meant to support, small and medium-sized businesses—SMEs. However, there is a problem with SME lending to which my noble friend Lord Deighton referred. It is one of the reasons why our emergence from the present recession is so slow. There is a real problem with lending to SMEs, which is inhibited by the fact that the banks have a huge amount of bad debts on their books—far more than they would ever admit. They are very nervous of lending because it might increase the amount of their bad debt. They already have more than they say they have and they are exercising what is known in today’s jargon as forbearance. They need to be strong. They will not lend unless they are strong. We hold between 81% and 82% as a taxpayer stake in the Royal Bank of Scotland Group. We should use that power to split the bad assets and put them into a bad bank. Then we would have a good bank with good assets which could help by lending to SMEs in order to help our economy. That is the most important single thing that the Government can do at the present time.
I very much hope that that will be done. I know that my right honourable friend George Osborne wishes that he had done that at the start. It is not too late; better late than never, and we should do it now. Our newest recruit to your Lordships’ House, the noble Lord, Lord King of Lothbury, better known as Mervyn King, former governor of the Bank of England, said:
“Formal accounting conventions should not be allowed to get in the way of what is best for the economy in general and for the SME sector in particular”.
That is the issue here. I very much hope that that will be done. I agree incidentally with my noble friend Lady Kramer and others who have spoken about reforms in the banking system, in the sense of having more banks and more competition, being necessary, but that cannot happen overnight. However, this could be done virtually overnight and it would do enormous good.
I shall now refer to the so-called ring-fence. I was very happy with what my noble friend Lord Deighton said. Let me back-track a bit. I have been arguing for the best part of five years for complete separation between what used to be known as high street banking and investment banking. To call it retail banking is slightly misleading because it is also SME banking. We always used to have that in this country. I have been a close observer of the City of London ever since I wrote the LEX column for the Financial Times more than half a century ago. For most of the time we had the high street banks and the merchant banks. They were completely separate and we did not need legislation to keep them separate; they were separate by custom and practice. I know the people at the top of both kinds of bank. They were different kinds of people with different cultures. The system worked and served this country very well.
The Vickers commission accepted the problem and thought that the ring-fence would be the solution. We on the commission were concerned that the ring-fence would not be robust enough. There are all sorts of problems with the ring-fence. I shall mention three quickly, if I may. One of them, which is perhaps the least of the problems, but which has been put to me by a number of senior bankers, is that the governance structure is impossible. There has to be two totally separate governances of a single entity, which would have an overall holding governance with another governance with responsibility to the same group of shareholders. Many bankers have said that that cannot possibly work. The other problems, which are perhaps more fundamental, are that it is likely to be gamed; there will be a huge incentive to game it if it is in the interests of the bank concerned to find ways around the ring-fence. The third problem goes back to what the right reverend Prelate the Bishop of Birmingham was saying. The cultures of high street banking and the cultures of investment banking are totally different. It is very difficult, with the best will in the world, to see how we can have two totally separate cultures in the same organisation.
We decided that we should give the Vickers ring-fence a chance but make sure that it was fully electrified—that was the jargon we used. So, if it were seen not to be working in one particular bank, it could go to full separation. If it were seen not to work on a wider scale we would have complete separation for the banking sector as a whole. The Chancellor of the Exchequer and the Government said that they would accept the first part of that but not the second. I think they are wrong on that. Moreover, the voltage which they have put into the electrification of the ring-fence is so lamentably low that it will have no effect at all. I was therefore glad to hear my noble friend Lord Deighton say that they would take it away and come forward with an amendment closer to what the commission recommended.
Incidentally, that points to the fact that this House has an unusually important part to play in this legislation. It has passed through the other place and it falls to us to get it into the shape it should be. I hope—this is not a party political issue—that if the Government do not bring forward the requisite amendments there will be a cross-party agreement which will help the Government to do the job that needs to done.
I was very surprised to hear my noble friend Lord Deighton say that we cannot go to full separation in any circumstances because the Vickers commission, the independent commission on banking, said that it wanted the ring-fence. There are two curiosities in that point. First, we are saying that we should go to full separation only if the ring-fence fails. I am quite sure that the Vickers commission does not want a failed ring-fence, it wants a successful one. I hope it is successful, but if it fails we will have to go to full separation.
Secondly, my noble friend implied that the Vickers commission was a holy writ and we must do as it says. However, when it said that 3% leverage is totally inadequate, the Government said that they did not agree and that they were going to stick with 3%. This is the despite the fact, as the noble Lord, Lord Eatwell, pointed out, that the United States has decided to go for 6%, although only for the larger banks. However, that is all that matters because it is only a failure of the larger banks that poses a systemic threat.
The Americans have quite rightly said that leverage set at 3%, to which we are apparently meant to stick, is totally inadequate and that it must be 6%. They have left it to the Fed to decide and impose. We said the same. We did not say that a particular number—whether it was four, five or six—was the right leverage ratio. You have to have a leverage ratio and we have said that that should be for the Financial Policy Committee of the Bank of England to decide. It should not be for politicians to decide. The Government have rejected that and have said that it should be for the politicians to decide. That is profoundly mistaken. The noble Lord, Lord Eatwell, was absolutely right that the risk-weighted assets are as long as a piece of string. Each bank has its own model and puts into it whatever will produce the risk-weighting that it wants. Studies have shown that to be true. It is not a matter of dispute. Although you should look at risk weighting—you should not throw it in the dustbin—because it tells you something, it is not a robust guide.
Another thing has changed from the medieval times when I had responsibility for some of these matters. We all know how much lobbying of the Prime Minister and the Chancellor of the Exchequer by the banks goes on at the present time. It is thoroughly unhealthy. In my day, this did not happen for a very good reason. The convention was not that the banks could not lobby—of course they could, they were bound to—but they had to lobby the Governor of the Bank of England, who would then represent to the Chancellor of the Exchequer of the day the concerns of the banks. That is a much healthier system and we would do well to get back to it.
Another recommendation the Government have not accepted is that we should look at proprietary training—that is, investment banks trading entirely on their own account, a form of hedge fund activity. I have nothing against hedge funds provided that they are hedge funds, but I am concerned when hedge fund-type activities are conducted within a bank. These issues interrelate. It would not be so bad with a pure investment bank but if you do not do complete separation it will threaten the retail and high street banks.
As noble Lords know, the United States, under the so-called Volcker rule, has decided to ban banks completely from undertaking proprietary trading. We said that within three years the Government and the regulator should watch carefully how the implementation of the Volcker rule is working in the United States—it is a practical example of banning proprietary trading—and, in the light of that, come forward with measures, if necessary, to ban proprietary trading. Not to ban it altogether—this is a free country—but it should be left to hedge funds and not be allowed in regulated banks, with all the great responsibilities that they have.
There is also a cultural dimension to this. What is the cultural dimension? As the right reverend Prelate the Bishop of Birmingham pointed out, it is to some extent the moral standards that we all like to think we apply in our daily lives. However, there are two things in particular that the banks need to have: a culture of caution and prudence, which is what we expect from our bankers, and a culture of service to clients. Proprietary trading is no service to clients because there are no longer any clients. It is a form of speculation. I have nothing against speculation in the right place but it does not sit well with the culture of caution and prudence that we need. You cannot do this by leverage ratios or by what you put on the statute book; it is a culture of the people involved. Those people used to be the high street bankers. They may have been rather boring but they were extremely cautious and prudent, and that is what is needed.
Finally, let me say a brief word about something that has not been mentioned—the question of remuneration packages. I am opposed to the cap on bonuses imposed by the European Union—as we said in our report, it will be counterproductive. However, the structure of remuneration is very important. We said that bonuses should be deferred for up to 10 years. That does not mean to say that it should always be for that length of time.
In the old days the merchant banks performed very well. Moreover, during this crisis it was the so-called reputable banks which went belly up but very few hedge funds did. Both the merchant banks and the hedge funds today normally have a partnership structure. The top management and directors have their own wealth invested in the company. They have their own skin in the game. That does not make them any less innovative, but it does make them less reckless, because their own wealth is at stake. It is too easy for bankers to construct a deal that is crazy and will turn lousy a few years hence. They collect the bonuses in year one and year two and then it is the poor shareholders and taxpayers who suffer later on when the whole thing goes south. The idea of deferring the payment of bonuses is to get something that approximates more to the partnership structure, which is much healthier.
I am sorry to have gone on for so long. We have a historic role to play in this House. I am very glad to hear the assurance from the Bishops’ Bench that the most reverend Primate the Archbishop of Canterbury will play a full part in Committee in this place. That is extremely helpful. I know that the noble Lord, Lord Turnbull, from the Cross Benches, will be doing the same. We have a very important part to play and I hope that we will discharge our duty.
Lord McFall of Alcluith
My Lords, it is a pleasure to follow my fellow member of the Parliamentary Commission on Banking Standards, the noble Lord, Lord Lawson, who played an invaluable and steadfast role. I also congratulate the noble Baroness, Lady Kramer, the noble Lord, Lord Turnbull, and the most reverend Primate the Archbishop of Canterbury on the work that they have undertaken. As the noble Lord, Lord Lawson, has said, special thanks go to the chairman for keeping it all together and producing a unanimous report for us.
It is exactly a year ago this month that the Parliamentary Commission on Banking Standards was established. With more than170 hours in 80 evidence sessions in public, 74 hours in private, and more than 9,000 questions later, what have we found? Mindful that the remit was to look at culture and standards in the banking industry, we have found an industry where standards are abysmally low and the culture is rotten. Even in the seven months in which we took oral evidence, we saw two more major LIBOR scandals; an interest-rate swap scandal; the PPI mis-selling scandal, the bill for which has risen £15 billion to £17 billion; a major bank guilty of money-laundering in Latin America; and another fined $700 million for sanction-busting in Iran.
The question is: how do we fix such a system where the public trust in these institutions is at rock bottom? Despite the worthy attempts of the Parliamentary Commission on Banking Standards, we have no magic solution. Yes, we provided a profound analysis that illustrated both the structural and organisational fault lines, but I would suggest that we have produced a signpost report which points the way for the Government, the regulator, the industry and also civic society to take things forward. This will not be done overnight; it will take a generation. If we are to change culture, we need that change to be a behavioural change and, for that, individuals need to buy into it. It starts at the top and permeates the organisation, which will take a considerable period of time. We have seen boards, chairmen and chief executives deficient in this regard. The report laid bare the lack of individual responsibility at the top—I would suggest that we witnessed a “no see, no tell” approach, where the collective decision-making was a defused responsibility. The concept that “the buck stops here” was non-existent in the banking system. I have two brief examples of that. From UBS top management, four senior executives came before the commission; a star trader had lost thousands of billions of dollars in the Far East and, when we asked if they knew the star trader, they replied no. We asked when they found out and they said, “When we read it on the Bloomberg wires”. Collectively, they were probably getting about £100 million a year, but they knew neither who the people were within their organisation nor what those people were doing on their behalf.
The payment protection insurance scandal has, as I mentioned, cost £17 billion and is likely to go up to £30 billion. Mindful that the cost of the Olympics was £8.9 billion, we are talking about the cost of four Olympics being put on, with a mis-selling scandal taking place over 18 years. Yes, the standards were abysmally low, because of a lack of ethical principles at the top of the organisation. Why, we may ask, did that situation prevail for so long without adequate challenge from outside? Here we come to the regulator; it is full of worthy people but it was, I would suggest, captured, conned and cowed by the industry. Captured, because there was an incestuous relationship where the views of wider society were rarely heard and never heeded. When I was chairman of the Treasury Select Committee, it took me five or six years to get at least one consumer representative into the Financial Services Authority. With the procession from the Financial Services Authority to the private industry—and with the former chief executive going to Barclays as a compliance officer for 10 times his salary at the FSA—I suggest that we could be seeing a postgraduate institute of the FSA for people to get better jobs in the private sector. If we want to have an even system, where the balance of power is maintained, we are going about it the wrong way, because the regulator will always be weak.
The regulator was cowed, because this is a powerful industry that is used to getting its own way and is impervious to challenge. The PPI scandal illustrated that very well. I also said that the regulator was conned. Why conned? It is because the FSA executives said to me for years that the business model of institutions and organisations was not their responsibility. They did not know, or seemed to care little for, how much risk there was on the balance sheets of banks as a result of complex models. That complexity provided an illusion of control; people felt satisfied but they did not know what was going on. That very much applied to the regulator. They did not wake up to the importance of the selling of PPI, because they did not look at the profit and loss of the balance sheets. One cursory look would have shown that there was a big problem.
I am not advocating for more regulation, we do not need more regulation. What we do need is tougher regulation and change to the commercial law of the land regarding the responsibilities of directors, so that the heads of the banks are answerable for the actions of rogue subordinates. We need to give the regulator both authority and autonomy. I turn to the ring-fence and leverage, because the Parliamentary Commission on Banking Standards did its job adequately in those areas. What have the Government done? To date, I would suggest, they have pulled the rug from under the feet of the regulators. Let us look at ring-fence and what the Government are proposing. In fact, some of us, as the noble Lord, Lord Lawson, said, were advocates of full separation and anyone who listened to the testimony of Paul Volcker when he said to the commission that an executive or director of an holding company is responsible for the ring-fence as well, would know, as the noble Lord said, that it is very hard to have a ring-fence situation. In the name of compromise, however, we sat down and said that if the Government established the Vickers commission and Vickers came out with ring-fencing, we were mindful that the Government would be unsympathetic to anything else. That is why we called for the electrification of the ring-fence. If anyone gamed the system, the regulator could bring them into line quickly and threaten or impose separation.
What have the Government done on paper? They have accepted that, but I suggest that to date they have neutered it. The noble Baroness has already mentioned the remarks of the chairman in the other place. How have they neutered it? They have done so by expecting the regulator to issue three preliminary notices to the offending bank, seeking permission from the Treasury on each occasion. What price the independence of the regulator in a situation such as that? The three permissions from the Treasury are followed by a five-year gap before there is any decision whatever on separation. I say to the Minister that that is an affront to the genuine efforts of the Parliamentary Commission on Banking Standards to seek a unanimous way forward. What we have now is not a ring-fence; I suggest that it is a hammock in which the executives can swing easily above the ground, while all the hassle takes place on the ground with the politicians and the regulators, and the executives look down from above, easy and relaxed. Therefore, the Government have to fundamentally change their opinion on that. I am going to be in the trenches with the noble Lord, Lord Lawson, in ensuring that the Government do the right thing on this issue.
The other area that we looked at was leverage. The noble Lord, Lord Lawson, said that the Bill as it stands remains defective in many key areas. There is no doubt that it is defective in the area of leverage. As the noble Lord said, we were of the opinion that the regulator should be in sole charge. However, the Government have rejected that out of hand. The noble Lord, Lord King, newly ennobled, was unequivocal when he said:
“Leverage is the one issue that matters above all others ... it’s precisely for that reason that the banks will resist most strongly the regulation of leverage and the politicians will compromise on precisely that”.
In the Financial Times today, the Business Secretary talks about those in the Bank of England as the “capital Taliban” because they are not listening. I agree with the leader in the Financial Times headed:
“Let the regulators show their teeth”.
The regulators have not shown their teeth so far, and if we allow the present situation to continue, we will undermine confidence in the entire system.
We all know that excessive leverage has been the trigger in every banking crisis in history. That is why Vickers recommended 4%, limiting gearing to 25:1. That is why we echoed Vickers, and it is why the interim Financial Policy Committee of the Bank of England asked for the power to vary leverage. However, the Government declared “no, no, no” three times, saying that they were wedded to Basel, despite the wise advice to the contrary. Robert Jenkins, a former member of the interim Financial Policy Committee, was very clear on the issue. He is no longer on the FPC because, I suggest, he challenged the Government too much, and he has now been dumped off it. However, he looked at Barclays, which we saw—and still see—as a poster child for excessive leverage.
The balance sheet of Barclays is roughly the size of the UK’s annual GDP. It funds £1.5 trillion of risk-taking, with 97.5% of debt and 2.5% of loss-absorbing equity. The noble Lord, Lord Lawson, mentioned hedge funds. The average hedge fund trades with three times leverage, but Barclays is operating with 45 times leverage—a gearing 15 times the average of any hedge fund. If Barclays’ assets eroded in value by a mere 1.5%, it would be leveraged 100 times over. I ask noble Lords: does that inspire confidence in building a sound, stable and sustainable system for a post-crisis environment? I think that the Government have to look again at that.
One last issue, which I advocated in the report, is the concept of the duty of care. It could be said that, despite all the scandals that there have been in banking, there has been only one big scandal, and that is that customers’ interests have been at the bottom of the pile. I suggest to the Government that if they implement this measure, it will be transformative for the industry because it will ensure that the buck does indeed stop with individuals at the top, and it will permeate the organisation. Therefore, my plea to the Government is that a duty of care needs to be a key element in the new banking standards rules.
During the many hours of questioning, I regularly asked senior bankers whether banks could change on their own. In response, they all said no. That is why the Government cannot stand aside and give the industry a free pass. To transform this industry, which is at such a low, the Government have to be an active participant. The parliamentary commission was the first of its kind for a century. The previous one, exactly 100 years ago, collapsed in a heap of partisan acrimony. This commission did not; it stayed together and was unanimous. At the end of the day, we do not want the Government letting the side down after a cross-party group has sat for a year and come out with a unanimous approach.
We resisted the temptation to be partisan and produced the report, so we have been faithful to the task that the Government gave us. However, if they ride roughshod over our efforts and recommendations, not only will that traduce the role of such a unique commission but it will fail to best serve the interests not only of the financial services sector but of the wider economy and of societal well-being in the long term.
Lord Higgins
My Lords, it is a great pleasure to follow the noble Lord, Lord McFall, one of my successors as chairman of the Treasury and Civil Service Select Committee in another place. I certainly join my noble friend Lord Lawson in paying tribute to the present chairman of the Treasury Select Committee in another place, Andrew Tyrie, who has also taken on these other extensive responsibilities. He is one of a number of people who have put in an immense amount of hard work behind the scenes to try to achieve a banking system which is safe for everyone and which carries out its duties as far as the economy is concerned.
The reality is that the result of all those labours is an extraordinarily complex, three-dimensional jigsaw puzzle. It is three-dimensional in the sense that some of the pieces are at UK level, some at European level and some at a wider international level. It is going to be very difficult to see how these pieces fit together. That is not particularly helped by the absolute obsession with having initials to describe all the individual organisations. It would be very helpful if, before Committee, the Treasury or the Bill team could produce a list of all these various organisations with their initials and an explanation of the way in which they interlock, otherwise it will be very difficult for us to keep pace with these affairs.
I am rather concerned that a decision has been taken to draft this Bill on to the Financial Services and Markets Act 2000. As far as I know, I have the up-to-date version of that Act from the Vote Office, but I have considerable problems in integrating the first page of this Bill, which refers to the objectives of the Prudential Regulation Authority, whereas of course the Financial Services and Markets Act is concerned with a quite different authority—the Financial Services Authority. I am not at all clear—we can pursue it when we get to Committee—how this drafting actually integrates. It seems to be a very complicated matter.
I have long had a theory that one can always tell in a Bill of this complexity at what point the draftsman actually suffers a complete mental breakdown. It happens very early in this Bill—it happens by the second page, indeed, which states:
“(b) after that subsection insert—
“(3A) For the purposes of this Chapter, the cases in which a person (“P”) other than an authorised person is to be regarded as failing include any case where P enters insolvency”.”
This chap P appears throughout the Bill from time to time and I have serious doubts as to whether this is the best way of drafting these matters. Some of them are very difficult to draft. No doubt we shall have an enjoyable time in Committee trying to sort the thing out, but it is not going to be easy to draft amendments.
I thank my noble friend the Minister for arranging a meeting with officials ahead of this debate; we may need to consult him further. Officials have been very helpful, but drafting the whole thing by reference to a quite different piece of legislation, albeit related, is not, I think, the easiest way of doing it. Similarly, in the Explanatory Notes we have constant references to “new clauses”, when in fact, as I understand it, they have already been approved by the other place. Certainly, the Bill is very unusual in that the other place seems to have given proper attention to it, instead of its being programmed, when it is impossible for them to do their jobs in an orderly way. So we are coming to the Bill when it has already been scrutinised in another place, unlike many other pieces of legislation we get.
The essence of the Bill is, I think, very much concerned with the issue of banks being “too big to fail”. I come increasingly to the view that they are not only too big to fail, many of them are too big to manage. Noble Lords have only to look at the experience of the LIBOR scandal, and so on, to realise the extent to which the people at the top have not the remotest idea of what is happening in some parts of the organisations they are supposed to head. Indeed, it may also be that they are too big to regulate, so we have to ask, at some stage, what the economies of scale in banking really are. I have increasing doubts as to whether they are as big as they seem—I see, rather, an increasing, somewhat megalomaniac approach by those in charge of such organisations to make them bigger and bigger and take over more and more other organisations. At all events, we now have a Bill which is very interesting in that it is ring-fenced, with an electrified ring-fence at that. This, we will need to examine very carefully.
I ask my noble friend who is to wind up one simple question. Are there any circumstances in which the investment bank can get its hands on the assets in the retail bank? It is a simple question. I understand the answer is supposed to be, no, but we need to examine the extent to which the ring-fence is really effective. We also have to consider very carefully the question of timing. My understanding is that some of the proposals will not come into operation until 2019. Are we really sure that we are not going to have another financial crisis—for example, if the eurozone collapses before that time? Are we sure that we are taking account of the possibility of the structure not being properly in place when we need it urgently?
I very much welcome the proposals for depositor preference, although it is very much a Treasury-driven idea. It will limit the extent to which the Treasury is liable if a particular bank runs into problems. In effect, if the ring-fence really is electrified and if it really does work, we are moving closer and closer to complete separation. I share with my noble friend Lord Lawson and others the view that ultimately, we should go for complete separation—a Glass-Steagall solution, if you will. This may take some while and meanwhile, to operate a ring-fence in a way that is satisfactory and protects depositors is a move in the right direction.
I have a final point which is very topical. I received a lot of representations from the Community Investment Coalition which was very anxious that we should make progress in providing more local data on the extent to which banks provide finance to small and medium-sized enterprises, and so on. I read, either on the web or in the news today, that the Government are proposing to publish such regional data. If so, that is something that I am sure the organisation I have just mentioned will welcome—it is generally to be welcomed. That is the present situation concerning these developments. I believe that we are making progress, but it is progress in an incredibly complicated situation. We are going to have to give the Bill the closest possible scrutiny in Committee and at subsequent stages in order to get it right. It may not be easy, but it is a job which is very necessary and urgent.
Lord Hollick
My Lords, I declare some interests. I started work in a merchant bank in the City in the late 1960s—medieval times, as the noble Lord, Lord Lawson, described them—and then from 1975 to 2000 was chief executive of what grew to become the largest inter-dealer broker in the world, now called ICAP, where I am a shareholder. For the past two years I have been a member of the advisory board of Jefferies, a US investment bank, and a partner in GP Bullhound, a boutique investment bank—in other words, a very small investment bank—which arranges finance for young technology companies.
One of the first things that was drummed into me as a graduate trainee at a merchant bank was that banks had to put their customers first, be they depositors or borrowers. That stands in stark contrast to the infamous occasion when the chairman of Goldman Sachs was asked by a Senate committee whether he put his customers first and, of course, he was unable to answer in the affirmative because he did not: he put his institution first. It is that lack of duty of care that has burdened many of our companies, small and large, many individuals and, indeed, the Government, through many PFI schemes, with the complex and very costly interest rate swaps which extend far beyond the life of the loan. Any institution or body that had a duty of care would immediately draw the attention of those borrowers to that fact.
The Bank of England regulated wholesale markets in those days by applying judgment as well as rules and my experience, as someone appointed to rescue a secondary bank during the 1974-75 secondary banking crisis, gave me the opportunity to see at first hand the effective way in which the Bank of England managed to contain and resolve that crisis.
As chief executive of the inter-dealer broker, I met regularly with the leadership of many of the great banks operating both in London and other major financial centres. I was very struck and, indeed, alarmed by the depth of ignorance that the bank leadership, particularly directors of banks, displayed about the increasingly sophisticated products that were being traded on a proprietary basis in their organisations in different time zones. To be blunt, the attitude appeared to be that if the trading is profitable and we can all benefit from it through the bonus pool, there is no real need to get too much involved in the detail.
One of the great skills of the City is that it is adept at devising business models which can give a highly leveraged reward for success but virtually no penalty for failure. That is called getting other people’s money to work for you. Bank executives were notable beneficiaries of this particular alchemy, and they were not reined in by their boards or shareholders. As we heard, all too often, Governments of all stripes have been dazzled by the great wealth of those City chaps and too ready to take what the City says on trust. The absence of scepticism from the board, directors, shareholders, regulators and auditors allowed the financial services industry to bet the UK economy. Of course, because of the large size of the financial services industry in relation to that economy the cost of that bet is now being borne by every business and household right across the land—and will be for many years to come.
The need for fundamental reform is self-evident. I join other noble Lords in congratulating the parliamentary commission on an outstanding and very important piece of work. It and the independent commission made a compelling case for reform and provided detailed proposals on how that reform should be implemented. Now is indeed the time for fundamental reform of the structure, governance and culture of banking. It is also the time to make banking far more competitive—that will take time—and better able to service the needs of an economy desperate for the investment and funding necessary to achieve sustained growth. The measures proposed by the commissions will not give us zero-risk banking, but they can substantially reduce the overall risk to the economy of the inevitable banking failures.
The test of the Financial Services (Banking Reform) Bill is whether it seizes this historic opportunity or, under pressure from City lobbying, fudges and fumbles it. The Chancellor said that he would implement the main recommendations of the parliamentary commission and, where legislative changes are required, he would amend the banking reform Bill, but the Bill before us has fallen well short of those promises. On the fundamental structural issue of separating retail and investment banking, I entirely agree that they should be completely separate, as they have a completely different culture with completely different risk profiles. I suggest that shareholders will, over time, require them to be separated. The full separation proposed is a complicated process: three yellow cards are required, the regulator has to go to the Treasury and full separation can take place only after five years. That may be long after the problems have reached a scale where another bail-out is necessary. The chairman of the parliamentary commission, Andrew Tyrie, described the Government’s ring-fence proposals as,
“so weak as to be virtually useless”.
Greg Clark, the Cities Minister, said that he would see if the government amendments could be improved. The noble Lord, Lord Deighton, said that efforts will be made to improve them. We wait with interest.
The commission’s proposals to give the Prudential Regulation Authority the powers to inspect a bank’s trading book and ban excessive proprietary trading—to which other noble Lords have referred—and the recommendation that regulators should have the power to insist upon stricter capital leverage ratios, have both been ignored by the Government. This House must table amendments to ensure that these critically important reforms reach the statute book. Relying on the risk-weighted assets test is completely inadequate. If we do not grasp this opportunity, business will go on very much as usual and I fear that the chance to reform the City will be lost. Bank lending to non-financial companies began to contract in 2009 and has continued to do so for the past four years. The absence of certainty on bank regulation makes it difficult for banks to assess with confidence the long-term profitability of additional lending. The Government’s confused response to the parliamentary commission’s principal recommendations prolongs the agony. First they were welcomed, and now they are watered down or ignored. That adds unwanted confusion, as does the Chancellor’s meddling in RBS’s affairs.
The Bill before us today is an empty vessel. It reminds me of the prospectus issued saying that funds would be raised for purposes that “shall hereinafter be revealed”—that was for the South Sea bubble. Only ring-fencing is addressed in detail, and the proposals there are deeply flawed. There is no mention of bank governance, professional standards, duty of care, whistleblower protection, remuneration or competition. All that, we are promised, is to follow. The parliamentary commission has made detailed proposals on all these matters and we look forward to seeing them properly and faithfully reflected in the draft. Frankly, until amendments covering these matters are tabled, it is not possible to have a detailed debate on the merits of the Government’s proposals, and this is the first half—or quarter—of Second Reading. Uncertainty continues, and with it the suspicion that the Government are backsliding on some of the important reforms needed, reforms which would help to avoid another taxpayer bail-out when the next crisis hits, as it will do, and promote a healthier culture in banking. Reforms are long overdue to improve the supply and choice of banking services available to SMEs and the public at large—in particular to the unbanked.
Lord Stewartby
My Lords, when I came into the Chamber this afternoon I was nervous because I would have to make a confession, that I do not really understand large tracts of the Bill. I thought that I had better be honest about that. My noble friend Lord Higgins has put his finger on the spot—this is nothing that can be sorted out by fine words. There is an awful lot of verbiage in the Bill. There are pages and pages of elements designed to go wholesale into the record of other Acts. That is not a workable way of dealing with this sort of technical and difficult material. We have to acknowledge that. A great deal still remains to be done on this legislation. I have no doubt that many amendments will be tabled, but it is easy to lose track of them all. There are so many—so many are fundamental, and so many adjust other ones—that you do not get a clear run at it. My nervousness about coming in this afternoon is somewhat eased by having got that off my chest.
I have looked at banking legislation in some considerable detail for 25 or 30 years. Although I have often found the whole performance difficult to follow, I have never met anything quite as complicated and unmanageable as the present Bill. It is not an advantage to say that the ring-fence issue will be with us perhaps rather more strongly than it has been so far. Personally, I think the two cultures are incompatible. We need a change of culture—that is absolutely fine and other noble Lords have mentioned that. You do not have the same sort of mental processes going on if you run a retail bank as against an investment bank. We kid ourselves if we do not face up to that. The whole scene has become structurally complex with whole new architectures put in place. For obvious reasons, there has not been an opportunity to examine most of them in careful detail—as there needs to be. There is a lot of work ahead on this Bill. Some of that work will be very technical. Again, one has to face up to that. A lot of it will need detailed attention.
I take one particular example: the Prudential Regulation Authority. What is it trying to do? In the literature of this complex subject over the past three or four years, there is an almost continuous confusion between regulation and supervision. They are not separated in the minds of many people—practitioners, commentators and others—so we start from a very difficult and unbalanced situation. Regulation is—funnily enough, because that is what the Latin word means—about making rules and using the structures to construct this new architecture. But it is not just a question of terminology. If you start going at a problem and you are mentally confused between regulation and supervision, you are not going to get to a sensible answer. I fear that this is what has happened with quite a lot of what we were looking at before.
My noble friend Lord Higgins’ comment about a three-dimensional jigsaw was very good, because that is exactly what happens. We almost have to cut the Bill up and lay it in different quarters so that you know to what it is referring. That was a vivid way of describing it.
Many more issues need delving into. Does the FCA, the Financial Conduct Authority, receive supervision charges? Does it do most or all of the supervision and the criteria for that? What is actually meant does not come out of the text. I had assumed that it was a fairly simple issue, but I am not at all sure that it is. This is typical of the sort of thing which brings misunderstanding. After all, if people do not understand the difference between regulation and supervision, they are hardly going to get it right, because a whole lot depends on what is put into the assumptions. I do not think that we have so far had any serious comment on this. There are those who deal with this sort of matter all the time, but they have not come up with any serious reactions about supervision. You have to look through pages and pages of paperwork on this sort of thing before you can even find the word, whereas regulation is lightly talked of, as if it were the answer to all our problems, and yet it is based on an incomplete understanding of the tools.
Are people who have not worked in—or had a full experience of—financial markets, which cover the retail end of business life, likely to be people whose judgment will be satisfactory and reliable when they look at the particular issues which these bodies throw up? It is no great discovery to say that the PRA, the FCA and the FPC added together should cover the whole of the territory that we are addressing, but they do not entirely do so. It leaves me wondering about what happens inside the businesses themselves, because all these changes have undoubtedly created an enhanced role for the audit committees of insurance companies and banks and so on.
The difficulty of finding the right people to operate as private sector employees ends up with a doubt as to whether one was actually getting the right skills to handle these very difficult issues. This throws a greater responsibility on audit committees and auditors, internal and external, but they do not seem to have got their heads together to find out why it was that such appallingly made business was put together by people who were not fully experienced in part of the area where they were meant to operate. After all, how deep should an audit committee dig into the material without getting to the point where it is second-guessing senior management? Those are two different roles. We keep coming up with the fact that there are too many loose ends for it to be easy to understand what is really going on. There are huge discrepancies between published accounts of large companies and the outcome of what has happened once people have recognised the bad debts and what they do to a balance sheet.
That is plenty from me and I am sorry that so much of it was vague and imprecise, but I attribute a little bit of that to the material and not to others here today. My colleagues and other noble Lords have been very patient.
Lord Barnett
My Lords, I noted that the noble Lord, Lord Deighton, in opening the debate told us again that the Government were committed to all the recommendations of the commission. Forgive me, but it does not seem to me, as far as the ring-fencing side of this Bill is concerned, that the Government have totally accepted what the commission said. The commission did not go as far as separation, which, like the noble Lord, Lord Lawson, I would very much like to have seen, but the Minister has ruled out separation under any description, and the commission did not do that. So they have not totally accepted ring-fencing—I will come in a moment to what I want to say about ring-fencing.
I know that the Minister is new to Parliament, but he talked about there being “full scrutiny” of this Bill in the House of Commons. Anybody with any recent experience, let alone going back to my time in the House of Commons, knows that under successive Governments, all Bills have been guillotined all the way through. They may have spent so many days in debate, but I do not know how many people were seriously looking at the Bill when they did so. They certainly did not look seriously at this one.
The noble Lord, Lord Deighton, called this a Bill of the highest importance. It may be when we have finished with it and when we see the government amendments. He should understand that it is very important, as my noble friend Lord Eatwell said, that we see those amendments at an early stage, because we may wish to amend them. We cannot do that without even seeing them, although we might guess and have a chance at doing so.
I turn to ring-fencing, which is all I wish to speak about this evening. On pages 4, 5 and 6, we are told time after time where the real power lies in this Bill. On page 4, subsection (3) says:
“An order under subsection 2(b) may be made … only if the Treasury are of the opinion that”,
and then, subsection (6) says:
“An order under subsection (2)(b) may provide for the exemption to be subject to conditions”.
Lower down that page, subsection (3) of proposed new Section 142B says:
“An order under subsection (2) may be made only if the Treasury are of the opinion that”,
and then there is a whole list. Lower down again, under proposed new subsection (5), it says:
“The Treasury may by order”,
while subsection (6) refers to,
“An order under subsection (5)”.
The whole way through, everything that has to be done under this section of the Bill can be done only by order of the Treasury, not by Parliament. It does not surprise me too much that the Treasury wants all these powers. In my experience, that is what it wanted and it seems to have got it. That is because a Bill does not really go through the House of Commons as fully as it does here in the House of Lords, so our job on this Bill—to go through it with great care—will be even more important.
We are told by the commission that on ring-fencing, if I read the report correctly, it does not want full separation as the noble Lord, Lord Lawson, and I might like to see. However, it would in certain circumstances be prepared to go to it. As I understand it, that has been ruled out under any circumstances by the noble Lord, Lord Deighton, and by the Government. The whole question of Glass-Steagall is very important and an important article was written by John Authers on it recently, on 15 July. His very interesting article spoke of the amount of bank assets as a percentage of GDP. In the United States in 2010, that amount was 81%, but here in Europe it is ginormous. In Germany, France and Spain respectively, the figures were 294%, 416% and 325% of assets as a percentage of GDP. That is because the banks have grown substantially, which is why they need separating. In the UK, for example, the most recent figures on 19 May showed that we had 492% of GDP as bank assets.
Merger after merger after merger has led to precisely the problem we are now seeing. That is why the banks were led to near failure in some circumstances and almost had to be bailed out in others. However, the Government are not prepared to consider that separation or even to debate it. It should be debated fully. It cannot just be dismissed; the issue is too important for that. I hope that during Committee and certainly later on the Bill, we will have an opportunity to consider it and whether it should remain as it is, with things being able to be done just by Treasury order.
Unlike some, I am not always of a suspicious mind, but on the lobbying question, I cannot help feeling that there might have been just a little lobbying by the banks of the Government. I would be glad if the Minister could tell us whether the banks were responsible in any way for the drafting of parts of the Bill. It would not surprise me if they were—it does happen. It could save a lot of work by giving them drafts. Did they discuss the drafting and were they finally happy with it as it stands? Those banks are a very powerful body. They were even more powerful when Angela Knight did the PR work for them, but we certainly know that they are a powerful group. It would be interesting to know what lobbying the banks did of the Government because it is very important that the banks should not be too happy about what we are proposing here, as the current situation is simply unacceptable.
I am not sure whether the Bill will not still be unacceptable when we finish with it. Of course, we are told that all these amendments will be tabled. I very much hope that we will have them at an early stage but, for now, we are left high and dry. I hope that we will see them quickly and before we get to Committee. We have from now until October, so there is plenty of time for the Government to draft amendments—or get them drafted for them.
The Explanatory Notes are very interesting as well. Paragraphs 11 to 17 make it clear where the real power lies. It lies with the Treasury, as I suppose was always intended. It has the powers to do just about everything and anything. It has given some powers to the Bank of England, and the Bank of England in turn has got the PRA and the FCA, renamed from the FSA—no doubt so they can have a lot of the staff from the FSA doing the job that they were doing before. It does not really help us very much to be told that, from the start, the Government simply do not accept any kind of separation.
It would be helpful—indeed, it might be useful—if the Minister could point out in a list where the Government have disagreed with the commission. I know that there have been various statements by the Treasury but before we start, perhaps we could have a list of where the Government do not quite agree with the commission—certainly on the area of ring-fencing. That is the essential part of the Bill and if we do not get it right, we will be back where we were and we will have failures again before too long. I hope that we will see that list before too long.
Meanwhile, when the Glass-Steagall case was referred to in that article—I did not finish citing it—it talked about “seven decades” of total peace. I know that that was a different era when the banks had not started to merge to the degree they have today, but it was a peaceful era. There were no risks to banks because the banks were totally separated. The Government are not prepared to consider that, but that does not mean to say that we should not be prepared to consider it. I hope that we will have an opportunity to do so. It may sound it, but I am not being party political here, I hasten to add. Indeed, the noble Lord, Lord Lawson, knows that I am not.
I certainly hope that our Committee will be looking at this for as long as we want. We cannot be guillotined like the House of Commons. We can take our time over these matters, although we do not need to rush tonight. I will finish now in the hope that the noble Lord, Lord Deighton, will at least give us those Government’s amendments before we come back in October.
Lord Flight
My Lords, I first declare my interests as set out in the register, in particular as a co-founder and director of the new retail bank, Metro Bank. I agree very much with what the noble Lord, Lord Lawson, had to say about the separation of high street and investment banking. It is accepted that the ring-fencing regime is a compromise to see how it goes but it seems to me, above all, that these huge institutions have become unmanageable. They are just too large to manage effectively. I also note that investors, many of them pension funds, are still investing in a mixture of the two businesses, so it really is not much help to them.
The ring-fencing brings a lot of problems in terms of which services can or cannot be sold to retail clients. It is very complex but, to go only slightly in the other direction, one should not forget that it was essentially bad lending that led to the banking disasters. The noble Lord, Lord Lawson, made that point. There was bad lending of all sorts, including the buying of foolish CDO instruments. It was not particularly the derivatives or the investment banking side. It is important to remember that. I hope that a separation of the two sides of banking, should it come about in the future, may leave the banking sector to return to more reliable lending practices. That would go a long way to help address the issue of remuneration. In the past there was never any justification for huge remuneration. It was very much a carry-over from the investment banking world.
I, too, pay tribute to the Parliamentary Commission on Banking Standards and to Andrew Tyrie’s excellent leadership. I support the new senior person responsibility regime, but with the proviso that we should continue to have the principle that one is innocent until proven guilty. Some of the proposals seem to point in the other direction.
I want particularly to talk about competition. I used to think that competition was not so hugely important. The more that I focus on it, however, the more I consider it the one thing that could completely change banking in this country within as short a period as a decade. I will start by commenting on the Payments Council arrangements to enable seven-day current account switching, which come into operation this September, and on the debate about whether bank account number portability will be feasible in the foreseeable future. First, sort code account portability will not be feasible until banks have common sort code number systems. There is a lot of work to be done to standardise sort codes, which will be expensive. My second comment concerns a point that I raised at the time of the Financial Services Bill, to which there has been no reply. The anti-money laundering, or AML, “know your customer” requirement means that another two weeks or so is added to the time that it will take people to move their bank accounts. Banks will not accept a new customer’s account until they have satisfied themselves with an AML check. We all know that that goes on for ever; people have to see lawyers, get passports signed and goodness knows what. I would not mind if it was sensible—if there was a single body that did all AML “know your customer” analysis that was acceptable to all banks and which could be kept up to date. That would save a lot of duplication. With my Metro Bank hat on, we find that just by using a driving licence we can access all the data that we want and open an account within 10 minutes.
On the point about the essence of competition, until the latter part of the 19th century we were like America, with many regional banks. When local banks went down they caused 10-year depressions in parts of the country, which led the great Walter Bagehot to argue that if banks were consolidated, that would spread the risk. Certainly, one could argue that, in the 1930s, a Midland bank that had a very rough time in the north-west was sustained, in part, because of its spread of business all over the country.
Inevitably, things swing too far in the wrong direction. I would argue that in this country the amalgamation to reduce risk spread virtually to a cartelised banking system. When one of the large four banks decided to cut massively the services that it provided to customers, everyone else copied it. By and large, the big four have behaved in a similar way for a long time. When we have a cartel situation we tend to get problems and bad behaviour. Therefore, there is a sound case to be made for a significant revival of new banks in this country, which might take as much as half the total banking business—certainly the high street business—over the next 10 years or so.
Yesterday Metro had its third birthday. We have opened 19 branches, we have a balance sheet of nearly £1.5 billion, and we have about 210,000 account holders. That has all been built from scratch. If we can do it, why cannot everyone else do it? It is not that difficult. I am pleased to say that Vernon Hill, the American backer, considers this to be a more welcoming country than America in which to grow a bank. Although we may have our complaints about regulation, the multitude of American regulation is more exhausting than it is here. He is a great advocate of doing banking business in this country.
However, there are four areas in which we see scope to improve competitiveness. None of them is absolutely huge, but all are important. The first concerns the need to have a level playing field with regard to capital and liquidity requirements. The second concerns the payments system. The Minister commented on that in terms of the Government’s commitment. Thirdly, our antiquated high street planning rules tend to make it difficult for new banks to open up in good retail spots. The final point concerns the guidance to all government departments on doing business with new banks. As everyone knows, not so long ago the advice was to place money where one got the highest interest rate. Then came the Iceland banks crisis and the advice swung the other way: “You mustn’t go to any bank unless it’s got a credit rating”. We have all seen how useful credit ratings are.
On the first point, it is unacceptable that small banks—not even just new banks—often have four to five times the capital ratio requirements for SME and mortgage lending as do large banks. Clearly, a set of common industry standards for both liquidity and capital requirements is needed. I accept that both requirements should be higher in the early years of a new bank. There are high risks in setting up a bank and it is appropriate that there should be protection. However, the regulator should know what is going on and after three or four years it should be able gradually to phase in the capital and liquidity requirements to be broadly the same for all sizes of bank. I am hopeful that the PRA will use the occasion of Basel III and the EU’s CRD IV proposals, which come in at the beginning of next year, to move in that direction. I cannot see why we are where we are today and why the PRA should not get more of a move on.
On the payments system, new and smaller banks are dependent, as everyone knows, on large competitors to provide them with agency banking services, for which they invariably are significantly over-charged. It would be best to remove the payments system completely from banks’ internal mechanisms and to create an independently run licensed payments platform that would provide the service to all banks. The US clearing house inter-bank payments system is effectively that. It services several thousand banks within the United States quite satisfactorily. I cannot think why we might not think of copying the US in that direction.
On planning, we have classes A1 and A2 planning designations where banks are treated as A2 and therefore do not qualify for A1 retail sites. If a bank wants to open an operation in a shopping mall in an area where there is a lot of retail custom, it is not allowed to have that site. If the bank thinks it worth the effort, it has to go through substantial expense and time-consuming activity in seeking to get a change of use from A1 to A2 before it can take on such a site. Needless to say, landlords do not like that much, given that there is a delay in the period in which they are likely to earn their rental. The costs of dealing with planning add about £100,000 per site. The sensible solution might be to amend class orders to reclassify banks that keep retail hours, have retail customers and provide retail services as being suitable for A1 and A2.
Finally, on doing business with local authorities, it is clear that what is needed—whether it is guidance from DCLG or local authorities themselves—is to take a wider view of rating banks. Indeed, it is an insult to the PRA, which is supposed to ensure the creditworthiness, security and liquidity of all size of bank, to assume that credit agencies are better and that the smaller, newer bank is automatically less secure. Quite often it is, in fact, the other way round. The guidelines ought to be amended inviting government bodies to make their own judgments and potentially to place deposits on a more pro rata basis to the capital of different banks.
There are two other issues I shall address briefly which are somewhat indirect. One is that the EFG small business loan guarantee scheme is working poorly in this country, particularly in comparison with the small company loan scheme in the United States. The banks do not like it as it is a nuisance and a hassle. However, in the United States, there is effectively full security cover because the lenders, including the Government as guarantor, take a charge over the entrepreneur’s residence whereas over here that is not permitted. In the United States, that makes such loans more easily on-sellable, so the banks can go on making more.
Finally, as noble Lords will have noticed, UK banks in America have now been fined many billions for breaches of various regulations. I am very mindful that America has reduced its international indebtedness by about $1,000 billion as a result of the mis-selling of CDOs and that has been substantially paid for by our banking system. I wonder whether the Treasury has looked at whether the mis-selling of CDOs is a regulatory offence for which we might look at levying some compensating US fines.
We have a lot of work to do on this Bill. It is very important, but my sit-down message is that I feel that all efforts need to be made to make this country have a much more competitive banking system.
Lord Brennan
My Lords, I have a particular interest to declare as a director of NBNK, which was one of the two bidders for Lloyds’ 632 branches. It was the unsuccessful bidder; they went to the Co-op, and now to an IPO. I have also advised in the past on derivatives in relation to interest and inflation hedging. I shall speak to the importance of retail banking to our society and competition in that sector, and to the consequent responsibility of Government and this House to reform those areas with great care.
The Government have accepted—in the comments made by the noble Lord, Lord Deighton, in opening—the conclusions of the parliamentary commission. The Lord Chancellor, the Chancellor of the Exchequer and the Secretary of State for Business have accepted the following words: banks in the United Kingdom are not doing enough to carry out their core role of financing economic growth; many of them have also failed taxpayers, their customers and their shareholders; and trust in banking is at a low ebb. A reform designed to deal with such a situation is, as I have said, of great moment.
Why is retail banking of such social importance? The facts: the largest four banks in this country have 77% of the personal account business and 85% of SME business, which, on its face, is a huge concentration of economic power; and those banks administer £6 trillion of assets, which is four times our GDP. It was thought by the Vickers commission that around 20% of that would be the subject of ring-fencing of the retail banking sector—£1.5 trillion—affecting four people out of five in this country. It follows that the size of such giant banking corporations makes them of great significance in our society. Therefore ring-fencing is not an interference with their freedom to do business; it is a step taken to ensure that they do business in a way that reflects their importance to society. So there is a need to act—to restore trust by the steps promised by the commission and, somewhat, in this Bill.
In its present form, the Bill identifies the importance of core services in the retail sector. That gives statutory acknowledgement to the obvious. What is of even greater importance is how to give protection to those core services. “Ring-fencing the retail sector”, “the personal liability of directors and senior persons”, “promoting competition”—none of those words appears in the Long Title of the Bill. Indeed, once you get past Clause 1, as the noble Lord, Lord Higgins, pointed out, and you get past the objectives, the density becomes ever more impenetrable. That is not the programme for reform. Reform should bespeak what, why, how and when. This Bill in its present form does not satisfy those tasks.
I turn to the issues that I wish to concentrate on briefly: ring-fencing, personal liability and competition. I think that I am the only practising lawyer in the speakers list on the Bill. I can guarantee the House that many, many more lawyers will be working on this for a long time to come, at enormous expense. The flurry of paperwork arriving on Ministers’ laps this evening will be as nothing to the amount of paper that this will generate. Why? Because of the power that I have just illustrated to the House. It is inevitable that people with such power will seek to protect, as they think fit, their economic interests.
The noble Lords, Lord Higgins and Lord Flight, and my noble friend Lord McFall were correct to emphasise that these institutions are too big to manage in their present form. They are not too big to manage in the retail sector once that has been ring-fenced and separated. The purpose of ring-fencing is therefore self-evident. There should be, in consequence of its importance, a reserve power—a compulsory power to enforce ring-fencing to the extent thought necessary to protect the public interest. Why? Without that power, the flurry of legal activity will go on for years. The ultimate threat that society will have through a reserve power is, “If you are not reasonable, you will suffer the consequence”. Any commercial negotiation would seek to introduce a long-stop protection, and that is what a reserve power does, creating no injustice and no concern to responsible banking. Ring-fencing should come in.
I turn now to personal liability of directors and senior persons. It is important for the Government and their advisers, as well as this House, to realise how the industry and its lawyers will investigate ring-fencing and personal liability. They will first look to whether there are statutory duties for directors, as in the most recent Companies Act. Secondly, they will look to regulatory rules that require specific behaviour. They will then look to the specific—specific—consequences that will follow from a breach of duty or failure to obey the rules. Duty, regulation, consequences: that will be their analysis. This Bill should reflect that state of reality in terms of enforcing a Bill of this kind.
The role of lawyers that I have described will be followed by potential judicial review, first against the Treasury, secondly against the regulator, thirdly against any other statutory body or decision-making entity created by orders that flow from this Act, and also by attention from the insurance industry to the D&O liability of directors in banking, the premiums for which could become extremely high. All that will flow in any event. We should prepare for that now by making the Bill as clear as we can in Committee.
Lastly, I turn to competition. The Government have said that they want this Bill and other action to promote competition, especially in the retail sector; to create, as Vickers wanted, a challenger bank—I underline challenger—to the existing banking system: not a small bank of moderate size with branches only in the tens or twenties, but hundreds of branches of significant size that will compete with the biggest banks. How do the Government suggest that this Bill, with any ancillary policies, will promote such a challenger bank? If there is no solution to that at this stage, then as the noble Baroness, Lady Kramer, predicted, it could be a generation before a new bank emerges through organic growth—if then.
The European Commission ordered Lloyds to divest itself of 630 branches about four years ago. The time to implement that divestment will run out in three months or so. As far as is known, Lloyds has not yet applied for an extension and it runs out in November or December, I think. So getting into the fifth year from the European requirement, maybe we will have an IPO. Floating an IPO for a bank in the present circumstances is not an easy commercial task. If it does not work, where will the challenger bank come from? If it does work through an IPO, it will be pretty well dependent on the existing Lloyds structure for information technology and systems for a long time to come. If the House will forgive me, a “Son of Lloyds Bank” is not a new challenger bank.
This is serious stuff if with this Bill it appears that we change the law to finish up with the same big four and the same system, except for ring-fencing, with no serious competition. That is not really what the public are entitled to expect.
In conclusion, this Bill is an enormous task for Ministers and all the House. The final Bill requires three particular characteristics. The first is clarity. Everybody will look at what they are required to do and what the consequences are if they do not do it, both in ring-fencing and in personal liability. You cannot avoid clarity and, as the noble Lord, Lord Stewartby, pointed out, with this complexity it is no good hoping that the Minister, doing his best with Treasury help, might at some stage tell us what he thinks an ambiguity in the text really means. The last time I argued in the House of Lords Judicial Committee—now the Supreme Court—this principle of what the Minister said, I was accused by one of the noble and learned Lords of a tedious exercise in what he called legislative archaeology. It is an utter waste of time. The Bill should say what it means and mean what it says. That is our job, especially after such a crisis. Clarity is a high aspiration, but a necessary one.
Secondly, there should be coherence. We have a Bill, statutory orders and the regulatory authority, and will probably have codes of conduct and banking standards—a proliferation of different modes of behaviour. They have to fit in with each other. The absence of interrelation is what the lawyers and bankers will look for. So we need clarity, coherence and finally common sense. Do not those who have £6 trillion in a society have a responsibility to treat themselves as being in a form of societal partnership with their 50 million customers—the 87% and the 85%? If it is a form of social partnership, then common sense suggests that both sides should stick together to make it work. Coherence, clarity, common sense are what we need.
If we pass this Bill in much of its present form, how will anybody know how to find out about this reform? They would have to superimpose the present Bill on at least two other statutes and extract as best they could from the superimposition a notional generic Bill for banking reform, which would be an extremely difficult task. It is not too late and it is not about starting again, but about a revision of presentation. It is not too late to state principles with schedules of consequential amendments to other legislation to inform an understanding of this major legislation.
I finish where I started. The Bill is of such importance. If society cannot trust its banks what on earth can it trust? It is of such importance to the Government and to this House that we have to take real, reasonable and hard-working steps to get this right. On this side of the House I am sure that we will look to co-operate with all others. It seems to be left to us to ensure the protection of the people in banking for the future. Let us get it right.
The Earl of Caithness
My Lords, this is indeed a hugely important Bill. It is one to which everyone looks to correct the position in which we found ourselves in 2008, when people genuinely feared that they were going to lose their deposits. They hope that at the end of this Bill they will be in the position that the right reverend Prelate quoted: that the banks in the UK will keep us up there as the world’s financial centre, while protecting the ordinary working person. I fear that the Bill as presented to us will not take us to that situation.
There are two main reasons for that. One has to look at the reasons for the 2008 crisis. The bulk of that crisis was due to a structural banking problem. It was not so much the bankers’ fault; you cannot blame the bankers for doing what legislation or law allows them to do. However, we were all surprised and even glad that the report on HBOS showed that the incompetence of bankers within a structural banking system was also a major problem. We can tackle one of the major structural problems of banks, and not by changing them too dramatically, because they have two main functions. One is the storage and distribution of depositors’ money and the other is the investment of money seeking investment.
The huge figures that the noble Lord, Lord Brennan, gave to us a moment ago underline the problem, which is that the deposit belongs to the bank the moment that you make it. The moment the money is paid into the bank it is no longer yours. Most people in the country believe that when they make a deposit to a bank it is still theirs. Two judicial decisions in 1811 and 1848 changed that, and banking became legalised theft, as I call it. It was a move to take away people’s money. The noble Lord, Lord Hollick, put it well when he said that it is getting other people’s money to work for you. It requires more than a change of culture to change that in banks; to allow people to retain control of their deposits requires a change in the law. If that happens, the banks will, quite rightly, charge for the storage and distribution of that deposit, but it will allow you, as the depositor, to say, “I want that amount on deposit, which will be guaranteed by the bank, and that amount can be used for investment”. If the investment arm fails, that is fine—it will not involve the taxpayer and your deposit is secure.
The way we need to go forward is by changing the structure that banks have used or adopted themselves to use in the past. We seek to change the removal of title from their own money for the depositors; we must get ownership of the deposit back to the depositor. If you merely ring-fence a bank, the money can be moved within the bank because all the money belongs to the bank. We do not know the rules for the ring-fencing, but it will not solve the fundamental problem that the bank owns all the money. Banks should also be allowed to offer equity investments. One of the major problems we face is debt. If all the banks are allowed to do is to make more loans, all you will do is create more debt. As Stephen Cecchetti at the Bank for International Settlements recently said:
“Debt is a two-edged sword. Used wisely and in moderation, it clearly improves welfare. But, when it is used imprudently and in excess, the result can be disaster”.
There is no doubt in my mind that we are heading for another banking disaster. This forthcoming banking disaster will be bigger than the one that I tried to stop in 2008 with my Safety Deposit Current Accounts Bill, which tried to do what I have just explained—namely, to retain ownership of a deposit placed with a banker. However, another, bigger banking crisis is undoubtedly coming.
We have talked a lot about competition, and a number of your Lordships have mentioned it, but what is the right amount of competition? Clearly, we would like more competition than the big four banks that we have here, but there are some 6,000 banks in the eurozone, which is part of its problem. There are too many banks; some have had to close as part of restructuring and no doubt a lot more will do so as the eurozone tries to sort out its problems. I do not know how we, as politicians, decide what the right amount of competition is, but clearly there ought to be more here and less on the continent.
Finally, I turn to regulations. As a number of noble Lords have pointed out, a huge amount of regulations are to be brought forward under the Bill; until we see those we will not know how it is going to work. I therefore ask my noble friend when these orders and regulations will be made available. We have a problem with the Energy Bill at the moment, because now almost at the end of Committee we do not have the regulations and draft statutory instruments before us so that we can look at the meat of what we are discussing in that Bill. There has been an outcry among all Members, from all sides of the Committee, that this is unacceptable. If we go into Committee on this Bill without getting the draft statutory instruments, we will face exactly the same problems in Committee as we currently face in Committee on the Energy Bill.
When I looked at Clause 17 of the Bill I was slightly confused as to exactly what statutory instruments we will look at. The noble Lord, Lord Barnett, talked about orders that may be part of the Bill but which do not seem to be statutory instruments that will come before the House. I hope that my noble friend will be able to clarify exactly what we will be allowed to discuss, whether they will be affirmative or negative resolutions, and when they will be presented.
Lord Watson of Invergowrie
My Lords, despite the upbeat opening speech of the noble Lord, Lord Deighton, the Government have thus far ducked the radical banking reform required, which the cross-party Parliamentary Commission on Banking Standards called for over the course of five detailed and compelling reports. Perhaps that should not surprise too many, because the Government have failed to stand up to the banks on key issues, including the safety of major institutions, boosting choice for consumers, increasing financial inclusion, the high-risk, high-bonus culture and stimulating economic growth—and at a time when public confidence in banking is at a low ebb.
People have lost confidence in the banking industry; recent research carried out by the Which? organisation shows that just 6% of consumers trust bankers to act in their best interests. However, we continue to hear of the “one rule for us and another rule for the rest of you” mentality that seems to characterise much of banking—or at least the investment banking part of it. Last year, 82% publicly-owned RBS paid £600 million in bonuses despite a £5.2 billion pre-tax loss, but a Downing Street spokesman said:
“I think you are seeing a responsibility and restraint”.
If that is a reflection of what the Prime Minister thinks, I suggest that he is seriously out of touch.
A month ago it was reported that bank bonuses had risen by 64% in a year. The average weekly bonus paid in April was 64% higher than for the same month in 2012 and at the highest level since at least 2000. That was, at least in part, evidence that the City was cashing in on the Government’s cut to the top rate of income tax, which came into force at the start of April. With the top rate cut from 50p to 45p, people who were able to delayed their bonuses until April and enjoyed a big tax cut as a result. Did someone say, “All in it together”? Hardly—that is a different world from that inhabited by the vast majority.
Last week we were informed by the European Banking Authority that more UK bankers were paid in excess of €1 million than in any other EU country in 2011. Not just more—2,436, to be precise, with the next highest figure found in Germany, at a mere 170, or 7% of the UK figure. Perhaps unsurprisingly, of those 2,400, 74% work in investment banking. These figures illustrate the ongoing problem with huge salaries in banking at a time of austerity for most people. The issue is not simply the high levels of pay, but that bonuses are paid out without risks being understood and on the basis of projected results that often fall short of expectations. That, of course, is one of the reasons why the proposals of the PCBS on a remuneration code aimed at aligning risks with rewards is so important.
Yet the Government have determinedly resisted reforming pay by: performing a U-turn on plans for an annual binding company vote on future pay policy; blocking a requirement for staff representatives to sit on board remuneration committees; and fighting in the EU to defend high pay for bankers. Last month the Chancellor was left totally isolated by the 26 other EU Finance Ministers when he resisted setting a limit on bankers’ bonuses of a year’s salary, or two years if shareholders approved.
As many noble Lords have said, the Bill is more notable for what is missing than for what it contains. As it is merely enabling legislation the devil will, of course, be in the detail of the Government’s proposals for secondary legislation. The Bill was intended to implement the recommendations of the Independent Commission on Banking on structure, capital and loss absorbency, with certain exceptions, and the Parliamentary Commission on Banking Standards was established last year, after the Chancellor came under pressure to hold an inquiry into the industry after the LIBOR-rigging scandal. The commission was also asked to conduct pre-legislative scrutiny of the draft Bill, and this led, not surprisingly, to an expectation that the commission’s recommendations would be accepted by the Government. However, we now know that that is not the case.
The need for reform has long been clear, yet the banks have fought change. In January 2011 the then Barclays chief executive Bob Diamond told the Treasury Select Committee, barely two years after the crisis broke:
“There was a period of remorse and apology for banks. I think that period needs to be over”.
Few outside banking agreed with him, and those who took the opposite view were proved right when it emerged that the culpability of the banks, and the recklessness that led to the crisis, were just the tip of the iceberg.
Since then we have seen scandals such as the mis-selling of payment protection insurance, for which, as my noble friend Lord McFall said, banks have put aside some £17 billion to cover the costs of compensation. The final bill may reach as much as £30 billion. Then there were the shameful attempts to rig the LIBOR benchmark, for which US and UK regulators have so far fined the Royal Bank of Scotland, Barclays and Lloyds a total of £1.7 billion.
Unfortunately, the Bill has emerged in an inadequate form for dealing with the abuses that were—and, it has to be said, in some cases still are—rife within the investment banking sector. In the main, the Bill concerns ring-fencing—separating what the noble Lord, Lord Lawson, called high street banking from investment banking operations. What I believe was needed was a reserve power for full separation of the two sectors. The Chancellor was not convinced, although he performed a partial climbdown when he agreed to powers to separate banks on a firm-by-firm basis. This is not sufficient. It is vital for the Treasury to have a backstop reserve power for the whole sector.
As my noble friend Lord Eatwell said, Labour amendments at Report stage in another place would have inserted a requirement for a thorough review, every two years, of the ring-fencing of retail banks, to augment the electrification of the ring-fence. For instance, a proper and independent review of the adequacy of ring-fencing every two years would surely be better than the Government’s reliance on the Prudential Regulation Authority. But that idea was rejected by the Government in another place.
Another Labour amendment proposed sector-wide powers for full separation of banking as a backstop if ring-fencing proved ineffective, based on proposals drafted by the PCBS. Certainly ring-fencing should be given a chance to succeed—but the Bill should contain a backstop of full separation if it is shown not to be working. The Government rejected that idea too, and their own suggestion again at Report stage in another place would take six years if ring-fencing failed. That is much too slow, and could never form an effective backstop power for galvanising and electrifying the ring-fence. Like all other noble Lords, I am sure, I was interested in the promise by the noble Lord, Lord Deighton, about what he termed the streamlining if this process; we wait with interest to see what the detail will reveal—but it is possible that even that may prove to be a backstop power in little more than name only. As I have said before, full separation is the necessary backstop power, as I fear that nothing less will suffice to incentivise the banks to comply with ring-fencing.
Furthermore, the Treasury needs to take powers to set the leverage ratio. At Report stage in another place Labour tabled an amendment to insert an overall leverage target for the UK’s financial system, including the activities of foreign international institutions. It stipulated that after every three-month period, the Financial Policy Committee of the Bank of England would notify HM Treasury of any instances in which the committee had acted to regulate leverage in the financial system to an identified target in a manner consistent with maintaining adequate credit availability and growth in the economy. That amendment sought to take forward the view of the Independent Commission on Banking, which supported the use of leveraged ratios as a backstop. It also advocated a tapering of requirements when a bank crossed a certain threshold, by increasing the minimum leverage ratio from the Basel III 3% to over 4% on a sliding scale.
The Parliamentary Commission on Banking Standards said that it was,
“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. Not to do so would reduce the effectiveness of the leverage ratio as a counterweight to the weaknesses of risk weighting”.
The aim of the Labour amendment was that a target should be set for the financial system as a whole, with the regulators empowered to make more sophisticated judgments about firm-by-firm leverage arrangements that could take account of institutions that were too significantly different from one another. The Government rejected that proposal too.
It is well known that the Chancellor has published an 80-page response to the PCBS’s final report, stating that the Government would implement its main recommendations, using the Bill as a vehicle. The commission’s chair, Andrew Tyrie MP, has commented that there is a marked difference between the Government’s initial welcome of proposals to give regulators the power to break up banks if they breached the division between retail and investment banking operations, and the actual amendments put before MPs in another place.
“It would barely give banks pause for thought”,
was Mr Tyrie’s assessment. In fact, he has been even more trenchant, opining that,
“the Government’s amendments would render the specific power of electrification virtually useless”.—[Official Report, Commons, 8/7/13; col. 75.]
Perhaps this has had some effect, as reflected in the words of the noble Lord, Lord Deighton.
Mr Tyrie maintained that standards in banking would improve only if the ring-fence was made more robust, with the additional power of electrification. The risk of the shock of separation would be an essential incentive to improve behaviour. He also said that it was “very disappointing” that the Government would not be giving regulators powers to call for the separation of retail and investment banks, and described their decision to ignore measures to clamp down on banks engaging in risky trading as “inexplicable”. He went on to say that the decision to ignore the proposals of the Parliamentary Commission on Banking Standards on proprietary trading was “very regrettable”.
“Why the Government has rejected these proposals—electrification and proprietary trading—is inexplicable”,
said Mr Tyrie, then adding:
“Nothing substantive has been forthcoming to justify the rejection”.
Perhaps the noble Lord, Lord Newby, will attempt to provide some justification for that this evening.
It should not be forgotten that Mr Tyrie is a Conservative MP—a man who has served on the Tory Front Bench as a shadow Financial Secretary to the Treasury. He is much respected across the party divide for his expertise in financial matters, and is a fitting successor to my noble friend Lord McFall as chair of the Treasury Select Committee. Many people might wonder why the Government find themselves unable to accept in full the unanimous recommendations of the cross-party commission chaired by him. As the noble Lord, Lord Lawson, said in his interesting-as-ever speech, Mr Tyrie appears to be persona non grata in government circles. Could that have anything to do with the fact that he was, in years gone by, the campaign manager for Kenneth Clarke in two party leadership elections? Surely not.
I shall now move on to the question of lending. I, like all noble Lords participating in this debate, have received some useful briefings from organisations with an interest in the Bill. One of these was the Federation of Small Businesses, which called for an increase in the level of data that banks provide on regional lending, to give greater transparency on which areas are lending to which people, and which businesses. This would involve data—data, for example, on deposits, new net lending, products and basic demographics, to protect client confidentiality—being collected and published, on the principle that the more the data are available, the better we can target under-performing areas and groups.
That is an area in which I believe that the Bill might usefully be amended. Indeed, it links very much with the startling report in today’s financial media that bank lending to small businesses has fallen in 98 of the 120 main postcode areas of Britain. It seems that tomorrow will see the announcement of GDP growth of around 0.5% for the second quarter of the year, and that is to be very much welcomed. But it should and could have been higher, and have been achieved earlier, if the banks had properly played their part by lending to small businesses and would-be homeowners.
The figures published today demonstrate that small firms across Britain are still struggling to get access to the finance they need because the banks have cut back on lending to them in all but those 22 postcode districts. That shocking statistic confirms widespread fears that, despite various tranches of quantitative easing and encouragement from the Chancellor, lenders are failing to support a key potential area of economic growth. British Bankers Association data show that, on a regional level, lending has fallen in every area of Britain, in all nine regions of England as well as in Scotland and Wales. But the postcode breakdown was published only reluctantly by the banks, and it is understood that the Government have used the threat of legislation elsewhere to force the future publication of lending data across 10,000 postcodes by the end of the year. That information will include not only loans to small businesses but also mortgage offers to households and unsecured personal loans. That has the potential to be a very positive development, and it might still be worth using this Bill to enshrine such a policy in legislation.
After the global financial crisis and the banking scandals that followed, we need cultural change and radical reform to protect taxpayers, rebuild public confidence in the banks and ensure that, in future, they work to support the wider economy. I and my colleagues will use the Committee stage to seek to achieve at least a measure of success in that vein.
Lord Sharkey
My Lords, there are lots of things about the banking system that need reforming, and I would like to talk about four that do not feature yet, or enough, in this Bill—payday loans, central counter parties, the payments system and the whole area of competition in general.
Let me turn first to payday loans. I think all noble Lords will recognise the justified concerns about payday lending. It is true that the Government are alive to these concerns and that the FCA will take over responsibility for regulating this sector in April next year. But that is eight months away and, in the mean time, the use of payday loans continues to grow alarmingly. In a Written Answer on 1 July, the Government estimated that payday lending had risen from £900 million in 2008-09 to £2.2 billion in 2011-12, with around 8 million new loans. Your Lordships will recall that Wonga recently increased its interest rates from just over 4,000% to just over 5,000%.
This is all pretty depressing, but the real situation may be much worse. The Government have no plans to monitor stock of payday lending until the FCA takes over in April next year, when they will think about it. This seems wrong. I can confirm to the noble Lords, Lord Higgins and Lord Watson of Invergowrie, that the Government have announced today that they have arranged for the banks to publish disaggregated lending figures by postcode quarterly from December this year. Why cannot we do exactly the same for payday lending? We will certainly look to amend the Bill to make this possible.
Perhaps even more worrying than lack of accurate and timely data is the Government’s ambivalence about the whole sector. I understand their concerns about driving borrowers to loan sharks, but the fact is that there is a successful model already well established of imposing strict limitations on payday lenders. In Florida, the state strictly regulates payday loans. There is a maximum borrowing limit of $500 at any one time. You can have only one loan outstanding, and this is tracked and enforced by a state-wide database of all loans taken out. The maximum fee is 10% plus a $5 verification fee, with no rollovers without having paid off the previous loan and a wait of 24 hours before applying for a new one. The software that does all this is available for implementation in the UK right now. I am sure we will want to consider in Committee the merits of having a similar regime in the UK.
The second area of concern is to do with the regulation of central counter parties, the small number of exchanges through which derivatives and derivative-type products must now be traded. Concentration of these trades into a small number of exchanges had the objective of increasing transparency and therefore predictability and therefore stability. It is quite possible that this concentration may have the opposite effect. If our banks are too big to fail, Andy Haldane of the Bank of England has pointed out that CCPs are,
“too big to fail on steroids”.
If the primary purpose of the Bill before us can be seen, as the BBA rather optimistically asserts, as,
“the final step in financial stability orientated measures”,
it is by no means clear how this Bill contributes to the stability or the resolution of CCPs or how it reduces exposure for the taxpayer. Perhaps it was not intended to, but we need to address these issues somewhere.
The third area of concern is the payments system, which essentially means VocaLink. This is the system, owned by the banks, which makes all money and credit transfers happen. It has two products—faster payments and BACS, one very fast, one remarkably slow. There are fundamental problems with this system as it stands. Leaving aside the question of who has the use of your money when it is slow in transit—when it has left your account but has not reached the recipient’s account—there are issues of competition, ownership and innovation here. The large shareholders in VocaLink have typically charged a premium for smaller banks to have access to the system. The Government are doing something about this, but the abuse of power by the large bank shareholders does not stop there.
The big bank owners of VocaLink have no incentive to innovate. Indeed, they have every reason to avoid innovation. VocaLink itself says in its observations on the Bill that,
“there are few incentives (owing to the pricing structures, length of contracts and commercial arrangements in place) for VocaLink, the payment schemes themselves or the end user banks to invest in innovations”.
Here “end user banks” really means big owner banks. You can see why they do not want to innovate. It would probably cost only between £25 million and £50 million to develop new, better, faster, more comprehensive payment systems. But because the banks’ IT systems are essentially clapped out and starved of investment, it would cost each bank hundreds of millions to upgrade its systems to implement new services. Of course, in any really competitive, customer-focused market, at least one bank would do just this, but our big banks are not competitive and certainly not customer- focused and they do not do any of this. They do not even invest in their current IT systems enough to stop them falling over. This is cartel-like behaviour—and I will return to the issue of competition in more detail in a moment. The fact is that the banks should not own or control the payments system, and we need to fix that. I think I heard the Minister say that the Government will bring forward amendments to do just that, which is very welcome. I look forward to discussing those amendments when they appear in Committee.
Before I leave the financial plumbing system, I would like to touch briefly on the issue of account portability. There has been progress on this. The new current account switching service will be available from September and mobile to mobile payments from 2014. This is a good thing as far as it goes. But, again, the fact is that we could do much better without the cartel-like involvement of the big banks. For example, under the proposed account switching arrangements, know your customer checks will still have to be carried out by the new bank, as the noble Lord, Lord Flight, said. This will delay switching for many retail accounts and is virtually certain to delay switching for all SME accounts. It need not be like this. Know your customer checks could be the responsibility of the plumbing system of a newly liberated VocaLink, and so could all the details of direct debits and other payments. How nice it would be if the banks were really forced to compete to service these consumer packages. This is an issue that we will certainly want to return to in Committee.
What many of the previous areas I have mentioned have in common is competition or, rather, the lack of competition. This is the final area that I want to talk about. I strongly agree with what the noble Lord, Lord Eatwell, said on this subject. Our banking system is not even remotely competitive. Four big banks control more than 80% of the market, and it is this problem which is a key driver of many of our other problems with the banks’ behaviour—resistance to change, corruption, criminality and incompetence. It is worth reminding ourselves, very briefly, of the most recent scandals: the collapse of HBOS; the fixing of LIBOR; the involvement of Standard Chartered and HSBC in sanctions-busting and drug money laundering; the failure of the RBS payment systems last summer; and, last week, Barclays being fined half a billion dollars in the United States for allegedly rigging the gas markets. All this is compelling evidence of corruption, criminality and incompetence.
However, these are not the worst things. The very worst scandal, an almost unbelievably bad scandal, is the mis-selling of PPI policies. This scandal was the worst for three reasons. First, it was absolutely huge. The banks are going to have to pay at least £16 billion, and perhaps £30 billion, to settle the claims made against them. Secondly, it was not just one bank; it was lots of banks. But, most of all, it is worst because it was deliberate exploitation of their customers. It is worth quoting what John Lanchester recently said in the LRB about the PPI scandal. He said:
“PPI was about banks breaking trust by exploiting their customers, not accidentally but as a matter of deliberate and sustained policy. They sold policies which they knew did not serve the ends they were supposed to serve and in doing so, treated their customers purely as an extractive source”.
The PPI scandal is the clearest possible indication that the banks do not have their customers’ interests at heart—the opposite seems to be the case. It is precisely the lack of effective competition that has allowed the banks to develop and maintain this corrupt culture.
The Government are alive to all this and so, to an extent, are the banks themselves. The Government would like to see a more diverse and competitive banking landscape and have made important moves to produce this. In particular, it will be easier to set up new banks and this will help. They would like to see the equivalent of the Sparkasse here in the UK. That would help, too. P2P lending may also help, although I should say in passing that I am very alarmed to see Santander muscling in on Funding Circle. It is very hard to see how this would increase diversity in our banking landscape. But all this is very small and very gradual. It would take decades and decades before any of this had any real effect on the big banks’ market share.
The banks themselves offer two sorts of solutions. One is better, more ethical cultures and better, more ethical leadership. However, it is hard to be convinced that this would be sufficient. At the time that HSBC was busting UN sanctions and laundering drug money, it had an Anglican clergyman in charge of it. The other solution is better regulation. The Government agree with this and in this Bill and in the Financial Services Act put enormous faith in the ability of smarter, stricter regulation to help solve the problem. I am convinced that regulation will help a great deal but I am equally convinced that on its own it will not solve the problem. In fact, I do not think the problem with our banks can be solved unless we make them really competitive and really focused on serving their customers. How we might do this, we will want to discuss in detail as the Bill progresses, but we do need to do something radical. At the moment, our banks are too big to fail, too big to jail, too big to trust and too big to manage. We should not believe that they are also too big to break up.
Lord Northbrook
My Lords, it is a pleasure to follow the thoughtful speech of my noble friend Lord Sharkey, which emphasises the fact that whatever type of regulatory system you have for the banks will not necessarily effect an automatic culture change, and this could be a long process.
As the Minister said, the banking Bill will introduce a ring-fence around the deposits of people and small businesses to separate the high street from the dealing floor and protect taxpayers when things go wrong. It will make sure that the new Prudential Regulation Authority can hold banks to account for the way that they separate their retail and investment activities, giving it powers to enforce the full separation of individual banks. It will give depositors protected under the Financial Services Compensation Scheme preference if a bank enters insolvency. Finally, it gives the Government power to ensure that banks are more able to absorb losses.
I fear that I may be in a minority but, overall, I approve of the Bill. A lot of preparation has gone into it. The Government should be commended on taking careful note of the report of the Vickers Independent Commission on Banking as well as the findings of the Parliamentary Commission on Banking Standards—the PCBS—the members of which I praise for all their hard work. However, the Government—correctly, in my view—have not gone overboard in taking on all the suggestions, particularly of the latter report. In this debate the one thing that we seem to have ignored is the fact that banks have to remain competitive internationally. Until Glass-Steagall is reinstated in the US, we will not be on the same playing field as other international banks if we go down the route of total separation. We are right to stick with Basel III although, as other speakers have said, it could be quicker in coming to final solutions.
The banks themselves seemed to accept, although reluctantly, that the Bill represents a workable solution when they gave evidence to the Joint Committee on the Financial Services Bill. Stuart Gulliver, the chief executive of HSBC, said:
“It remains to be seen”—
whether the Government are right in their proposals—
“It is obviously a ‘done deal’. The Government wish to introduce this. It would not be our most preferred way of doing it. To my earlier point, there have been several examples in history of narrow ring-fenced institutions also failing. They are happening in Spain at this moment in time. That is what the UK wishes to do; therefore we will implement it”.
Then Bob Diamond, of sacred memory, said:
“We keep being asked if it was the right decision ... It certainly would not have been my first choice. It will add cost to banking and, therefore, it will increase the cost of borrowing, but we can live with it and we are going to implement it”.
Of course, he will not be able to carry out his wish due to falling on his sword over the LIBOR scandal, but his views were interesting nevertheless. Sir Mervyn King—now the noble Lord, Lord King—said:
“The Government created an outstanding commission of individuals and it would be unwise to go against their recommendations ... the banks have said that they are prepared to accept and implement this”.
In the other place, the Opposition focused on putting to the vote as amendments many of the parliamentary commission’s recommendations which the Government had rejected. I will examine these in a little more detail. The first item was the leverage ratio. Basically, as many speakers have said, the Opposition, like the PCBS, wish this ratio to be larger, at 4%, than the internationally proposed Basel Committee recommendation of 3%. In my view, the Government were right to resist this proposal which, as I said, would put our banks and building societies at a disadvantage compared with their international rivals.
The second amendment moved in Committee was to insert a new clause. Clause 3 would have introduced a licensing regime for all approved persons exercising control functions. Although this clause was defeated, the Minister, Greg Clark, said that the parliamentary commission’s final report on standards and culture would be,
“reflected in amendments to be made in the House of Lords”.—[Official Report, Commons, 8/7/13; col. 90.]
Can I ask the Minister what these amendments may be?
On Report in the other place, the Opposition focused on five separate areas. The first was ring-fencing and electrification. Chris Leslie proposed an amendment which called for sector-wide powers for full separation of banking as a backstop if ring-fencing did not work. The Government opposed this, correctly, while proposing amendments to strengthen the effectiveness of the ring-fence.
The next area discussed was the leverage ratio again, where the Opposition wanted to introduce into the Bill an overall leverage target for the UK’s financial system. The Minister again rightly resisted this, saying that we should not move on this except internationally via Basel III. Next, the Opposition wanted an amendment concerning individual accountability and a duty of care. I understand that amendments on these matters will be introduced here.
The Opposition also wanted a review of competition in the banking sector. The Minister replied that the OFT will bring forward its investigation into small and medium-sized banking as part of an ongoing programme to introduce competition in banking.
Finally, the Opposition moved a new clause stipulating that before the sale of any publicly owned banking assets, HM Treasury would be required to submit a timely report to Parliament. The report would set out how the sale would best serve the interests of the taxpayer; increase competition within the banking sector; restructure the banks concerned, especially with regard to the split between core and investment banking and the retention of some assets by HM Treasury; and set out the impact on regional banking networks. The Minister replied correctly that enough was being done already. There was the availability of £60 million in wholesale funding for community development finance institutions and up to 25% tax relief on investments made by individuals and companies into these CDFIs. More flexible rules for credit unions had been introduced alongside the £38 million made available to them.
I support the amendments to be proposed in this area according to the briefing received today from HM Treasury. These cover the creation of a senior persons regime to replace the approved persons regime as it applies to persons responsible for managing a firm and the key risks it faces. The PCBS has suggested a new criminal offence of reckless misconduct in the management of a bank. The briefing states:
“Further, the Commission recommends that the Government bring forward, after consultation with the regulators and no later than the end of 2013, proposals for additional provisions for civil recovery from individuals who have been found guilty of reckless mismanagement of a bank”.
As the noble Lord, Lord Brennan, has said, I am sure that the lawyers will have a field day on the very difficult definition of “reckless”. The briefing continues:
“There will be a need however to ensure that any planned criminal offence or change to the civil sanction regime is measured and workable”.
I also support the creation of a new payments system regulator and the introduction of a secondary objective to further support competition for the PRA.
The Government have also sensibly made clear that they will support some of the ICB’s key recommendations at a European level because they believe, correctly in my view, that in these areas the UK’s approach should be consistent with progress across Europe. These are higher capital requirements for large ring-fenced banks, beyond the Basel III minimum standards, through powers in the Capital Requirements Directive IV and capital requirements regulation. Also proposed is a bail-in tool as part of the European Commission’s proposed recovery and resolution directive as an essential resolution tool for banks that are “too big to fail”.
I also support the Government’s decision that a number of recommendations to improve competition in the banking sector both by the ICB and the PCBS are to be taken forward through non-legislative channels. In particular, I understand that following a request from the Treasury, the Financial Services Authority published a review of barriers to entry and expansion in UK banking. As a result, the regulators are introducing significant changes to make it easier for new banks to enter the market and grow. Perhaps I may ask the Minister what those are.
The British Bankers’ Association, in its briefing for Second Reading in this House, is generally in favour of the Bill. It says that secondary legislation, as many other speakers have said, will be critical in determining whether a ring-fenced bank can be organised in an orderly and effective manner and whether it will be capable of providing a suite of services to households and businesses consistent with the principles originally set out by the ICB. Notwithstanding the need to ensure that the ring-fence is suitably robust, there is also a need to ensure that banking services in support of business, such as simple hedging and trade finance, can be provided in a cost-effective manner. So far, four statutory instruments have been produced. At first sight these appear to address some of the concerns raised by the industry and others, for instance in terms of the ability of ring-fenced banks to provide hedging services and trade finance to their clients. There appear, however, to be significant gaps in the services that can be provided in support of SMEs’ financial needs, including their export and import finance requirements. These need to be explored as part of the consultation.
Clause 4 has been amended to include group restructuring powers for the regulatory authorities in the event that they consider the ring-fence to be ineffective in procedures relating to the exercise of the powers. While the objective of the group restructuring powers are understood, including the independence of decision-making criteria, it will be important to ensure that this is compatible with the statutory duty of directors under Section 172 of the Companies Act 2006. The structural reorganisation of a banking group to bring about ring-fencing is likely to involve relying on the banking business-transfer regime and the revised Part VII of the Financial Services and Markets Act for the transfer of tens of millions of accounts and contracts. Key to this is ensuring that the revised provisions are suitably scoped and the procedures involved compatible with an orderly transition to ring-fencing within an envisaged 2019 timescale.
Schedule provisions have been added to the Bill that look to help the operability of the ring-fencing transfer process. For instance, the amendments would make statutory provision for the PRA to review ring-fencing transfer schemes in order to provide regulatory consent to transfer plans. There are likely, however, to be some instances in which small drafting amendments will be justified in order to further facilitate the smooth transition towards the ring-fencing arrangements.
As the government consultation indicates, there are outstanding issues in respect of pension scheme liabilities and VAT grouping. It is disappointing that the regulations on these remain outstanding. It is pleasing to see that at least the intention to publish the regulations on pensions for consultation before parliamentary scrutiny has been completed.
In conclusion, I once again express my support for the Bill. Of course, all these measures do not come without significant cost to the banks. According to the Government’s impact assessment, ring-fencing and depositor preference are expected to impose transitional and ongoing costs on UK banks. The Government estimate the ongoing costs to be in the range of no less than between £2 billion and £5 billion per year, with one-off transitional cost of between of £1.5 billion and £2 billion. The individual customer and/or small business will have to bear these costs. However, I hope that the benefit will be increased financial stability. No one should underestimate how close the UK banking system came to collapse in 2008, and this can never be allowed to happen again.
Lord Whitty
My Lords, it is always interesting to follow the noble Lord, Lord Northbrook, in these financial services debates. I regard him as one of the more articulate and deft defenders of the status quo in the banking system. He may have slightly wrong-footed himself by quoting Bob Diamond at an early stage but the noble Lord nevertheless sets out the case.
I come from an entirely different perspective. I want to introduce in this debate the view of the customers of banking services—whether we are talking about individual deposit-holders, like most of us; those who are seeking a mortgage or a bit more credit; the middling businessman who is looking for a little help in expanding their business or some support for their forward business plan; or, as some noble Lords have mentioned, the roughly 20% of our population who are effectively excluded from the services of the mainstream banking sector. I regret to say that I agree with my noble friend Lord McFall, who is not in his place, that the lesson of the past few years is that consumers, whichever category they fall into, have been at the bottom of the pile.
We are five years on from a very serious financial crisis affecting pretty much all the globe and which was started in the banking sector. In this country and in this House, this is the fourth major piece of financial legislation that we have had to consider since that collapse of the system. At the time of government intervention by introducing a degree of state ownership in the banking sector, I probably had slightly better institutional consumer credentials than I have now because I have retired from that role, but I can recall—not in a partisan way but just to say to the Minister—when my noble friend Lord Mandelson was in his place advocating those emergency powers, that I argued that within 18 months of the state acquisition of two of our largest oligopolies there should be, within that statute, a clear commitment to refer to the competition authorities the whole structure of the UK banking system.
After two Governments, four bits of legislation, the Vickers commission and the Parliamentary Commission on Banking Standards, not all of whose recommendations appear in this Bill, as noble Lords have said, we are left with—and are likely to continue to be left with—a structure of banking that is extraordinarily similar, apart from the public ownership bit, to the structure that was there before the 2008 crash. As for the customers, they are left with a rather less responsive and sensitive service. There is less competition in the banking system than there was then. There is less sensitivity to individual account holders and individual businessmen who go to their local bank managers. More of the risk has been shifted from the banks to the taxpayer and bank customers. We have not moved forward from 2008.
In terms of the assessment of what we should be doing in a banking system, we have moved from an opportunity, in the face of that financial catastrophe, to have a serious, comprehensive reassessment of the banking structure in this country. We have gone from a position that considered total separation of investment banking from commercial and retail banking to the Vickers commission proposal for a strong ring-fenced position and then to one that is a pretty weak ring-fencing proposition with or without the additional electrification that the Minister is proposing, which we have yet to see.
That Chinese wall is frankly a little weak. It is a bit like the Great Wall of China itself; it is a fantastic edifice looked at from afar, indeed from outer space, but when we get close to it, it has always been pretty easy for the barbarians to overrun it. Our fear is that there are quite a few barbarians within the banking sector and the stipulations in this Bill, even if enhanced by further amendments by the Minister, are unlikely to stop them. We have an oligopoly in banking. The banks are too big to fail and too big, as the noble Lord, Lord Higgins, and others, have said, to be managed, so in terms of the totality of the British economy they are too big to succeed, as well.
From the perspective of the three groups of customers to whom I have referred, how does that look? What is the individual deposit holder faced with in the period since 2008? First, there is the lowest rate of interest almost since the Bank of England was created. They face a reduction in personal services from their local bank manager and an increase in charges. That has resulted in the financial ombudsman reporting in the past couple of weeks a 179% annual increase in the number of complaints. Some of those relate to the mega crisis of PPI, but half are general complaints about the banking system. On the ground, there are fewer branches, and likely to be yet fewer still, less effective competition and less personal service than 20 years ago.
From the point of view of small or medium-sized business, my noble friend Lord Watson, who is not in his seat at the moment, has stolen my fire. There is a report in today’s paper that the net increase in lending to small firms in the last available year was negative. There is a £4.5 billion reduction in lending from the banking sector to small firms in a period when the deposits from small firms in those very same banks increased by £7.8 billion. Is that a service to depositors? Is it a service to the small businesses in the economy that are supposed to be providing the dynamics for coming out of the economic recession?
On top of that, we have to consider the Government’s attitude to better regulation of the banking system. The Government, with support from the City and elsewhere in the financial pages, are deeply resistant to Brussels innovation in regulation of the financial sector. From the other end—not the bankers’ but the business customers’ end—does the average small and medium-sized business in Britain get a better service than in Germany? Has that been the position in Germany for the past 60 years, never mind more recently, where small and growing businesses can go to the regional and co-operative banks for a personal service? Their advancements are based on their business plans. That includes not only the smaller companies but the all-important Mittelstand in the German economy, which is always pointed to as being a driving force of German economic growth.
In this country, we have had a decline in relationship management between local banks and businesses. Their requests for credit have been referred up to their central computer, based on nationally determined, or possibly internationally determined algorithms, the net result of which is that whatever the pleadings at the local level with local bank managers, the computer says no. That is what a lot of our business customers face. The right reverend Prelate and others said that there is a disconnection between what we expect and need from the banking service—the experience of SMEs, individuals—and what is actually happening in the banking service that is being provided.
The third group of customers that I have identified—those seriously outside the banking system—is one that the Government, on a different plank, recognised as being outside when they had to accept the amendment of my noble friend Lord Mitchell to the previous Financial Services Bill. Roughly 20% of the population either do not have banking facilities or have such basic banking facilities that they can never acquire credit or sophisticated services from the banking system. So what happens to them? They go to Wonga—the noble Baroness, Lady Kramer, referred to this earlier—or to pay-day lenders, or to the even more nefarious high-street lenders which are springing up around the country, or, even worse, they go to illegal money lenders, leading to serious distress in some of the poorest communities in our country.
In other sectors where we have an oligopoly and a regulator who is supposed to operate in the interests of consumers—whether we are talking about energy, water or telecoms, with all their shortcomings—there is something close to a universal obligation. This is because it is recognised in an oligopoly that they are vital to economic and societal needs. In the banking sector there is no such obligation. That leads to 20%, possibly more, of our population being outside the customer requirements of the banking sector.
My noble friend Lord McFall referred to the previous system of regulation and the FSA, in effect, being client-captured by the industry. We now have a new regulator, the FCA, and we have yet to see how it will behave in these circumstances and whether it will ensure that the banking sector provides a serious service to business and individuals and extends its services to the currently excluded part of the population. We need a more competitive structure, but the Bill as it stands is more likely to consolidate the existing structure than it is to challenge it. We need to ensure that during the Bill’s passage through the House we improve on that situation. I appreciate that there are statutory instruments to come, but I am not holding my breath that they will create a more positive, proactive direction to the banking sector to become more competitive and more sensitive to the needs of our business sector and our population.
Part of the problem is psychological. For a long period, we have regarded the banking sector and the City of London as being the apex of our economy. That is seriously wrong and damaging to our economy. The banking sector should be a service to our economy and to our consumers, both business and domestic. I appreciate and accept that further legislation will deal with the standards issue and that there will be secondary legislation under the Bill. I appreciate also that there is behind the Bill at least a vague notion of a nuclear option.
I appreciate, as the noble Lord, Lord Lawson, said, that we cannot deal with this overnight. However, the reality is that we have had five years since the financial crisis and there is still enormous unmet need in both business and society for effective services by our banking sector. I regret to say that the Bill is unlikely to meet that unmet need or to take us very far down the road of so doing. I hope that in the period of consideration that the House now has before it we will improve its ability, but the framework of the Bill is seriously limiting and I do not have great hope that we will improve it substantially. However, improve it we must. The Government must recognise that there will be a serious problem both for our society and our economy if the banking sector continues to fail us.
Lord Tunnicliffe
My Lords, I thank the Minister for his detailed introduction to the Bill. I also thank the Parliamentary Commission on Banking Standards—particularly Mr Tyrie, its chairman—for its excellent work. I particularly thank the Members of this House who were on the commission—the most reverend Primate the Archbishop of Canterbury, the noble Baroness, Lady Kramer, and the noble Lords, Lord Lawson, Lord McFall and Lord Turnbull, with whom we hope to work constructively to ensure that the Bill is not a missed opportunity. I praise their wise input into this process. It is certainly a good thing that the economic and financial services expertise in your Lordships’ House is so stellar in quality, given that the Government’s timetabling has left all the meat in the Bill to us.
I do not share the pessimism of my noble friend Lord Whitty and I hope that I am proved to be right. The consensus and enthusiasm that I have heard tonight to get into this Bill despite all the barriers and difficulties will mean that it will have an extremely good passage and that we will radically change and improve it. I hope that I am right but I can see the reason for his caution.
When Lehman Brothers filed for bankruptcy in New York in September 2008, it sparked a financial crisis which ricocheted around most of the major economies in the West. We saw reckless banking requiring vast taxpayer bail-outs. The public finances were irreversibly affected and the economy suffered. The Financial Services Act 2012 was part one of this Government’s response to the structural changes that they argued needed to be made. The Act abolished the FSA and established the PRA and FCA. My party supports the move to prudential regulation but continues to warn that there are numerous question marks over the role of the Bank of England as regulator, and its many and varied responsibilities. We wait to see what impact Mark Carney will have on steering this mighty ship.
If the Financial Services Act 2012 was the Government’s response to the regulatory side of the equation, this Bill would appear to be their attempt to offer some solution to the reckless banking side. As for the impact on public finances, social security bills are going up and more and more people are stuck in long-term unemployment. Things are not improving. It is true that all parts of our society have suffered: the citizen, the bank owner and the customer—as my noble friend Lord Whitty has just outlined.
I had not really thought about bank owners until last night, when I realised by accident that some time ago I had £10,000-worth of bank shares, or more precisely, I had a £10,000 Halifax ISA. I now have a £2,000 Lloyds ISA and I think that I am typical of many of the owners of banks, as well as their customers and as well as citizens. I do not want to go into this Government’s policies that have, in our view, exacerbated the crisis and, in their view, sought to mend it. There has been a self-denying ordinance in this debate to avoid party politics and I will stick to that ordinance because I think that the emerging consensus to get to the meat of this Bill is one that we should preserve.
At the end of the day, however, as my noble friend Lord Eatwell said, the impact on the real economy must be the test. The right reverend Prelate the Bishop of Birmingham talked about the need for new institutions to emerge, and the noble Lord, Lord Lawson, spoke about RBS and how a different RBS could come out of this crisis, contributing to the real economy. I hope that all of these aspirations are met.
The Bill is the Government’s response to the Independent Commission on Banking, led by Sir John Vickers, and it is intended to implement Vickers’s recommendations on structure, capital and loss absorbency. It is also meant to be the vehicle for implementing the recommendations of the Parliamentary Commission on Banking Standards, whose five reports—it is interesting that we had different figures, but I think there were five reports—on standards, ring-fencing, structure, proprietary trading, and culture, are a compendium of experience, expertise and advice in this field. This Bill, however, in fact lives up to almost none of these.
As my noble friend Lord Eatwell has made clear, it is a shell of a Bill. It is reliant on order-making powers, many of which we have not yet seen. It is entirely silent on standards, culture, customer choice and competition. I am pleased that so many noble Lords have seen the importance of filling in these spaces. The challenge before the Government is to give us the information to do this. The noble Baroness, Lady Kramer, made the point early on and my noble friend Lord Barnett said that, of course, Governments like order-making powers, but we must see much more substance in the Bill. My noble friend Lord Watson also touched on that. What the Bill does include is deeply flawed. The ring-fence rules must be reviewed and full separation powers included in the Bill as a bare minimum. The Government’s amendments on ring-fencing have been roundly criticised. My colleague in the other place put it rather succinctly:
“Five strikes and you might be out in six years’ time”.—[Official Report, Commons, 8/7/13; col. 73.]
The Minister has promised to offer a much more streamlined version—it has got to be a great deal more streamlined to be convincing.
It is fascinating just how many Peers came forward and said flatly that they were in favour of total separation. I listened to the speech of the noble Lord, Lord Lawson, with rapt attention, in particular when he touched on how the cultures were different. My noble friend Lord McFall said that he was in favour, as did the noble Lord, Lord Higgins, my noble friend Lord Hollick, my noble friend Lord Barnett, and the noble Lord, Lord Flight. My noble friend Lord Brennan painted a wonderful image of a lawyer-fest, if we do not have that backstop of full separation sitting behind that reserve power. These ideas were touched on further by my noble friend Lord Watson.
From this side of the House, we argue strongly—and let us face it, there seems to be absolute consensus on this point—that a fuller Bill is needed in response to the crisis and the banking standards. The Bill needs to address cultural flaws in the industry. I acknowledge that cultural change cannot easily be legislated for, but several legislative steps could make a difference and should be included. We believe that that there needs to be a proper fiduciary duty—a duty of care—on banks to operate prudently and to safeguard deposits. Individual responsibilities need to be clearly defined and appropriate criminal sanctions put in place.
At the macro level, the Government should also bring forward the proposals of the parliamentary commission concerning a new offence of reckless misconduct. We are also keen to see a review on setting up a financial services crime unit in the Serious Fraud Office.
My noble friend Lord Brennan spelt out how the industry will respond to the Bill when it comes into force. It will be about personal responsibility and consequences, and we have to think through how we shape the legislation. For instance, we are going down the difficult route of reverse assumption—in the sense of guilt and the need to create a defence. This is a difficult area but we did it in the Bribery Act and there are one or two other examples in legislation. However, it will have to be carefully structured.
In keeping with addressing the proper focus of the banking industry, it is time to look seriously at remuneration. The giving of grossly inflated bonus settlements while the majority of households and individuals in the middle continue to feel squeezed is not a scenario that we should comfortably see continue. We need to force bankers to think of their customers and of the consequences of their actions. We need a more long-termist approach, which could include powers to require elements of remuneration to be deferred for up to 10 years. To engender responsible behaviour, we need to look at professional standards in the banking industry and at whether bankers should be licensed. We need the confidence in our bankers that professional standards regimes have provided in other sectors.
The Minister said that there was a third pillar to this—the whole issue of culture. Many noble Lords touched on that. The right reverend Prelate the Bishop of Birmingham talked about the human or almost spiritual value in the culture. I cannot quite find the right word but perhaps we could refer to “human standards” in the culture. My noble friend Lord McFall talked about regulatory capture in the culture. In pondering this issue, I asked myself when it was that banking was great. It was great when it was based on trust. What do we mean by trust? We mean a willingness to trade in complete contracts because you know that the counterparty will not let you down. That trust completely disappeared in the crisis, and that is why banks stopped trading with each other almost overnight. Rebuilding a culture that works is a really difficult challenge. What do we have on the table so far? We have incentives through getting the remuneration right; we have regulations, which we know are difficult to get right in a holistic way; and we have fear—the fear of going to jail. We have to talk this over at considerable length, and we have to see what other shots are in our locker.
One issue that I certainly hope that we will look at is whether there can be more transparency. In many ways, transparency is a useful prop for a trusting culture. When people are seen doing things by their counterparties, wider society or regulators with a great deal more clarity and openness than is the case now, they behave differently. We will certainly want to probe whether transparency might be added to the list. It could be transparency in relations, remuneration and trade. Transparency in banking is key, and we need to see proper protection for whistleblowers.
My noble friend Lord Eatwell said that there was a serious need for competition. Virtually everybody who has spoken has said that, including the noble Baroness, Lady Kramer, the noble Lord, Lord Sharkey, my noble friend Lord Hollick and the noble Lord, Lord Flight. My noble friend Lord Brennan pointed out that, in the face of the big four, building a challenger bank will take a generation.
We welcome the Government’s intention to ask the new regulator to explore the feasibility of account portability. This could be an important contributing factor to bringing greater competitiveness to the sector. Diversity and competition are vital, but they have gone backwards on this Government’s watch. We hope that the Government will heed the PCBS’s proposals that the Competition and Markets Authority immediately begins a full-market study of competition in the retail and SME sector. There are a number of other areas I will not touch on which have already been discussed, but leverage will have to be discussed and, in particular, the issue of proprietary trading.
The Government have suggested some key changes and made some quite good general statements, but we must probe them and find out what they really mean. They must stick to it and we must make sure they do. We will be watching like hawks to make sure that they stick to their promises and, indeed, go further. We will have enormous challenges—I will not call them problems—in handling the Bill. We will work through the usual channels, with the Government and other interested parties, as to how we structure this. Whether we like it or not, many of the debates in Committee will be “Second Reading debates”. That is not wrong: whole new concepts will be introduced and it will be entirely proper for the Minister presenting them to outline them in context and for them to be challenged within that wider context. It will probably be a good idea for us to discuss how to do that away from the Floor of the House, but it will be a big challenge to create the right structure to discuss the very wide areas that have been discussed. There are the real-economy consequences, the new investment vehicles and the points made by the noble Earl, Lord Caithness, which had never crossed my mind until tonight but will be useful. We heard about pay-day loans from the noble Lord, Lord Sharkey, and the issue of PPI.
We also have the point made by the noble Lord, Lord Higgins, and, I think, by my noble friend Lord Brennan, about the sheer density of the material in front of us. The noble Lord rightly said, “When I went to FiSMA and saw how it related, it did not make any sense”. No, it does not make any sense, because FiSMA has been modified ten times over since the copy he got from the Printed Paper Office. We need help from the Government on this. I believe it is called a Keeling schedule—they put one on the web for the Financial Services Act. I urge them to do that early and make sure that we can get a document so that, as the noble Lord said, he can go from the Bill to a document, the cross-references work and he can see what is happening.
This is not a particularly political Bill; but it is an incredibly important Bill. It will impact, frankly, on how we do business in the United Kingdom for decades to come. It is crucial that we get it right. I shall set out briefly where we will be coming from. The noble Lord, Lord Northbrook, set out the Opposition’s position reasonably accurately—I thank him very much for that; it saves me having to do it. The position in many areas of the Bill is a spectrum with a series of strands. The spectrum goes from light-touch regulation at one end to detailed, prescriptive, heavy-handed regulation at the other. Light-touch regulation did not work. It did not work here or in the US and we know that it has to be changed. Let us face it, the vast majority of the western world believed it was the solution. There are some people who can genuinely say that they said, “This is too hazardous”, all the way through, but they are very few. Many of us said, “It is working, it is producing the money, great”.
That is one end of the spectrum. I described the other end of the spectrum. In many ways the Banking Commission tried to be at the consensual centre of the spectrum, where it was optimal. We will bring forward amendments, probably between the Banking Commission recommendations and the more detailed end; we will be at the more intrusive end, probably. We will do that believing that it is a good place to be. We will be a listening Opposition, because there is so much expertise and depth of knowledge in this House on this subject. We want to see how those amendments fare and what counter-amendments come forward. We will look to form consensus with other Members of this House—with the Back-Benchers of other parties and the Cross Benches—and we hope, through the process of debate, to draw the Government into that consensus. At the end of the day, this Bill really needs the support and wisdom of all parts of the House. The Lords will work constructively in a cross-party way to ensure that the Government deliver a good Bill—or, if they do not, that Parliament will.
Lord Newby
My Lords, I thank all noble Lords who have spoken in the debate this evening, particularly members of the Parliamentary Commission on Banking Standards—not so much for their contributions tonight, excellent though they were, but for the phenomenal amount of work they did on the commission. For months on end it was impossible to discuss anything with my noble friend Lady Kramer because she was either in a meeting, just going to one or in the middle of reading great piles of stuff. I know they did a huge amount of work. I share the views expressed by my noble friend Lord Lawson and others about the extraordinary leadership that Andrew Tyrie gave in driving that process forward.
I believe the Bill has been marked by a readiness on the Government’s part to listen and respond to a wide range of views. The Government have already made a series of amendments to the Bill in response to the recommendations of the PCBS and have shown willing to keep listening and to fine-tune their provisions as the debate on these issues continued to unfold. We will make further changes to the Bill in this House in response to the constructive debates in another place and here, in particular on the firm-specific electrification power. We will also introduce amendments to implement the recommendations of the PCBS’s final report on culture and standards.
The debate today has confirmed the broad consensus and strength of feeling across the House about the great significance of the measures contained in this Bill and those shortly to be added to it. In the time available now, I cannot deal with every issue that noble Lords raised. Indeed, some issues went significantly further than the Bill itself. Of course, we will return to all these issues in Committee. Many of the principal issues mentioned by a number of noble Lords were first raised by the noble Lord, Lord Eatwell. I will deal with them in the same order that he did.
There has been a lot of discussion about whether this is a watering-down as opposed to an enabling Bill in terms of what it contains. There are many further, detailed provisions to be made to implement the changes and we have taken the view that these are not all most suitably dealt with in primary legislation. That is why there is a lot of material to be done in secondary legislation. A lot of the detailed rules will be made by the PRA. I hope that we are able during the course of debates to explain how we see some of those being implemented in detail but the principle of having much of the regulation done by secondary legislation was agreed by the parliamentary commission.
The noble Lord, Lord Barnett, asked where we disagreed with the commission. I recommend that he looks at our response to its first report, which we issued on 4 February, and our response to its other four reports, which we issued earlier this month. In the second of those, a table at the back lists each of the recommendations and the text earlier on explains our response to it. Both those responses are available on the Treasury website.
Lord Lawson of Blaby
I accept in principle that there is a lot which will need to be in secondary legislation. Nevertheless, it would be helpful if the proposed secondary legislation could be provided in draft so that we know exactly what the Government have in mind and can form a view accordingly.
Lord Newby
Of course, my Lords. Much of the secondary legislation was published earlier this month. I would like to suggest—both in terms of the secondary legislation and the amendments and how we reconcile the text in the Bill with earlier legislation—that we contact noble Lords between now and the end of the Session explaining our timetable for producing material, if we have not already done so. If we have produced material, we will let noble Lords have it at that point. Specifically, the noble Lords, Lord Higgins and Lord Tunnicliffe, referred to reconciling the Bill with the existing FiSMA. We will make a Keeling schedule available before the end of the Session showing the effects of the amendments in the Bill.
Baroness Kramer
I thank the Minister for giving way. The commission recommended some form of ad hoc committee to try to look at secondary legislation. The problem with secondary legislation is that you vote it up or down, so you cannot actually amend it. Given that it carries so much of the weight of the purpose of this Bill, is there a way in which there could be a more constructive discussion of its contents so that it could come finally and formally in an amended form after that discussion has taken place?
Lord Eatwell
Before the Minister stands up, can I firmly second what the noble Baroness, Lady Kramer, has said? It would be enormously valuable if there were an ad hoc committee which could consider the secondary legislation, write a suitable report and thus inform the House’s debate.
Lord Newby
My Lords, there is an issue about the timing of an ad hoc committee which produces a report to inform your Lordships’ debate. Agreement has been reached with the usual channels that we start Committee stage very soon after we come back and I am not sure that such an ad hoc committee would help. I will talk to colleagues in the Treasury and in another place to see how best we can facilitate proper discussion of secondary legislation, because, obviously, as everybody agrees, much of the meat is in the secondary legislation.
Can I reassure the noble Lord, Lord Barnett, that the banks had no part to play in drafting the Bill? It was produced by parliamentary counsel in the normal way. I should have said that draft secondary legislation was published on 17 July.
There was much discussion about standards and culture. The right reverend Prelate the Bishop of Birmingham talked about banks discussing doing what is right and about personal virtue. I agree with him that a wind of change is blowing through the banks and I am not as gloomy as a number of noble Lords have been about the extent to which the culture within banks may change. I would not put it any higher than that. I think there has been a big change in Barclays, and that is not a legislative change, it is because of the change of leadership and a change in culture.
In response to the commission, the Government propose to bring forward a number of amendments which specifically deal with standards and culture. These include a new senior persons regime for senior bank staff; introducing a new criminal offence of reckless misconduct; reversing the burden of proof, so that bank bosses are held accountable for breaches of regulatory requirements within their areas of responsibility; and giving the regulators new powers to make rules to provide enforceable standards of conduct for all bank staff.
Virtually every noble Lord who spoke has talked about the need to increase the degree of competition in the banking sector. I absolutely agree with the noble Lord, Lord Flight, that this is, if anything, the fundamental issue now facing the sector. I congratulate him and Metro Bank on its third birthday, and I congratulate him on the work that he is doing to increase competition in a very practical way.
Clearly, there is no simple way of getting to the state that most noble Lords would like, which is having a plethora of new banks providing effective competition to the existing big banks. What we have done, however, is to make it a lot easier for new banks to enter the market. In July last year, the Chancellor commissioned an FSA review of barriers to entry and expansion in the banking sector and the result of that review, in answer to the noble Lord, Lord Northbrook, is that for new banks we could see capital requirements fall by up to 80% over what was previously required. This is a big change and one of the many components that will be needed to transform the competitive landscape.
The noble Lord, Lord Eatwell, said that he was concerned about whether branches of EEA banks in the UK could arbitrage the ring-fence. EU passporting law makes branches subject to regulation and supervision in the home state, so UK branches of EU banks would not be subject to UK regulation or to ring-fencing, as the noble Lord said. The presence of EEA banks in the UK market at the moment is very small and we believe that domestic banks enjoy a strong home advantage, so there is not likely to be significant arbitrage. However, EU law has within it provisions to ensure that institutions cannot simply move to avoid regulation. We and the regulators will of course be keeping that issue very much under review.
A number of noble Lords talked about leverage—what an appropriate ratio should be, and where the power to set ratios should lie. There is a certain confusion about where powers lie at the moment. Although I am sure that we will discuss this at greater length later on, I would point out that the Government’s proposal, based on the Basel process, is that we would have a statutory minimum leverage level across the piece. However, the regulators already have the power to set a different leverage ratio for individual institutions, as we have already seen in the way that they have looked at Barclays and Nationwide—and completely without any political interference. That power will obviously continue.
The noble Lord, Lord Eatwell, drew a comparison between the 3% leverage ratio here and the 6% ratio in the US. We do not believe that these are even remotely comparable. Indeed, Mark Carney described comparing the two as being like comparing apples and oranges. I am sorry that I do not have time to explain in great detail why we believe that to be the case.
Electrification was possibly the issue that took most of your Lordships’ time. There are two issues here, given that we have agreed that in respect of an individual bank we will take powers in the Bill to enable that bank to be wholly separated. In respect of that, there has been considerable criticism of the provisions in the Bill on the basis that they provide too low a voltage, as the noble Lord, Lord Lawson, possibly said. We will be bringing forward amendments before Committee which seek to provide an appropriately increased level of voltage. I hope that they will commend themselves to your Lordships’ House.
In terms of total separation and a reversion to Glass-Steagall, our view is very straightforward. If ring-fencing were to prove ineffective, the only proper and democratic way to introduce full separation would be to return to Parliament with new primary legislation. However, given that it is a separate policy—not the same policy with a bit tacked on—we do not believe that the proposals in the Bill will be a failure. It would not be sensible to legislate for a failure that we do not think will happen; if we did that with every bit of legislation, the statute book would be many times its current length.
The noble Baroness, Lady Kramer, asked whether the Government had gone further than the PCBS on competition. It is a small thing, but we have recommended that the PRA and FCA review barriers to entry in a shorter time—the commission said two years; we have said 18 months—and that they publish annual statistics on the authorisation process so that we can see how things are going. The noble Baroness asked about game-changers in retail banking. The truth is that there will be no game-changer, but a series of small steps. The one step that will help is the seven-day switching service, which will be introduced in September and to which a number of noble Lords referred.
The noble Baroness also asked who will buy bail-in bonds. The Government have consulted on that; feedback suggested that there should be demand for bail-in debt instruments of the type that the ICB said banks should issue. Therefore we do not share her concern that there will be no effective demand for that.
The noble Lord, Lord Lawson, made a very eloquent argument for breaking up RBS into the good bank and bad bank. He knows that there will be a government response to that suggestion in the near future. He asked also about proprietary trading and believes that that is a bad idea. We believe that the ring-fencing method is superior to the Volcker-type rule in respect of prop trading and do not see a compelling case for a ban on prop trading in addition to the ring-fence. I can confirm that a difficulty in which an investment bank found itself would not threaten a high street bank. In terms of where funds can flow, it is a one-way valve: there would be no possibility of funding going from a ring-fenced bank back to an investment bank.
The noble Lord, Lord Flight, asked about the mis-selling of CDOs where that was being done, as I understand it, by foreign banks in this country. I can confirm that UK regulators could take action against any firm for mis-selling in the UK, including, obviously, foreign firms that were based here.
The noble Earl, Lord Caithness, talked about banks owning your money. He proposed what is essentially the same as full reserve banking and limited reserve banking, as it is known in the trade. The ICB has considered that issue and rejected the approach that he suggested.
The noble Lord, Lord Sharkey, asked whether the Government had gone soft on payday loan regulation: no, they have not. The FCA will be bringing forward proposals about how it intends to regulate the sector early in the autumn, which means that regulators are not waiting until next April to start to have impact. On central counter-parties, the noble Earl said that perhaps this is not the right Bill, and he is correct. The Financial Services Act 2012 extended the resolution powers in the Banking Act 2009 to systemically important investment firms, CCPs or group companies. Those powers will commence when secondary legislation has been laid in the autumn.
The noble Lord, Lord Northbrook, said that the SIs do not allow ring-fenced banks to provide export finance to SMEs. That is not the case. They can support UK businesses trading internationally. Obviously that is a very important issue for many small businesses.
I am extremely grateful to the noble Lord, Lord Tunnicliffe, for the constructive approach he took to the way we deal with this. I completely accept that we are asking noble Lords to work very hard over a relatively short space of time looking at a lot of new material. From the Government’s point of view, we will be making available all amendments and secondary legislation the moment we have them, and we are very keen that the House has the full opportunity to give all the proposals, not just those already in the Bill but those that will be coming forward, the maximum possible considered scrutiny.
Lord Tunnicliffe
A noble Lord asked that the amendments be accompanied by explanatory memorandum-type documents to help us understand them. Will the Government be providing those sorts of documents?
Lord Newby
I am very happy to give that assurance. Apart from anything else, Ministers will need such documents, so it is only reasonable that everybody else should have them, too.
The strength of this legislation will be due in no small part to the intense degree of scrutiny that it has already undergone and will undergo. It will be an onerous job, but I am confident that we will be able to strengthen the Bill further and look forward to further debates in the constructive spirit we have seen this evening. I look forward to the autumn, and I commend this Bill to the House.
Bill read a second time and committed to a Committee of the Whole House.
Armed Forces Act (Continuation) Order 2013
(11 years, 4 months ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Lord Astor of Hever
That the draft order laid before the House on 2 July be approved.Relevant document: 7th Report from the Joint Committee on Statutory Instruments.
The Parliamentary Under-Secretary of State, Ministry of Defence (Lord Astor of Hever)
The two instruments for our consideration today are the Armed Forces Act (Continuation) Order 2013 and the Armed Forces (Alcohol Limits for Prescribed Safety-Critical Duties) Regulations 2013. As is customary, I should like to say a few words in support of each of them, starting with the continuation order.
The purpose of this order is to continue in force the legislation governing the Armed Forces for a further period of one year until the end of 2 November 2014. Though a small item of business, this order is crucial to ensuring that the Armed Forces Act 2006 remains in force. As noble Lords will know, the Armed Forces Act 2006 provides for the disciplinary system of the Armed Forces wherever in the world they are serving. The Act contains many important provisions, but perhaps the most important ones are the duty to obey lawful commands and the mechanism for enforcing that duty. Without those provisions, the Armed Forces would be unable to continue as a disciplined force, and the practical effect of not continuing the Act would be that the Armed Forces, as we know and admire them, would cease to exist.
The legislation governing the Armed Forces has to be renewed by Parliament every year. There is an Armed Forces Act every five years. In between, there is an annual renewal by Order in Council, the draft of which is before this House for approval. It reflects the constitutional requirement under the Bill of Rights that the Armed Forces may not be maintained except with the consent of Parliament.
The most recent Act is the 2011 Act, which amended the 2006 Act and continued it in force on the basis I have already briefly described. Our aim was to implement the largest part of the 2011 Act by the spring of this year. We have done that. Work to complete implementation of that Act continues and work on the next has begun. We propose to introduce the next Armed Forces Bill in 2015, in time for it to complete its parliamentary stages and receive Royal Assent before extension of the 2006 Act given in 2011 expires. It is too early to say anything about the scope of that Bill.
I now turn to the new alcohol regulations. Currently, under the Armed Forces Act 2006, an offence is committed if a person subject to service law is, due to the influence of alcohol or drugs, unfit to be entrusted with any duty they may reasonably be called on to perform or their behaviour is disorderly or likely to bring discredit to Her Majesty’s forces. Tests for alcohol and drugs can be administered only after a serious incident. There is, however, no power to test an individual in the services before an incident where it is suspected that he or she may be under the influence of drugs or alcohol. Our aim is to provide commanding officers greater powers to deal with unfitness for duty through alcohol or drugs by allowing them to take action early, before an incident occurs.
The Armed Forces Act 2011 provides for the testing of persons subject to service law where they are suspected either of being over a set alcohol limit or of being unfit through drink or drugs to carry out any safety-critical duty. It created a framework for doing this based broadly on the provisions in the Railways and Transport Safety Act 2003. That Act provides an alcohol and drug testing regime in the civilian professional shipping and aviation environments. The services, however, are exempt from the provisions of that regime. We are not removing the current exemption from the 2003 Act. Instead we are introducing a bespoke scheme for the services. This is a further step to ensure that personnel conducting safety-critical activities are not impaired by alcohol or drugs. This will run alongside the compulsory drug testing programme.
The 2011 Act amends the 2006 Act to create a new offence with regard to the amount of alcohol a person subject to service law can have in their breath, blood or urine in relation to prescribed safety-critical duties. The regulations we are considering today prescribe those safety-critical duties to which a specific alcohol limit is to apply, and the related alcohol limits for breath, blood or urine. To be specified as a duty to which a particular limit will apply, a duty must be such that performing it while impaired by alcohol or drugs will result in a risk of death, serious injury or serious damage to property, or serious environmental harm.
The regulations set out two levels of alcohol for the testing of breath, blood or urine in relation to prescribed safety-critical duties. The majority of safety-critical duties fall into the higher alcohol levels. These mirror the alcohol limits for drink-driving in criminal law under the Road Traffic Act 1988. That is a recognised and easily understood benchmark. Lower alcohol levels are set for those duties that require a heightened speed of reaction in an emergency situation, such as aviation or carrying a loaded weapon. Such duties demand that personnel should have no ingested alcohol in their body on commencement of the duty. This recognises that even small amounts of alcohol in a person’s system can have a detrimental effect on his ability to perform such duties. However, I should say that a small tolerance level is allowed because in some people small amounts of alcohol occur naturally in their body.
There are no accepted limits for the presence of illegal drugs. Under the 2006 Act, as amended by the 2011 Act, a commanding officer will be empowered to require a person who is subject to service law to co-operate with preliminary testing when he has reasonable cause to believe that that person’s ability to carry out any safety-critical duty is impaired through alcohol or drugs or that the person is over the prescribed limit for the particular safety-critical duties prescribed in these regulations.
In summary, these regulations implement the scheme agreed by Parliament in the 2011 Act so that all concerned can be confident that those performing safety-critical duties are not doing so with any impairment through alcohol or drugs.
Lord Tunnicliffe
My Lords, I have a general objection to Front-Benchers speaking from the Back Benches, but this is a subject area close to my heart. With my noble friend Lord Rosser I was part of the team which represented the Opposition during the passage of the 2011 Act. I hope that the noble Lord might be able to give us a more colourful picture of where things stand as this would seem to be an important step in the progress towards the powerful management of alcohol within the forces. I read it as an important step forward and, as such, I welcome it.
I have been involved in the world of work and alcohol since I learnt to fly in a university air squadron in the 1960s. We were still in the grip of a post-war tradition; alcohol and being part of the force were closely linked. Yes, you did not fly when you had been drinking, but virtually all the rest of the time, every evening, alcohol was part of that world. That was true in my early career as a pilot—once again, we had rules about drinking—but in the industrial relations world I lived in an enormous amount of business was done in an alcohol environment. I went into the oil world and the situation was the same. There was nothing special about me. I cannot claim that I did not enjoy it. That was the world we lived in. If you were trailing jet fuel you drank over dinner and in many social situations. It was how business was done. Looking back on it, it was wrong, in the sense that alcohol modifies how you make judgments and decisions, and you make better decisions when alcohol is averred. However, it is very difficult to change cultures where these behaviours are the norm.
I came into the railway industry in the late 1980s, and that had an alcohol tradition, for want of a better way of describing it. Public opinion came along and said, “This isn’t right”. We had the same situation, although, of course, staff would assure one that they were not under the influence of alcohol when they came to work. However, public opinion wanted something more, and we, as the management, saw that grasping that general direction was the right thing to do. Yes, a piece of legislation came along, but we had a very successful engagement with our trade unions, which saw that this was what society expected, and we introduced drug and alcohol testing. To say that it was traumatic would be too strong, but it was a shock to the industry. We drove alcohol out of the front line of the industry. It is interesting that we then recognised how we in the management, who did not have “critical responsibilities” at the time, had to follow suit. We had to set an example.
This will be, if I read it right, a shock to the services. It will need to be handled very sensitively by the chain of command and it will need a lot of help in terms of training, and so on. In aviation, it is interesting that you cannot even get a private pilot’s licence now without passing a paper which, although it is not called “alcohol management”, is all about being fit for duty and so on. That culture will become widespread, and it will seep upwards. Officers, including senior officers, will recognise that they have to set an example.
I hope that we get this right. It is important that the Armed Forces do not feel “done to”, and that they recognise the value of a change of culture. I am not suggesting that they have not been changing their culture, but this specification is very clear and makes the direction of travel absolutely clear. It will require some people to modify their behaviour, including management and leadership style. I commend the Government and the leadership of the Armed Forces for bringing forward this measure. I hope that its introduction is smooth and successful and that we can get across to the Armed Forces that it is a change that is good for them and for their safety and will be good for the long-term health and culture within the Armed Forces.
Lord Rosser
My Lords, it is interesting to note that there are now as many officials in the Box as there are Members of your Lordships’ House present. We have no issues with either of these measures. Debating the continuation order is an annual event, because, as the Minister said, it is necessary to enable the Armed Forces Act 2006 to continue in force for a further year, rather than expiring on 2 November this year. It would therefore be entirely legitimate, in a debate on that order, to raise just about any issue relating to our Armed Forces. However, I shall go to the other extreme and say very little. I raised in a debate on an earlier continuation order the question of whether, if the order were not passed, that would mean that there was no statutory basis or parliamentary authority for our Armed Forces, and the Minister responded to me on that point in writing at the time.
The Explanatory Memorandum refers to the recently introduced single system of service law. We recently had a debate on an order that provided for a reduction in the number of lay members sitting on a more serious case, and having to pass sentence where the defendant was pleading guilty. I raised a number of questions, to which the noble Lord has also responded to me in writing. I thank him for his usual and continuing courtesy, and the trouble he takes to reply to the points—at times not an insignificant number of points—raised both from this Dispatch Box and by other Members of this House.
I may come back to the Minister on his reply on courts martial and officers who are lay members, largely to seek further information about how the lay members are selected and what prior training they have had. I acknowledge the parallel with a civilian jury, who determine guilt or otherwise, and who have had no prior training—but that does not apply to those who pass sentence. If I decide to explore that point further, I will initiate the process either through a written question or by writing to the Minister.
On the continuation order, I conclude by expressing appreciation and gratitude to our Armed Forces for the vital work that they do—often, as we all know, at considerable personal risk to their well-being, and sometimes at the cost of an all too real personal sacrifice—to protect our nation and provide us with the level of security needed to establish and maintain a civilised and peaceful society.
We welcome the Armed Forces (Alcohol Limits for Prescribed Safety-Critical Duties) Regulations. There are a few points that I would like to raise and comments that I would like to make. As my noble friend Lord Tunnicliffe said, attitudes towards excessive drinking have changed in recent years, and its unacceptability and potential consequences both for the drinker and for those with whom they come in contact directly or indirectly are more widely acknowledged. We have seen changes in culture, particularly in the field of work and employment, including the transport industry.
I well remember some years ago being at a lunch attended by many, in a London hotel, and sitting at the same table as a number of senior British Rail managers. On tables all around us, some alcohol was being consumed. The senior British Rail managers had none. They would all be back at their jobs in the afternoon, and thus on duty. Being on duty having recently consumed alcohol was no more permitted for them than it would be for someone on the front line driving a train or maintaining signalling equipment. Will the Minister indicate whether the alcohol limits we are talking about in this order will in reality if not through this order apply to senior military personnel, including at the very highest level of our Armed Forces? They, too, make decisions which can have a profound impact on those they command, including on their safety, as well as on the security of this country, and on costs and finances. The fact that the impact of the decisions that they make may not always become obvious immediately should in no way detract from the requirement that, when they make those decisions, they should be in a completely fit state to do so.
The regulations provide for two maximum levels of permissible alcohol intake, one being much lower than the other. It would be helpful if the Minister could say why it has been felt desirable to have two different levels, rather than simply one—namely, the lower level—which would apply to all those duties listed here being undertaken. They are all safety critical, and judgment and reactions can be impaired by alcohol. I assumed something that the Minister confirmed, that the reason there is not zero tolerance in respect of alcohol limits is that it appears possible for two people who have had, or, more relevantly, have not had, alcohol, to produce different readings which, certainly in respect of meeting a zero tolerance standard, could result in an injustice. If, however, we are to have two different levels of alcohol limits related to the duties being undertaken, it would be helpful if the Minister could say perhaps a little bit more than is in the Explanatory Memorandum about the kind of criteria used to determine which duties should fall in which category of maximum acceptable alcohol limits.
I certainly have no intention of asking the Minister to explain why each duty listed in the order has been put in the category shown in the order, except for one particular case. Carrying out duties as a diver is shown in the higher alcohol limit category; so, too, is the duty of supervising a diver. My understanding is that, if a problem arises for a diver, the actions and decisions taken, and speed of those decisions taken by the person supervising that diver, can literally be the difference between life and death. I simply ask why it was not felt appropriate to place the duty of supervision of a diver in the much lower category for maximum acceptable alcohol limits.
The regulations do not refer to testing procedures, but I assume that the procedures will be similar to those in respect of a civilian involved in a road accident or suspected of driving with excess alcohol. If that is the case, would an individual under these regulations be tested only if they were suspected of having excess alcohol; or, in respect of some or all of the duties listed, would there be automatic testing before an individual commenced their duties; or will there be random testing; or will it be up to the superior officer concerned to decide what to do in this regard? I am not sure the extent to which carrying out the duties listed in the regulations with an alcohol intake in excess of those laid down in these regulations is an issue at the moment. If it is not, the impact of the regulations is likely to be minimal. If it is an issue, the regulations will need to be introduced and implemented with a degree of care and thought if we are not to leave our Armed Forces with a feeling that they are being singled out and cannot be trusted, as my noble friend Lord Tunnicliffe said.
Culture change, if that is what these regulations are also intended to help achieve, does not often come quickly or easily. We are, however, all too aware of the shooting dead of an officer on the submarine HMS “Astute” in April 2011 by a submariner who was at least three times over the drink-drive limit while on guard duty. The submariner had been issued with the SA80 weapon by an officer before the shooting. The officer said that he was unaware that the submariner was under the influence of alcohol at the time. The coroner said that he would recommend random breath testing for Navy personnel. He also said:
“Anyone being drunk, or anywhere near drunk, on duty has, in my view, got to stop. … In my view the routine use of the appropriate machinery to at least establish the absence of alcohol in the system is necessary as I’m not convinced that the concept of heavy drinking on leave periods is likely to alter very much”.
Those words should give food for thought. The reality, as we know, is that someone with a level of alcohol inside them which impairs their ability to perform their duties is a danger not only to themselves but also to colleagues and others who are dependent on them performing those duties with maximum effectiveness and efficiency for their own safety, and for maximising others’ levels of effectiveness and efficiency. For that reason above all others, we support the regulations.
Lord Astor of Hever
My Lords, I am very grateful to both noble Lords for the support they gave to the instruments that we have considered today. I particularly appreciate the welcome given by the noble Lord, Lord Tunnicliffe. He and I have discussed this issue in some detail in the past and I very much respect his views. He speaks with great authority on the matter. I share his views on alcohol.
The noble Lord said that it is difficult to change attitudes on alcohol. It is my experience as a defence Minister that there really has been a cultural change within the Armed Forces. Members of the Armed Forces no longer have an expectation that drink is appropriate. The Armed Forces have consistently taken a very strict view on drugs.
As a defence Minister, I manage to get around quite a lot and find that you hardly ever get served alcohol at lunchtime in messes. I cannot remember when I was last served alcohol in a mess. A couple of months ago, I visited a brigade of guards at Richmond and the lunch was totally alcohol-free. That would not have happened 10 years ago. This is certainly the case at a lot of other Royal Air Force and Navy messes. The noble Lord asked whether this issue would be handled sensitively. I discussed that with officials before the debate and I assure him that it will be handled very sensitively.
I also very much welcome the support given by the noble Lord, Lord Rosser. I echo the noble Lord’s support for, and appreciation of, what the Armed Forces do for us all. The noble Lord asked about the basis of the testing and whether it would be done by breathalyser or the taking of urine samples. He will have noted that I touched on this subject in my opening speech. The likelihood is that in most cases the sample will be of breath, as in the civilian system, but blood or urine may also be required if necessary. Preliminary tests could be by breath under Section 93B, preliminary impairment test under Section 93C or a preliminary drug test under Section 93D. However, the commanding officer will, of course, have had to make a judgment to refer an individual for testing, and the service police will decide which test to conduct.
The noble Lord asked why there were two categories; why not use just category 2—the stricter one? As I explained in my opening remarks, the lower limit is set for those duties that demand heightened reactions, such as when piloting an aircraft or duties that are particularly hazardous if performed while impaired, such as having a firearm and ammunition or dealing with explosives. The higher limit is the limit set in civilian law for drink-driving and is therefore appropriate to activities that can be carried out safely after consumption of a small amount of alcohol.
I should also say that we considered it important to provide a balance. On the one hand, we want to allow members of the Armed Forces to relax, with access to alcohol in moderation, when operational demands allow. On the other hand, we must ensure safety in operational effectiveness. Too stringent a regime would be unjustifiably oppressive. We have therefore only where necessary imposed a limit that amounts to a complete ban for duties.
The noble Lord asked what the criteria were for categories 1 and 2. I touched on this in my opening remarks but, for amplification, I should point out that the higher limit is itself a low limit—the one set for drink-driving. The lower limit amounts, in effect, to a total ban on alcohol. We do not wish to impose a total ban unless it is demanded by the nature of the activity. However, we are not saying that it is always right for personnel to conduct duties subject to the higher limit when they are only just under that limit. If there is any evidence to suggest that personnel are impaired, a commanding officer can take action under existing provisions relating to unfitness for duty.
The noble Lord pointed out that divers come under category 1, while diving supervisors are also category 1. He asked why they are not category 2. I emphasise that even the higher limit is not a licence to abuse alcohol. On the specific point of divers and their supervisors, we have consulted the services carefully about which duties should be subject to which limit. Our judgment is that while both activities are safety critical, they do not fall into the narrow category of activities for which the lower limit is considered to be necessary. We do not see any need to treat a supervisor more stringently than the divers.
The noble Lord also touched on the point that the noble Lord, Lord Tunnicliffe, made about changing attitudes. Members of the Armed Forces can be considered to be on duty all the time, and it was therefore essential to provide a balance between allowing members of the Armed Forces of all ranks to have some relaxation, subject to the needs of operational effectiveness and especially of safety. The approach adopted was therefore to focus on duties that are safety critical. Unfitness or misconduct through use of alcohol or drugs remains an offence under Section 20(1) of the Armed Forces Act and covers instances in which service personnel are unable to carry out their duty, or their behaviour is disorderly or likely to bring discredit on Her Majesty’s forces. However, we do not want to introduce a regime that is oppressive or any more limiting than operational demands require.
We feel that there is evidence of a considerable change. It may be the case that there was a drinking culture in the past but my experience of the past few years strongly suggests that that is not the case now. These regulations seek to reinforce this change by creating a more professional and responsible approach to alcohol.
The noble Lord, Lord Rosser, mentioned the shooting incident on HMS “Astute”. The service inquiry found that nothing about Able Seaman Donovan, as witnessed by the duty personnel on board HMS “Astute”, had provided just cause for doubting his fitness to stand duty. I would not wish to speculate about whether the circumstances of this tragic case would or could have been different. In future, there will be a power to test individuals where there is reasonable cause to believe that a service person is unfit through alcohol or drugs, or has exceeded the prescribed alcohol limits for safety critical duties. A second-hand report that the offender had been seen drinking alcohol at a particular time may give reasonable cause for holding that belief.
The noble Lord asked whether testing will be random under the power. The answer is no. The power to test arises when there is some reasonable ground to believe that the person is in breach of the limit or is otherwise unfit for duty. This follows the civilian powers to test. I will study carefully what both noble Lords said, and if there is anything to add to what I have said, I will write to both noble Lords.
Armed Forces (Alcohol Limits for Prescribed Safety-Critical Duties) Regulations 2013
(11 years, 4 months ago)
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Lord Astor of Hever
That the draft regulations laid before the House on 1 July be approved.
Relevant document: 8th Report from the Joint Committee on Statutory Instruments.