Grand Committee
(10 years, 12 months ago)
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Arrangement of Business
(10 years, 12 months ago)
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The Deputy Chairman of Committees (Lord Geddes) (Con)
My Lords, it is now 3.30 pm and I must begin, as usual on these occasions when starting a Grand Committee, by advising noble Lords that if there is a Division in the House, the Committee will adjourn for 10 minutes.
Small Companies (Micro-Entities’ Accounts) Regulations 2013
(10 years, 12 months ago)
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Viscount Younger of Leckie
That the Grand Committee do report to the House that it has considered the Small Companies (Micro-Entities’ Accounts) Regulations 2013.
Relevant document: 12th Report from the Joint Committee on Statutory Instruments.
The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Viscount Younger of Leckie) (Con)
My Lords, the purpose of these regulations is to implement legislative flexibilities introduced by the EU’s micros directive, which are now incorporated in the new accounting directive. This directive sets an important precedent in European company law. It recognises the need to reduce burdens on our smallest companies to a more proportionate level and creates a new category of company, the micro-entity. A micro-entity company is one which, at the end of the period to which its balance sheet relates, does not exceed two of the following conditions: having a balance sheet total—that is, a gross assets total—of £315,000; having an annual turnover of £632,000; and having an average number of 10 employees during the financial year.
There are an estimated 1.56 million micro-entities in the UK. Many are engaged in business at a local or regional level. They are significant contributors to the UK economy, creating employment and developing new economic activities, but they are burdened by detailed accounting requirements, from requiring a detailed breakdown of figures in the profit and loss account to notes on provisions for liabilities and generally uninformative information on share capital. In The Plan for Growth, published in March 2011, the Government set out their ambition,
“to make the UK one of the best places in Europe to start, finance and grow a business”.
They identified that this could be achieved, in part, by lessening the regulatory burden on business.
At present, our smallest companies must comply with the same financial reporting rules as other small companies, which may be 20 times bigger. The Government do not believe that this is necessary for most micro-entities. We should remember that our current financial reporting requirements are meant to address the information needs that exist between the shareholders and the management of the company, where there is a separation between its ownership and management. For micro-entities, there is often no such separation of control. That is because many micro-entities are owner-managed. Indeed, research has indicated that approximately 45% of these companies have only one shareholder, and that often the owner is the only employee. Therefore, the statutory financial statements are not necessary for the communication of the company’s performance. The burdens associated with comprehensive financial reporting requirements may be disproportionate and yet offer no real benefit. Why should they produce pages of financial data when they are not going to make use of them and no one else is really interested?
The directive provided a number of options for member states to consider but it explicitly recognised that member states would need to assess how these options complemented their financial reporting regimes. I will put this in perspective. France and Germany have already adopted lighter-touch reporting regimes for their smallest companies and others, such as Denmark and Poland, are considering doing so. The flexibility offered to micro-entities will be known as the micros exemption.
The Government sought views on the implementation on the various parts of the exemption and, as the directive allows, the regulations will, first, enable micro-entities to prepare and publish simple, highly abridged financial statements and, secondly, relieve micro-entities of the obligation to produce the full notes to the accounts, provided that specified notes are placed at the foot of the balance sheet. These are limited to information around commitments by way of guarantees, and any advances and credits to the directors.
The consultation identified two issues, however, which prompted significant concerns. The first was the application of the true and fair principle in relation to micro-entity accounts. Several respondents noted that the micros exemption would allow directors to state that the micro-entity accounts gave a true and fair view of the company’s financial position, provided the accounts complied with the directive. Respondents questioned how this could be achieved, given the much-reduced nature of those accounts. They argued that this would conflict with the UK approach, where company accounts are considered to provide a true and fair view only if they are prepared in accordance with accounting standards that require higher levels of disclosure.
The second issue related to the ability to provide exemption from certain aspects of accruals accounting. Nearly all the respondents opposed the introduction of this provision, noting that such an approach would lead to confusion for micro-entities, add unnecessary complexity to the preparation of the company’s financial statements, and produce little, if anything, by way of savings.
Respondents argued that the result in both instances would lead to reduced confidence in the financial statements themselves, and could even present a misleading position of the financial health of the company. The Government held discussions with professional bodies to consider the issues in more detail.
First, on the issue of true and fair, we acknowledge the potential for conflicts with other areas of regulation. Accordingly, the regulations make clear that only those aspects of accounting standards which conflict with the reduced reporting requirements of micro-accounts may be set aside. They also make clear that should micro-entities voluntarily provide additional information, this information must comply fully with the relevant accounting standard in order to be true and fair. For example, if you decide to include a fixed assets note, the information you provide must comply with accounting standards.
Secondly, on the issue of partial accruals accounting, we recognise the concerns raised and agree that confidence in financial statements must not be undermined. To ensure consistency, we will not implement this option in the UK.
I should point out that there are some exclusions for which reduced levels of information would clearly be inappropriate. Therefore, certain types of financial and investment bodies-for example, credit unions or hedge funds-and any company currently excluded from the small company regime, may not take advantage of the exemption for micros. Charitable companies are also excluded. This follows discussion with the Charity Commissioners, who wished such companies to remain subject to the additional accounting rules applied to them, thereby retaining the higher level of transparency expected by those who donate to important causes through charitable companies.
Exclusions aside, the Government recognise that micro-accounts will not be suitable for all micro-entities; but we believe it is appropriate to provide companies with a choice. The decision to prepare and publish micro-entity accounts will be a business decision for a company’s directors: one based on the current and future information needs of the company. But simple businesses will now have the option of preparing truly simple accounts. I commend this regulation to the Committee.
The Earl of Erroll (CB)
My Lords, I will ask a quick question. This issue occurred in relation to something else where there were exemptions for small companies, SMEs or micro-companies. It is in the definition of companies that qualify as micro-entities. The third criterion that can be applied is the number of employees: not more than 10. It then talks about averaging the number of people in contracts of service. If you employ two people part-time—for instance, one who has young children and wants to take them to and pick them up from school, and the other who is retired, say, and happy to fill in for the rest of the day—you are employing two people, but you only have one full-time equivalent. In that kind of situation, or with people working seasonally or casually, this criterion could discriminate against small employers who are trying to get several people all doing a bit of part-time work for them, because the number of employees could then easily exceed 10. Therefore, it should probably be worded as full-time equivalents in future. I will not suggest anything here, but I want to flag up the general point to regulation-makers that it would be fairer on small entities if there was some way to bring it back to full-time equivalents.
Baroness Donaghy (Lab)
First, I welcome anything that makes life easier for small businesses. I have often felt that the definition of small and medium-sized enterprises that fits in with the European definition is somewhat misleading in our country because a medium enterprise as per the definition would be regarded as quite a large company in the UK, so to recognise micros in this way is more than welcome.
I have a question for the Minister that I suppose relates to the flexibility of the definitions of turnover, balance and staffing, referred to by the previous speaker. I hastily looked through both the impact assessment and the regulations and could not find anywhere how the updating of the turnovers and balances will take place. What length of time is considered reasonable? I believe that the issue of part-time equivalents is quite important, particularly for companies of this kind that might start off in a fairly informal way. It is actually written in to the regulations, which I presume means it is quite inflexible.
Lord Cope of Berkeley (Con)
My Lords, I just wanted to welcome this provision altogether. As my noble friend the Minister said, in some respects it is a first step that many people—myself included—have been urging for a very long time. It is particularly welcome because it flows from work done by the European Union and in Brussels, where there has long been an initiative to improve matters for small firms. “Think small” has been the watchword. It has not produced an awful lot of actual benefit, but this provision will produce a worthwhile benefit to a lot of very small companies.
I have no interests to declare in this matter. The only company of which I am a director is a charity, and, as my noble friend said, charities are excluded from these regulations. I think that is correct because, after all, one has to consider who has an interest in looking at the accounts. Obviously, those who have an interest, even in very small companies like this, include the shareholders, the employees and the others involved, as do those who might be thinking of lending them money or otherwise advancing credit to them and doing business with them. In the case of a charity, it is those who give money to the charity who have the biggest interest in ensuring that the money is spent on the charitable object that they have in mind when they give the money. Therefore, I think it is right in this statutory instrument to exclude charities, and I welcome it.
Baroness Hayter of Kentish Town (Lab)
My Lords, this side also welcomes the statutory instrument. I will make one comment and then pose a number of questions. First, my comment may be slightly tongue-in-cheek, but this is all about helping very small companies. The impact assessment identifies transitional costs of, I believe, just below £500,000 for businesses and £200,000 for the public sector, which is very good as they are very small numbers. Therefore, it is perhaps a surprise that it took BIS 24 pages to be able to get to that. I hope that it was not really expecting all those small companies to be able to read all that and submit views. I should think that it took up a fair degree of civil servants’ time to go through the document that I now see arranged in front of us.
Some of the questions that I should like to pose are quite important, if not substantial. First, why was the consultation only three weeks long? That seems to be in breach of Cabinet Office best practice, particularly given that, in the words of the noble Viscount, Lord Younger, serious concerns were raised. Indeed, the explanation shows that the responses were only broadly supportive, so three weeks feels like an unnecessarily rushed job.
Viscount Younger of Leckie
My Lords, I thank members of the Committee for their valuable and detailed comments during this debate and for their general support for this provision. I thank my noble friend Lord Cope of Berkeley for reiterating that this is a European measure that will benefit small companies. It introduces into EU law a definition of a micro-entity, as I said in my speech.
I remind noble Lords that the directive sets an important precedent in setting down a legal definition for a micro-entity and enables member states to take up flexibilities suited to their national needs, and to reduce the administrative burdens on these very small companies. This regulation is deregulatory and will enable the smallest and simplest companies to prepare simpler accounts that are proportionate to their size and that reflect their needs. It is entirely voluntary. The ability of micro-entities to produce simple accounts will lift unnecessary burdens, enabling micro-entities to focus on running and growing their businesses.
A number of questions were asked by noble Lords. I shall first address the question asked by the noble Baroness, Lady Hayter, about the consultation. She stated that she thought that it lasted only three weeks. The consultation was, in fact, a continuation of a long period of informal discussion and built on an earlier discussion paper of which she may be aware. We worked closely with the FRC throughout, and it has been extremely supportive.
The noble Earl, Lord Erroll, asked an interesting question about the definition of “employee” and made the point that employees can be defined in a number of ways, depending on whether they are defined as part-time. The quick answer is that for this purpose the count is defined as the number of employees, not how many hours they work. This wording is set out in the directive. I am not sure whether that completely clarifies the question, but that is how the count is defined.
The Earl of Erroll
That completely but disappointingly clarifies the point, because it does not recognise that if you have someone coming in for two hours a week, which HMRC might regard as full-time since it is regular employment, it will count against you as a micro, which is sad. It may be that this could be raised at a European level.
Viscount Younger of Leckie
I suspected that that answer might disappoint the noble Earl. I will be delighted to recheck with officials on that specific question and write to him to clarify.
The noble Baroness, Lady Hayter, later asked about charities and what they feel about the exclusion of charitable companies. There were no responses to the public consultation from individual charities, but we worked closely with the Charity Commission throughout, as I said in my speech, and we continue to work with it to consider how burdens can be removed for this group. We will consult again. I hope the noble Baroness will be pleased when I say that that will be done as soon as 2014.
The noble Baroness, Lady Donaghy, asked how the updating of balances will take place and about the definitions of the criteria on how turnover, for example, will be met. The regulations are subject to review by the Commission on a regular basis. I have just checked what precisely that means, and it means on a five-yearly basis. As the directive updates the thresholds, the Government will reflect them in UK legislation to allow the greatest possible number to take advantage of the exemption.
The noble Baroness, Lady Hayter, asked about the Charity Finance Group, which has asked the FRC to consider the needs of small charities. This is another charities-focused question. The FRC will work with the commissioners and BIS to address their concerns. A new SORP—statement of recommended practice—for the preparation of accounts is being prepared to update the guidance.
The noble Baroness, Lady Hayter, also raised the issue of small trade unions and why other measures increasing the accounting regulations on them are being introduced. In fact, she alluded to Part 3 of the Transparency of Lobbying etc. Bill which, as she said, I take the lead on. I do not want to be drawn into that on this particular issue but it is important that we consider each policy carefully and on its own merits. The Government are working to reduce the burdens across a range of areas and will do so wherever possible. Micro-entity regulations, on which we are focused today, are an example of that.
Finally, I draw the attention of noble Lords to the important element of choice for businesses. Micro-entities will be able to choose whether to adopt micro-entity, small company or full accounts. The Government conclude that the regulation meets the requirements of the Act and I commend this regulation to the Committee.
Baroness Donaghy
I apologise for coming in again and thank the noble Viscount for clarifying the issue about a five-year review. I will just make the point that that could be quite a long period if inflation starts to increase by any substantial amount. That could have unintended consequences for the expansion of micro-businesses if they get to one or two of the magic limits set in the instruments, in particular where they refer to,
“a company in a year in which it satisfies two or more of the following requirements”.
One could read into that that as long as they stick within the turnover and balance sheet, they could employ more than 10 people, or other variations. It might mean that companies look more to those qualifying things than to simply expanding their business. If we cannot do anything about that today, can we make the point to the European Commission that a five-year review might be totally unsatisfactory?
Viscount Younger of Leckie
The noble Baroness raises an interesting point. As I said, I rechecked that the review period is five years. I quite accept what she said about things changing during the five years. That includes companies growing. That is of course a good thing for companies, but it might mean that the definition of the company changed from being a micro-entity to a small company—perhaps it is a bit much to hope that it might become a medium-sized company. I should, and would like to, write to the noble Baroness to not only reiterate what I have said today about the review period but also give her some greater reassurance about the definitions we have included, how they relate to the five-year period, and how they will be treated. That would be very sensible. I am on a learning curve, to that extent.
Renewable Heat Incentive Scheme (Amendment) (No. 3) Regulations 2013
(10 years, 12 months ago)
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Baroness Verma
That the Grand Committee do report to the House that it has considered the Renewable Heat Incentive Scheme (Amendment) (No. 3) Regulations 2013.
Relevant document: 12th Report from the Joint Committee on Statutory Instruments.
The Parliamentary Under-Secretary of State, Department of Energy and Climate Change (Baroness Verma) (Con)
My Lords, in moving the Renewable Heat Incentive Scheme (Amendment) (No. 3) Regulations 2013, I start with an apology. These regulations correct earlier amendments made in April and September to the Renewable Heat Incentive Scheme Regulations 2011, as after further scrutiny of them some minor corrections proved necessary. I am, as always, extremely grateful for the opportunity to speak to the Committee, and am always grateful to your Lordships for helping the Government deliver a robust set of regulatory controls for the scheme.
Before I expand on the purpose of the regulations and why the corrections they deliver are now warranted, I reassure noble Lords that I spoke in good faith during the earlier debates and that our policy intent was correctly reflected in the draft regulations. In ensuring that we were absolutely sure of policy interest, we ensured greater scrutiny and, in doing so, recognised that minor corrections were necessary.
The non-domestic RHI scheme has now been in operation for two years. Over 3,500 applications have been received to date, with around £68 million-worth of RHI payments expected to be paid out in the next year. Installations that have already been accredited have generated 497 gigawatt hours of renewable heat, and biomass has performed particularly well under the scheme. My department will shortly publish details of scheme improvements to drive uptake across the full range of technologies. This will include the outcomes of a review into existing tariff levels. Detailed plans have also been announced for a domestic scheme to open from next spring, which I know has been warmly welcomed by many. We are on track to deliver this commitment.
The RHI remains a vital component in the Government’s strategy to increase the amount of energy delivered from renewable sources by 2020. It is helping to achieve this by incentivising installations that produce heat from renewable sources. By doing so, it will help to reduce the UK’s greenhouse gas emissions. The introduction of the domestic scheme and improvements to the non-domestic scheme next year will also move us closer towards our goal of working to eliminate greenhouse gas emissions from our buildings by 2050.
In earlier debates we focused on two complex yet important changes to the RHI. Those changes were vital if the scheme was to be successful in its aims to provide value for money and protect our environment. In March we debated the mechanism to control spending under the scheme until March 2015. It is crucial that taxpayers’ money is spent appropriately. In July we debated the introduction of emissions limits for biomass boilers, so that the quality of our air is protected, among other measures intended to reduce the scheme’s complexities. The House agreed to both sets of changes.
I will now speak about the corrections needed to the regulations that govern these two policy areas. The first of these corrections is to ensure that the budget management policy—or cost control mechanism—for the scheme is able to operate as intended. The policy reduces existing tariff levels if the uptake of renewable heat technologies is more than expected and the scheme spend is estimated to be greater than the budget can afford. Tariffs are then reduced—or degressed—where there is strong market growth as a way to cool uptake.
The Government published the full and correct policy explaining how the mechanism should work in February of this year. The regulations debated in March were believed to deliver this policy in full. Subsequently, we detected a small part of the policy detail that was not accurately reflected in the regulations. However, I am keen to reassure the House that where the policy has not been fully reflected in the regulations, this has not resulted in any adverse impact. This is because the situation that is incorrectly accommodated in the regulations affects only a high market growth scenario occurring after an earlier degression. Such a scenario has not happened to date. There has been no impact on tariff levels and so all applicants who have successfully applied to the scheme have received the tariff as intended by the policy.
The framework for the financial mechanism is very detailed, which is why this error occurred. This level of complexity, as noble Lords are only too aware, is necessary as the regulations must set out exactly how we will keep spending on the RHI within budgetary limits. Because of this, it is vitally important that we reduce tariffs by an appropriate amount where needed, and the regulations must be specific in how we will calculate what an appropriate amount is.
The regulations specify that a reduction is applied where expenditure limits—which are often called triggers—are hit. To avoid overreducing tariffs, the level of a first reduction is set at a rate of 5%. The manner in which this reduction can be applied is correctly set out in the regulations. Indeed, we applied the regulations in this regard to the medium biomass tariff in July.
The regulations then allow reductions to double in size each quarter from 5% to 10%—and from 10% to 20% if growth rates demand it. It is this aspect of the policy where the regulations do not reflect the policy intention. I alluded to the fact that a scenario where the application of this part of the policy would be needed has not yet occurred, but because there remains a possibility that it might occur, it is important to amend the regulations now.
The policy is purposefully flexible, and a higher rate of reduction is not automatic. My department will examine the impact of an earlier reduction applied to tariffs and ask itself, “Has it had an impact? Has it started to slow down deployment?” If the answer is no, a further or higher rate of reduction can subsequently be applied.
The regulations define the tests to be applied in this assessment of when a further reduction is needed. It is the tests in Regulation 37D(2)(c) to (e) that contain the discrepancy with our policy intent, and which we are now amending. The regulations as they stand require much higher growth rates in expenditure to occur between two quarters before a further or higher rate of reduction can be applied to tariffs.
As I said, the rationale for this approach was to build greater flexibility into the system and also to control spend. If we cannot apply the correct level of reduction, we risk breaching the budget. We then risk not being able to support some installations in future, which will damage the scheme as a whole. I therefore hope that the Committee will be able to support this minor correction.
The second minor correction I will speak about relates to air quality emission limits for biomass boilers. I have already said that biomass has performed very well under the RHI, but burning biomass clearly raises questions for some: for example, how do we ensure that pollutants from biomass fuels are controlled? Regulations were debated by this House in July that introduced measures to tackle this issue. Your Lordships supported those changes, for which I am extremely grateful.
Specifically, in relation to air quality standards, those regulations require applicants to provide an emissions certificate demonstrating that specified criteria are met. The certificate provides evidence that the installation does not exceed the stated emissions limits, that testing has been carried out by a certified test house and sets standards following a specified method.
The issue with the existing regulations relates to the specified standards against which testing must be carried out and to the issuing of compliance certificates. Simply put, certificates cannot be issued for some biomass boilers, regardless of whether they meet the emissions limits set out by the policy.
Paragraph 9 in Schedule A1 to the regulations sets out standards to which tests must be carried out for measuring particulate matter and nitrogen oxides. Those standards are suitable only for some biomass boilers, particularly those that cannot be tested by standard BS EN 303-5. As worded, paragraph 9 wrongly requires those standards to be applied to the testing of all biomass boilers. That makes it impossible to issue compliance emission certificates for boilers that are unable to be tested by those alternative standards. The latest regulations correct this error so that the most suitable standards can be used for testing.
It is vital that we amend that, as the issue currently impacts on approximately 49% of all applicants to non-domestic RHI, given the high uptake from biomass technologies. We have worked with Ofgem to ensure minimal disruption to applicants in the light of that error. All applicants who may be affected are being advised at the point of application that there could be a small delay to their accreditation date, due to the air quality requirements. Ofgem has agreed to work through all applications as normal up to the point of accreditation, which will be dependent on a valid RHI emissions certificate. Those that cannot meet this requirement will not be rejected but held until the regulations are amended.
Before I conclude on that issue, I wish to draw the attention of the House to an additional regulation which will not apply if these changes are made before 1 January. These regulations offer protection to applicants who have applied under the current regulations but cannot meet the required standards through no fault of their own. Their application can be accredited by Ofgem only once the amending regulations are made. It is possible that a tariff reduction could be announced by my department before then, and our next quarterly degression announcement, due to be published by the end of this month, will confirm that. It would not be right for those applicants to receive a lower tariff due to this error, and this addition simply seeks to ensure that it does not happen.
In conclusion, the measures contained in these regulations are needed so that the correct policy can be applied in all instances. These corrections will ensure that the RHI scheme delivers renewable heat in the most cost-effective manner, as well as ensuring that emissions from biomass have minimal impact on air quality. While I am extremely apologetic for these minor errors, I am confident that the dedicated work by my department in identifying and correcting any areas of uncertainty will help us to maintain our strong relationships with stakeholders, which is a great strength for us all.
I reassure noble Lords that my department has examined the process it follows when making regulations and is undertaking changes internally to ensure an improved quality assurance regime that will help to minimise the likelihood of such errors in the future. I hope that my explanation has been clear and comprehensive, and I commend these regulations to the Committee.
Baroness Worthington (Lab)
My Lords, I am grateful to the noble Baroness for her explanation. We have debated the RHI regulations on a number of occasions and have all noted that they are very complex in nature. Therefore, I thank the Minister for her clear articulation of these two minor amendments. We are grateful for the spirit in which the regulations have been brought forward and we of course accept that these minor corrections should be agreed to. However, I will take this opportunity to ask the noble Baroness some questions in relation to the policy.
We are expecting announcements in the autumn—I think that that was what was stated—and I am interpreting that as meaning before Christmas. It is important to note that the regulations that we have debated have been very complex and technical in nature, and they have mainly focused on the Government’s almost paranoiac fascination with trying to make sure that we limit the amount of money that we pay out through the scheme. However, the figures show that, overall, we are massively underspending in relation to this policy. The noble Baroness said that £68 million was expected to be spent this year. That is against an annual budget of, I believe, around £251 million. Therefore, obviously less than a third of the budget is likely to be spent this year. Why is that? Can the noble Baroness indicate whether perhaps we have been focusing all our energies and efforts on trying to reduce incentives? Given the numbers, it seems that this policy is failing to bring forward sufficient investment.
Secondly, it is a question not just of the money that is spent but of the impact that that money has. I only have the figures for 2012, but in that year our renewable heat stood at around 2.3%. We need to get to around 12% in 2020 in order to be compliant with our overall legally binding European renewables targets. Can the noble Baroness give me any indication of where we are likely to get to at the end of 2013 after this £68 million has been spent? Are we making inroads into that target?
I have mentioned that we are expecting more announcements, and those will be very welcome. We look forward to what I hope will be good, thorough debates once we have those announcements. I am sure that that will be when Ministers are able to outline improvements and we will see an increase and uptake in this scheme.
Today’s announcements are, as has been described, technical corrections. The explanation that has been given is valid and we agree with it. Air quality, which is covered in one of these technical amendments, is of paramount importance. We are pleased that this error has been spotted and made good. As the Minister said, this applies to a number of applicants. I think 49% of applicants will be caught by it, so it is good that it is being dealt with and corrected in a timely fashion.
Baroness Verma
My Lords, I am extremely grateful to the noble Baroness for welcoming the corrections and for her broad support for what we are doing. She raised a number of issues that we successfully debated during the passage of the Energy Bill. I am very grateful for the way she helped me navigate some complex and difficult issues in the Chamber.
We have just navigated that Bill. It illustrated the Government’s long-term commitment to putting low-carbon energy supply in the system on a much more stable footing. I recognise some of the concerns the noble Baroness raised. Given the measures we have taken, we will be able to see greater competition among the range of technologies. Part of that will be to see whether we need to put in the same support as we currently provide. There is no wish prematurely to withdraw the support we currently provide to any technology if it is giving a constructive, positive return. However, it is in our interest to ensure that where technologies have matured enough not to need as much support, that support is gradually withdrawn. It means that those technologies are able to stand alone and complete in the marketplace on an even footing.
The noble Baroness asked about underspend in the policy. It has been steadily growing since April. Of course, we have a long way to go, but we are going in the right direction. The useful thing about a policy that grows steadily is that we can identify whether a review is needed and whether it is making progress in the right direction—and, if not, what more we can do to better the policy. I am not sure that it is a bad thing for it to grow at a slower pace because, as often as not, identification of things that are not going as well as they could be can give them prominence.
I am slightly more optimistic than the noble Baroness on this one. It was right that she asked the question, but this Government are trying to be robust in ensuring that whatever policies we are to be measured against stand up to the test. I am extremely grateful for the noble Baroness’s questions and for her support.
The Deputy Chairman of Committees
My Lords, it might be convenient and a help to the Minister if we pause slightly, so that the civil servants, who have mysteriously disappeared, can reappear. They are doing the rounds. If it is in order, we will give them a couple of minutes to get round the back.
European Parliamentary Elections (Northern Ireland) (Amendment) (No. 2) Regulations 2013
(10 years, 12 months ago)
Grand CommitteeRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Baroness Randerson
That the Grand Committee do report to the House that it has considered the European Parliamentary Elections (Northern Ireland) (Amendment) (No. 2) Regulations 2013.
Relevant document: 12th Report from the Joint Committee on Statutory Instruments.
The Parliamentary Under-Secretary of State, Wales Office (Baroness Randerson) (LD)
My Lords, in moving this Motion, I shall speak also to the next Motion standing in my name on the Order Paper: that is, on the draft Local Elections (Northern Ireland) Order 2013.
I will speak first to the local elections order and then come on to the European parliamentary election regulations. The local elections order makes important changes linked to local government reform in Northern Ireland, and I have a detailed set of remarks to cover its extent.
As noble Lords will be aware, local government in Northern Ireland is undergoing significant reorganisation, part of which involves reducing the number of local councils from 26 to 11. The Northern Ireland Executive is responsible for the reform programme, but elections to local councils are excepted, and so are the responsibility of the UK Government. The Northern Ireland Executive asked the Government to support the reform by bringing forward the date of the local election by one year and facilitating a transitional period until 2015, during which councillors elected to the new councils will serve in parallel with existing councils.
The order makes changes in four main areas. First, it delivers a transitional period; secondly, it makes temporary changes required only for the 2014 elections; thirdly, it makes consequential changes to polling districts and places for parliamentary elections; and, fourthly, it allows the local election poll to be combined with the European parliamentary poll.
I will now briefly explain the changes being made in each of those areas. The order brings forward the date of the next scheduled local election in Northern Ireland by one year to 22 May 2014. The transitional period will run from the fourth day after the election until 31 March 2015. The order provides that the new councils will come into their full powers on 1 April 2015 but will be able to exercise powers in relation to limited transitional issues in advance of that date. For example, that would include taking decisions on the formation of the new councils in relation to rates, debts and standards of service provision.
New councillors will remain in office until 2019, four years after assuming full powers. Existing councillors will remain in office until 1 April 2015 and continue to exercise powers in relation to the day-to-day management of council business, but not on transitional issues. Vacancies in the new councils will be filled by co-option if they arise during the transitional period, and any vacancies on existing councils will continue to be filled by co-option until 1 January 2015.
The order also introduces some temporary changes, required only for the first election of the new councils in 2014. The first is in relation to election expenses. The Chief Electoral Officer for Northern Ireland can normally claim an advance on his local election expenses before the election from the relevant local council to allow preparations to be made. Since the new councils will not exist before the election in 2014, this order makes provision for the statutory transition committees established by the Northern Ireland Executive to provide the advance of election expenses before the election, and for the new councils then to pay the balance of election expenses after the election.
Secondly, under usual circumstances the chief executive of each council serves as the deputy returning officer. However, the open competition being run for the chief executive positions in the new councils will not be completed sufficiently far in advance of the election for them to be appointed as deputy returning officers. The order therefore provides for the statutory transition committees to appoint deputy returning officers for the purposes of the 2014 elections, in consultation with the Electoral Commission. The Electoral Commission’s role is to help ensure that each committee appoints a person with sufficient experience to fulfil the role of deputy returning officer. For example, it may provide committees with advice on the role and functions of a deputy returning officer and the selection criteria used. It will not offer views on the merits of particular candidates.
Thirdly, as noble Lords are aware, the Northern Ireland Assembly agreed new wards for each local government district. The polling station scheme for local elections needs to reflect this new ward structure. This order therefore requires the chief electoral officer to prepare a new polling station scheme before the elections in 2014. The new scheme will be published after the Secretary of State lays an order before Parliament grouping the wards into district electoral areas.
The order also makes changes to polling districts and places for elections to the House of Commons, which are necessary in consequence of the changes made to local government boundaries. Currently, the polling districts and places for parliamentary elections are those established for local elections. When the chief electoral officer designs a polling station scheme for local elections, it will apply automatically to parliamentary elections. However, some of the new local government wards will fall between two parliamentary constituencies. As it will no longer be appropriate to maintain the link between parliamentary polling districts and local government wards, this order makes amendments to allow parliamentary polling districts to instead be designated by the Secretary of State, in consultation with the Electoral Commission.
The chief electoral officer will still designate polling places for parliamentary elections and will be required to carry out reviews of the polling places in 2014 and every five years thereafter. Such reviews will follow the same process as that followed by registration officers in Great Britain.
Lord Empey (UUP)
My Lords, the Minister has little choice but to bring these regulations before us, but I have to say that the whole process is a dog’s dinner. Noble Lords will have detected that in the regulations we are now creating three different classes of councillor. One class consists of councillors in the existing local authorities, which will run until 2015; another class consists of councillors who will be elected in 2014 and who will run in parallel with the existing ones until 2015; and a third class consists of members of both the old and the new. On top of that, we have a statutory transition committee, doing bits and pieces of work, which will also be populated by councillors from the old regime. You could not make this up.
This process has taken 14 years, and we are transferring only one meaningful power to local authorities in addition to the relatively small powers that they have at present—which is in planning—and they will have only part of the power at that. Pretty well everything else has been held back by the government departments that have ground away for the past 14 years and succeeded in ensuring that the local councils that will be elected are not much more powerful than the existing ones.
I will put to the Minister just one point about people queuing outside polling stations and their votes being counted. In the past, there have been cases where polling stations have been kept open and votes taken after the deadline had passed; I am sure that the Minister is familiar with that situation. I just wonder how it is to be policed. At what point is a line drawn between when people can queue up and when they cannot? Who will go outside and actually police this? Indeed, will it be the police? Will it be staff under the control of the chief electoral officer? Who will do this? I believe that there is potential, particularly on dark nights, for confusion. Who will decide where the line is drawn? A queue is outside, staff are inside, and more people come along to queue. How is that going to be handled? When does that process actually end?
When this process began in 2001, one of the watchwords was coterminosity, which meant trying to ensure that Westminster, the Assembly and local councils were as compatible as possible in a boundary sense. Now we have a system where they are utterly and completely incompatible, which is another startling outcome of this process. Therefore, not only are things more chopped up and divided than ever between different parliamentary Assembly constituencies and local authorities but the whole context of having local identity taken into account during the local government reform process was excluded from the Bill. In fact, the Boundary Commissioner was excluded from taking local identity into account. Considering that it was local government reform, I just leave with the Committee the thought that it seems the most bizarre process to have entered into. There was the most flagrant political gerrymander of the city of Belfast—but there will be more of that later in another context.
The scheme that the Minister has proposed is required, given that we have two elections on the same day which involve consequential changes. I notice it is proposed that the ballot boxes for both elections will be opened at an early stage when the verification is being undertaken. I assume that there are past examples of different ballot boxes being in the polling stations, with some votes being placed in the wrong ballot box, either accidentally or deliberately. However, does that mean that there will be a joint verification process on the same day or that the ballot boxes will simply have the wrong ballots taken out of them and the other ballots will not be processed, doing one verification at a time?
The first election votes to be counted will relate to local government. Although the European elections take place on the same day, as most voting in Europe takes place on a Sunday, those votes will not be counted until the following Monday. Therefore, when those boxes are opened, will be they verified at that stage or will there be a separation of ballots so that the votes end up in the correct boxes?
Lord McAvoy (Lab)
My Lords, first, I thank the Minister for a very clear and full exposition of these necessary changes. I know that the noble Lord, Lord Empey, is a complete realist and knows that those changes must go ahead to fit in with the various consequential amendments that are required.
Like the noble Lord, Lord Empey, I noticed that there will be two ballot boxes, and I am aware of what happens in those circumstances and so on. Being an experienced politician, I can see the capacity for confusion and mistakes. Therefore, will special emphasis be placed on the counting officer being required to make sure that all the political election agents concerned have a right and a duty to supervise that procedure so that there will not be instances of it going ahead in the absence of one or more political agents?
I also noted the comments of the noble Lord, Lord Empey, concerning coterminosity. I understand his point of view, because in Scotland we also hoped that we would have coterminosity in terms of organisation after the founding of the Scottish Parliament. However, we do not have the coterminosity that many of us would like to have seen, and I understand his point of view. It is a cliché, but we are where we are. We need these SIs to go ahead. I believe that there were commitments to coterminosity at the time. I remember that quite clearly because local boundaries in Northern Ireland, as everywhere else in the United Kingdom, are quite important. Nevertheless, the Opposition views these SIs as necessary. We are grateful for the clear exposition. If the Minister could comment on the two ballot box situation, I would be very grateful.
Lord Browne of Belmont (DUP)
My Lords, I welcome these SIs, which are designed to help the elections proceed smoothly. With regard to the Local Elections (Northern Ireland) Order, which replaces the existing 26 councils with 11 larger local council areas, the elections are to be held on 26 May 2014. I welcome that. It is important that local elections go ahead as, to date, there have been many co-options on to local councils in order to address the so-called problem with double-jobbing. Many councils have a high proportion of councillors who have never received a mandate from the electorate. From 2015, when I understand co-option will stop, councils will be truly democratic.
In order for political parties to have sufficient time to prepare for these elections, it is vital that they know in good time what wards are grouped into which electoral areas. Will the Minister indicate how soon an order will be laid before Parliament so that the chief electoral officer will be able to draw up plans for locating polling stations? I regret that the normal 12-week consultation period in the draft scheme has been withdrawn, but I trust that that will not lead to problems with the siting of polling stations.
I am pleased to hear that the papers for the local election and the European election will be of different colours. That is what happened last time when we had the Assembly elections and the local council elections, but there was considerable confusion because even though the papers were colour-coded, the colours were insipid, which led to problems. This time, with the papers having a title showing which election they are for, that problem will be solved.
There is a continuing decline in turnout at elections in Northern Ireland. I think that only 55% of the electorate took part in the previous election—down from 62.9%—but I trust that these regulations will encourage voters to turn out.
Baroness Blood (Lab)
My Lords, the noble Lord, Lord Empey, said what I was thinking when I was listening to the Minister. This is a dog’s dinner. Working on the ground and trying to get young people interested in voting in Northern Ireland—it has mostly been older people who have voted—the different colours of ballot papers are hard to explain. I am most anxious that we are given time to explain and that this is not just put into the media or the paper and that is it. We will have to explain on the ground to young people, in particular, why this election is taking place and why we are working to the 2015 election and all that. Many people will get confused and think that they are voting for two lots of councillors. Knowing Northern Ireland as we do, that is a very distinct possibility.
I take up the point made by the noble Lord, Lord Empey, about who will police when the stations close. That can be a very dangerous situation in Northern Ireland. Has any thought been given to that?
Baroness Randerson
I thank all noble Lords who have taken part in this debate and I will do my very best to address the major points that have been made. The noble Lord, Lord Empey, referred to the concept—
The Deputy Chairman of Committees
With apologies to the Minister, a Division has been called in the Chamber. The Grand Committee stands adjourned until 4.55 pm.
Baroness Randerson
I will resume with the meat of what I intended to say in response to noble Lords.
The noble Lord, Lord Empey, referred to there being three classes of councillor. I refer the noble Lord to the description of the roles of those councillors. There are, in strict terms, three different positions, but there is no duplication of councillor roles, because councillors elected in 2014 can exercise functions only in relation to limited transitional issues before 1 April 2015. So there will be no duplication of roles, and statutory transition committees will cease to exist 28 days after the election. I can tell the noble Lord, from my own experience as a councillor in Wales in 1995—in a transitional council prior to local government reorganisation in 1996—that the transitional year was of tremendous value. It was extremely important in establishing the new councils on their road, and in enabling the old councils to fully wind up their work.
The noble Lord, Lord Empey, also raised the issue of queuing outside polling stations, and of who will decide who is in the queue, and where the queue ends. This will very much be an issue for the Electoral Commission, which has a key role to play. In particular, it will develop guidance for electoral administrators, which is what will happen in the rest of the UK, although in most cases it will be obvious who is in the queue and who is not. However, all these provisions should not make us forget that the important thing is good electoral planning. The provisions exist because in the past there have been problems with the closure of polling stations, such as people being left standing outside.
I welcome the support of the noble Lord, Lord McAvoy, on this. I believe that both he and the noble Lord, Lord Empey, raised the issue of two ballot boxes being open and the potential for confusion. I point out that the change of having the name on the top of the ballot papers will reduce potential confusion for electors, but there is always the situation where electors put their ballot papers in the wrong box. However, it may eventually be decided that ballot papers should all be put in the same box and sorted afterwards.
On the issue of the verification and counting process, observers and candidates for each election will be able to attend the verification and count of the other election to facilitate a joint verification process, if that is how it is decided to do it. Joint verification is facilitated, not prescribed. The timing of the verification process is very much an operational matter. It is a decision for the chief electoral officer. The purpose of this statutory instrument is to make provision to allow things to work as well as possible. The noble Lord, Lord McAvoy, is correct: it will allow those able to view any proceedings for either the local or the European elections to access those of the other election, as I said just now.
The noble Lord, Lord Browne, referred to the new wards and the 12-week consultation period. The District Electoral Areas Commission is due to report before the end of the year to the Secretary of State, who will lay the order before Parliament as soon as possible after that. On the noble Lord’s comments about co-option and whether it will stop in 2015, that is not the case. This order makes no changes to the general process for filling vacancies. It only deals with vacancies arising during the transitional period.
The noble Baroness pointed to the possibility of confusion. That can always exist when you have two elections on the same day. Despite the names on top of the ballot papers, the different colours and so on, there is always the possibility of confusion. However, this is a matter for the Electoral Commission and the political parties. We encourage them to engage with electors to explain the situation and make it crystal clear. I take this opportunity to point out that we are very pleased with voter registration as a result of this canvass period. The target was to achieve 85% and they have already achieved 88.3%. In many ways, that is an all-time record. The completeness of the register suggests that more people will be in a position to exert their right to vote. That is very important for the democratic process.
I need to make a slight correction to my answer to the noble Lord, Lord McAvoy. All EU observers can attend the local verification and the count. All local observers can attend the EU verification but not the count. That is probably explained because the count for the EU election will be held some time later. Of course, we are dealing with a very large area in that case.
I hope I have answered noble Lords’ queries satisfactorily. I will of course review the record to ensure that I have answered the substantive points as well as possible. I thank all noble Lords for their support.
Lord Empey
Perhaps I may refer the noble Baroness back to the issue of queues. A great deal of the problem has to do with the geography and where a polling station is located. Some are on the street and others are in more remote areas that have a large amount of land around them, whether that is in the form of steps, car parks, schools or whatever.
I have some anxieties about leaving this sensitive issue to the chief electoral officer. There was a case in 2001, I think, in Fermanagh in South Tyrone, where paramilitaries took over the polling station. They were voting well after the polling station was closed. With the polling station locked from the inside, they continued to vote. I am not making this up.
In remote areas where perhaps it is difficult for the police to function, depending on the geography, I still have an anxiety as to who will decide. Does a polling clerk, who is taken on for the day, come outside and say, “Right, mate, you are the last one. That’s it”? Who stays there to see that that person is the last one? Only the person who has decided that he should be the last one can verify when that last person comes into the polling station. I do not understand the mechanics of how this will work.
Perhaps the simplest thing is to know that if a polling station closes at 10 pm, that is it and there is no argument; you are either in or you are not. This business of queuing could be abused—that is my anxiety. I am not sure who will ensure that that does not happen.
Baroness Randerson
The noble Lord raises a significant point. He is right to raise it because the experience of the last general election showed that there were queues in certain places and that the approach of the polling clerks differed from one place to another. That is why these regulations were brought forward. They are intended to address that issue—which has not been addressed in the past—and are backed up by the fact that the Electoral Commission will issue guidance relating to these regulations. It will be for the Electoral Commission, having issued the guidance, and for the deputy returning officers, having provided training to polling clerks, to ensure that the guidance is rolled out smoothly.
As with every election in the UK, the police will provide back-up support if there are difficult situations to handle, and the PSNI will do this in the usual way, as it has always done.
Local Elections (Northern Ireland) Order 2013
(10 years, 12 months ago)
Grand CommitteeRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Baroness Randerson
That the Grand Committee do report to the House that it has considered the Local Elections (Northern Ireland) Order 2013.
Relevant document: 12th Report from the Joint Committee on Statutory Instruments.
Redress Schemes for Lettings Agency Work and Property Management Work (Approval and Designation of Schemes) (England) Order 2013
(10 years, 12 months ago)
Grand CommitteeRead Full debate Read Hansard Text
Baroness Stowell of Beeston
That the Grand Committee do report to the House that it has considered the Redress Schemes for Lettings Agency Work and Property Management Work (Approval and Designation of Schemes) (England) Order 2013.
Relevant document: 12th Report from the Joint Committee on Statutory Instruments.
The Parliamentary Under-Secretary of State, Department for Communities and Local Government (Baroness Stowell of Beeston) (Con)
My Lords, I declare that I am an owner-occupier of a leasehold property. Before I get into the substance of introducing these regulations, I once again pay tribute to the noble Baronesses who have worked so hard on this matter and who are joining the Committee this afternoon.
The Enterprise and Regulatory Reform Act 2013 gave the Secretary of State the power to require all residential letting and property management agents in England to be members of a government-approved or government-administered redress scheme. This means that tenants and landlords dealing with agents in the private rented sector, and leaseholders and freeholders dealing with agents in the residential leasehold sector, will be able to complain to an independent person about the service they have received if they are not satisfied.
More and more people are choosing to live in the private rented sector. The number is up from 2.4 million households in 2005 to 3.8 million in 2011 and is still growing. We estimate that there are approximately 2.5 million leasehold properties in England. It is vital that people living or owning property in these sectors have the ability to complain if they receive poor service from their agent. This is supported by good professional agents. The requirement for all letting and managing agents in England to belong to an approved redress scheme will weed out the cowboys who give agents a bad name. Just as importantly, the scheme will drive up standards while imposing the least regulatory burden. This order is the first step towards implementing this requirement.
The order, which was laid before the House on 25 October 2013, makes provision for: applications for approval of schemes; the conditions that a scheme must meet before they may be approved or designated as a government-administered redress scheme; and the process for withdrawing approval or designation where a scheme no longer complies with those conditions. A government-administered scheme must meet the same conditions as those for approved schemes, with the exception of independence, as in a government scheme it is a given that the scheme is independent from those who could be investigated by it. These redress schemes will complement and not replace the existing protection awarded to tenants and leaseholders; for example, the consumer protection legislation and the duties of local authorities.
When this order comes into force, the Secretary of State will invite schemes to come forward for approval. When the Secretary of State is satisfied that all agents can join a scheme of the required quality, a second order will be made that will require agents to belong to such a scheme. Article 4 sets out the conditions that schemes must meet to be approved. The provisions of the scheme must include, for example, what types of complaints may be made, what the ombudsman’s duties and powers are in relation to investigating complaints and what redress a member of the scheme may be required to make to a complainant. Types of redress must include apologies, explanations, compensation and making good. Article 4 also requires schemes to have procedures in place to ensure that members of the scheme deliver the redress that has been awarded to claimants. This may include expulsion from the scheme if a member agent does not comply.
We know that consumers in the private rented sector are especially concerned about the fees charged by agents, particularly when they are mentioned only after tenants have signed a contract or invested emotionally in a specific property. Where this occurs, the schemes may investigate a complaint about this and may require the agent to pay compensation.
When the duty to belong to a scheme is introduced, agents who do not belong to a scheme could be prevented from operating. To help enforcement of the duty, Article 4 also requires schemes to have arrangements in place to provide information to other redress schemes and to the regulatory bodies. This will enable agents who do not belong to a redress scheme to be identified and, in the longer term, will help drive up standards.
We recognise the importance of the redress schemes being seen to be independent and of their operation being transparent. Article 4 requires scheme administrators to publish an annual report on the operation of the scheme. Article 7 requires administrators of approved schemes to provide the Secretary of State with information about the operation of the scheme, enabling performance to be monitored. In exceptional circumstances, where a redress scheme no longer meets the conditions of approval, Article 8 of the order enables the Secretary of State to withdraw that approval. This will help ensure that the level of service and standards expected of the redress schemes are maintained.
It is also important that there is competition between the schemes to ensure that costs are competitive and that there is sufficient capacity for all letting and managing agents in the private rented and residential leasehold sector to join. However, we also recognise that having a large number of schemes may cause confusion and that consumers will need to have clear information on which schemes are authorised and which ones they should go to. Article 6 enables the Secretary of State, when making a decision about whether to approve a scheme or designate a scheme as a government-administered scheme, to take into account the number of other schemes that are likely to be approved or designated as government-administered schemes.
I commend this order to the House. I beg to move.
Baroness Gardner of Parkes (Con)
My Lords, I find this an interesting order. I read the Explanatory Memorandum, but nothing really explains anything very clearly. I ask the Minister to confirm that this is just a sort of preliminary paper and that we will have to await the next step before we know what on earth it is about, because so much here is unclear. My personal interest is declared in the register of interests. I have leasehold property, which I let.
Nowhere does the order bring out the importance of transparency and how much we want to see that. Paragraph 7.14 of the Explanatory Memorandum states that the order,
“requires individuals responsible for running approved schemes … to provide such information on the operation of the scheme as the Secretary of State may reasonably require”.
However, I am not concerned about what the Secretary of State wants to know; I am more concerned about all the millions of people in leasehold properties who want to know what this is all about. Unless we have complete transparency, a lot of redress will be demanded by people, as they will all find it unsatisfactory that they never get straight answers to anything. I am speaking wildly and widely: this generalisation may catch people who are 100% reliable as managing agents, but there are far too many who are not. That is why we want this scheme to work and to work well.
Paragraph 7.12 says that there will be,
“publication of an annual report”.
I am not clear about who will make that annual report, and I should like to know what that is about. Is it is a report by the ombudsman or by each person who deals with the schemes? It is clear that there could be more than one scheme. Multiple schemes could be approved by the Government. It is not clear what exactly you have to do in order to be approved because, again, everything is shrouded in those wonderful words that now enable the Secretary of State to do pretty well anything. Therefore, until we see the next stage, we will not know what it is really talking about.
If there are, say, four approved schemes, will we have four annual reports, or will the Government or the ombudsman produce one report? I am mystified by the reporting process. Reporting is interesting and satisfactory up to a certain point, but what people really want is action. They want to know where they stand, and it is only fair and right that they should. There are currently a lot of cowboy practices, whereby some invisible person collects insurance from all the leaseholders, who find that they are paying a grossly inflated amount because someone is raking off money in the background. There are many points such as that which we need to look into.
It might be that we will need to have some clear definition of which parts of a building will be the responsibility of a communal system and in which parts the owners of individual flats will be responsible for work themselves. Regarding knowing what the responsibilities are, it is no answer to say “Well, it will all be in the terms of the lease”, because a lot of those leases are pretty woolly. No one is quite sure what happens with them.
That takes me to the point that any of your Lordships who read your Sunday paper must have seen: the story of this man named Jackson, who has just lost his flat. He went to the leasehold valuation tribunal but was foolish because he should have paid the £300 which was the original dispute, as far as I can see, and then gone to the tribunal. He ended up going to the tribunal when the maximum that he would have to pay was £500. Your Lordships will all have heard before, and I know that it is on record in Hansard, that I participated in Committee when the Bill was passed in 1996 that set a maximum of £500 that would be payable by any applicant. Now the whole tribunal system has changed, and however bad and expensive it has been, that is nothing to what it will be in future.
A lot of articles now are asking whether anyone will be able to afford to go to the leasehold valuation tribunal any more, even to go into the first stage. It was always acknowledged that if it went on appeal up to the second tier of the Lands Tribunal, that was where people who had big money would be at an advantage. No one ever foresaw the point where even if you were only liable for that £500 maximum, the other party could bring against you QCs and enormously expensive people who would charge the earth and then you, as a leaseholder, would find that it was billed back to you. The bill was not being taken on by the head lessee or the freeholder but came back on the person who had the cause for complaint. Will the redress schemes set out here cover that sort of issue, or will the situation be simply as it was for people such as that man?
This is exactly what happened to him. It started off as a minor dispute and he thought that he would be paying just £500. Eventually, after it had moved on, his legal bill was £76,000. I presume that everyone else in the block of flats had a share of that bill, too. He waited for the work to happen. A new company took over; again, that is rather typical of what happens. Indeed, I have had what I describe as wonderful whitewash letters saying, “We have been bad in the past but we are angels now. Everything is going to be all right and no one will have any cause for worry at all”.
Interestingly, at the meeting we had at the department, the person who is now running it was there. She claims to have had a whitewash and was very much in favour of the redress scheme. Perhaps the companies are reformed but we must wait and see. The problem is where it may end up. This man received bills to meet all these charges for three years, but no work was done in that time. That is very unsatisfactory and I feel very sympathetic towards him. For anyone to think that they are going into a minor thing, designed for ordinary people, only to find instead that they lose their home over it is a tragic situation.
I therefore have great hopes for this redress scheme, but we have an enormous number of problems to look at. When I look at the document in front of us, for example, there is nothing set out yet in Article 3(1). It states only:
“An application to the Secretary of State for approval of a redress scheme must … (a) be made in such a manner as the Secretary of State may determine; and (b) be accompanied by such information as the Secretary of State may require”.
There is nothing there to tell you what you would actually get out of it at all. This may be a formality but it is very important. Whatever we do on the matter, this is just the first step, and we have such a long way to go to make life fair for people in these properties.
These are all technicalities, and everything has taken a long time. Was it not in the summer that we passed this amendment? Now we are pretty well at the end of the year and this is the first bit we have—this draft statutory instrument, which does not even look as if it goes very far.
I am concerned about arbitration. I spoke here when the issue of changing the whole tribunal system came up before. That is a retrograde step. The tribunals were intended to be handled so that any ordinary person could go to them. The way the system has changed now has taken us right back to the battles we fought in 1996 against all these prohibitive charges. It will be very worrying for many people who now will not dare to complain about things. Unless the redress scheme is good, well thought through, carefully planned and honestly implemented with transparency, I worry about what the future will hold.
Of course, I am a great believer—as I am sure everyone knows—in commonhold, the system we have in Australia. There, no one is dependent on an intermediate landlord and you all share the rights to your own property. Here, the law demands that if you want to change to that system, you need 100% of the leaseholders of the block of flats to agree. Everyone knows that all you need is one crooked landlord willing to pay someone to be the 1% that will not pass something and that will never happen. The Government should—and I believe will in future—look at changing that law so that it could be either a simple majority or a possible one. There are people living overseas, not resident in the place and not even knowing what is going on or caring—sometimes they have so much money it does not matter to them. Unless we can really change this and make it fair, it will remain a great injustice that people living in a place will find that they do not have the rights and control to which they should be entitled. I have said more than enough and am sorry to burden the Committee with even more on this issue.
Baroness Hanham (Con)
My Lords, I took an interest in this matter a little while ago when we considered it. I have a couple of questions as a result of this order coming forward. I agree with my noble friend Lady Gardner that it seems terribly short on detail as to implementation. I am not much reassured by the fact that I am not sure whether what I have here is an Explanatory Note or just guidance on how the scheme will be carried out. I am not very reassured by the idea that there will have to be a board for each of these schemes. It is not at all clear of whom such a board would be made up. The board is there to appoint the scheme administrator, but there is nothing else about what the board is meant to do. The only thing it says is that if you are under a complaint investigation you can sit on this board although you cannot particularly make up the majority of it.
My noble friend Lady Gardner, who has been absolutely remorseless in getting all this right, pointed out that it is the detail of the implementation that will matter. There is nothing very much about the scheme administrator except that he can be appointed for three years. The next thing that will happen is that we will talk about the ombudsman. There is nothing in between to suggest that the scheme administrator and the ombudsman will be different, or whether the ombudsman will fit into how the scheme will run. After all, the ombudsman probably will be one of the most important aspects of it.
Another quite trivial thing comes up later on. There is an awful confusion between “consumers” and “clients”. It would be helpful if we could decide which word will be used. I will give the example:
“Taking special care when dealing with consumers who might be disadvantaged”.
It might be clients who are disadvantaged. Anywhere else, all the way down, the text is about responding to “clients” in an appropriate time. Everything else is about clients. In the interests of clarity, let us decide who it is we are talking about.
There needs to be much more explanation of how many schemes are likely to be approved and how many would be too many. You might get 25, all of them absolutely perfect, but might actually need to have not more than about four or five because that is how they are made up. There must be much more clarity about who the ombudsman is and how the access to the ombudsman will work through this scheme.
Other than that, even though there are some holes and flaws and things that need to be taken further, this has moved at astonishing speed, by governmental standards, and I am grateful for that because it is long-overdue legislation.
Baroness Hayter of Kentish Town (Lab)
My Lords, we owe a lot to the two noble Baronesses who have already spoken, because without them we probably would not be here.
We welcome this order and look forward to rapid progress in future, we hope. It will give landlords, tenants and leaseholders an ombudsman to whom they can take their complaints about a letting or managing agent. However, we have a number of queries, and I will raise seven of them.
First, I still do not understand why the Government are reinventing the wheel. There are already two established, OFT-approved schemes that deal with letting and managing agents. Indeed, 60% of letting agents and all the managing agents that belong to ARMA are already members of one of those schemes. However, this order requires that the existing schemes must be reapproved, on slightly different criteria from those upon which they are already approved, and allows a plethora of others to apply, which will be confusing and not in the interests of consumers. I have never believed that there should be more than one ombudsman per industry. I lost that argument with my Government, but there should not be more than two per industry. Perhaps I can argue that. The idea of there being four, eight or 15 per industry will only add to the confusion and costs—and of course, it is not the consumer but the provider who will choose which to go to.
This goes against the feedback the Government had on this, and the Cabinet Office’s guidelines on Ombudsmen. Paragraph 9 of Ombudsman Schemes—Guidance for Departments, which was published in 2010, states:
“It is important to maintain a proper balance between the development of new Ombudsman schemes … and extending the remit of existing schemes where that is … possible. In choosing the best option, Departments will therefore need to … avoid multiple redress schemes within individual industry sectors, which may confuse consumers … by utilising existing Ombudsman schemes (even existing voluntary ones), or by introducing single new schemes”.
The latter is not the case here. There is the Cabinet Office saying, basically, that we should use existing schemes or extend them. The guidance goes on:
“Before creating a new Ombudsman scheme, you”—
this is addressed to departments—
“should consider the role and remit of existing schemes and decide whether a new scheme is necessary. It may … be more appropriate, and more cost effective, to extend the remit of an existing scheme”.
Why this part of the Government does not listen to that part of the Government, I do not know. Does the Minister expect more than the two existing schemes to be approved?
We know from the paperwork that a second order is envisaged that will make it mandatory for agents to be a member of a redress scheme once the department is satisfied that a sufficient—its word—number of approved schemes are operating. Will the Minister tell us what number is sufficient?
My second question is about the independence of the oversight body, or the board, in the words of the noble Baroness, Lady Hanham. The draft conditions of approval, which are not in front of us today but are related to this, suggest that the oversight board should have a member,
“from an organisation representing consumers”.
I wholeheartedly agree with the sentiment behind that, but the whole idea of a corporate board is that the individuals on it do not represent the organisations from which they come in but are part of a corporate entity. I hope that the department will consider a slightly different wording—perhaps, “with experience of representing consumers”—to ensure that the corporate identity of the oversight board is not put at risk.
My third question is about enforcement. That is the oddest part of the instrument. The Minister clarified that slightly just now. She will recall that the Government rejected my original amendment, which would have extended the Consumers, Estate Agents and Redress Act 2007 to letting and managing agents. That included an enforcement mechanism; the OFT could come in if orders for redress were not followed. As the Minister said in her introduction, schemes will have to make provision for enforcement of any requirement to provide redress, which may include expulsion from the scheme.
We need to be clear what happens if a letting or managing agent is expelled. Will they simply move over to one of the other redress schemes, and will that scheme then have to accept them? If not, can I be clear that they would have to cease trading? Obviously, we want to get rid of people who, having been found to provide redress, do not. I am in favour of that, but we need the Minister to clarify that that would happen. This morning, in the Commons Delegated Legislation Committee, the suggestion was made that a redress scheme could expel a member and that it would therefore cease trading. We need to be absolutely sure that there is the legal power to do that. Perhaps the noble Baroness can confirm that.
Related to that, the Government will obviously need to have an appropriate sanction for agents who refuse to sign up to a redress scheme, and it must be strong enough to be a deterrent. It probably has to mean that they cannot continue to trade. Otherwise, it would always be in their interests not to join an ombudsman scheme. Perhaps we could have clarification on that.
Fourthly, there is the really important issue of client money protection, which is a major cause of consumer detriment. There is a recent case, different from the one that has been mentioned, of a letting agent that went bust in Hastings and lost all its clients’ deposits. It cost landlords and tenants an enormous amount of money. At the moment, there is nothing to ensure that that does not happen again.
Client money protection is the only way to ensure that deposits, forward rents, payments for repairs, and so on, are kept safe. The Government’s words on this are a bit unclear. I think that it should be a condition of belonging to a redress scheme that there is client money protection, but the draft conditions that were published earlier this month state that in making a judgment, the ombudsman scheme would have to take account of whether the letting or management agents were:
“Treating clients’ money in an appropriate manner”.
That is nonsense. What is an “appropriate manner” unless it means what we mean by client money protection—in a separate bank account with separate bank signatories, and, perhaps, insurance? Does “appropriate” mean proper client money protection?
My fifth question is: what are the Government’s plans for ensuring that the other 40% of letting agents—I am less sure of the other figures—are signed up to a redress system, and what will be the penalty if they do not join? We hope that it will be that they have to cease to trade. But who will be responsible for that compliance? Who will go around identifying letting or managing agents who are not members of a scheme? I hope that consumers will not be expected to do it, and that plans are in place to deal with that.
The Government seem to want ombudsmen to run a sort of two-tier scheme. They are very keen for agents to join, but they say they should be able to do so without signing up to a code of practice. So they envisage a two-tier scheme where agents can choose whether or not to adhere to a code of conduct or practice, which seems absurd. The very least we can do is to say that any scheme must make it clear that when an ombudsman comes to a judgment it will be not—in the woolly phrase of the moment—on generally accepted principles of best practice, but according to a code. I assume the Government share our concern to raise standards, but if we are not going to enforce a code by taking ombudsmen’s judgments in line with it, we cannot do that. I do not see how the requirements for transparency proposed by the noble Baroness, Lady Gardner, are going to be enforced if there is no code that requires transparency and against which the ombudsman can take decisions.
My sixth question is: what are the Government going to do to inform consumers about their rights to redress? There were comments about making information from the scheme available to other schemes, and to anyone who regulates letting agency work, despite the Government’s refusal to set up a regulator for letting agencies, as I had wanted—but never mind. However, there does not seem to be a requirement for the list to be made available to the public, although surely it is the public who need to know which redress scheme their agent belongs to.
My last question is: when will this come into force? We heard rumours that it might not be before October, despite being expected it by April this year, but we were reassured at an early morning hearing in the Commons by the Minister there, who suggested that the target was still April. For the sake of this Committee, can the Minister confirm that that is the date that she and her colleagues are working towards?
Baroness Stowell of Beeston
My Lords, I am grateful to all the noble Baronesses who have spoken in the debate this afternoon.
Many issues have been raised, and, while I will do my best to respond to most of them, I will say straightaway that there may be some which I will have to follow up in writing. That should not delay us. As noble Lords know, we are at the start of a three-stage process, and I would expect to be able to answer some of the points raised today when we get to the next set of regulations. What we have in front of us is an order which sets out the criteria and process for approving schemes. The next stage is for schemes to come forward, and the third and final stage is to lay an order which would bring into force the legal requirement for agents to belong to a scheme. So, if I follow up anything in writing, it will be because we are in an ongoing process.
The noble Baroness, Lady Hayter, questioned whether we were reinventing the wheel, and why we were proceeding as we are when two schemes already exist. I remind her that we know that those schemes exist, but we hope that they will come forward to seek approval and to register. We certainly hope that happens.
As to whether there is a risk of too many schemes coming into force—a point raised by my noble friends Lady Gardner and Lady Hanham—as I said in moving the regulations, Article 6 makes it clear that the Secretary of State should have regard to the number of schemes that are, or are likely to become, approved schemes or government-administered redress schemes when deciding whether it is in the best interests of complainants and members to approve a scheme. This would require the Secretary of State to look at any scheme brought forward—other than the two I have just mentioned—but the power is there for the Secretary of State to conclude that there are adequate schemes already in place and that there might be a detrimental effect if more schemes were approved. We have considered and taken account of this issue in producing this order.
The noble Baroness, Lady Hayter, asked about enforcement and what happens if an agent is expelled or refuses to join. Enforcement will be detailed in a second set of regulations. On the issue of the conditions for membership of the schemes, as is made clear in the order, these will include whether someone can join a scheme after being expelled from another scheme. We would examine this issue where a scheme is brought forward to the Secretary of State for approval.
As to the issues of safe agents and money protection, I share the noble Baroness’s concerns about ensuring that client money is protected. Certainly we would encourage the use of client money protection arrangements and so-called safe agents. As she knows, we did not seek to introduce this as part of the order but certainly we would be supportive of schemes that referred to this in their terms.
My noble friend Lady Hanham raised additional points. She highlighted that there was confusion and inconsistency between the words “consumers” and “clients” in the language used in the order. It is fair point. I shall consider it and see what it is possible for us to do in that area. It is a legitimate point to raise.
My noble friend Lady Gardner covered a wide range of issues. I am sorry that she feels that too much is unclear in the order. As I have already said, we are at the first stage of a process towards introducing these redress schemes. As to the direct question of the noble Baroness, Lady Hayter, there is no desire on our part to delay the introduction of the order. We are working to the timetable that my honourable friend mentioned in the other place this morning, namely the spring.
My noble friend Lady Gardner asked about annual reports. Each of the approved schemes will have to publish its own annual report. So if there are, say, four schemes, that will mean four individual annual reports.
My noble friend also raised some questions about the rights of leaseholders when they take a case to a leasehold valuation tribunal, when fees are incurred and when, even if the complainant has had their complaint upheld, they see those fees being recycled into their service charges. I gather that this point was raised during the debate this morning in the other place, and that my honourable friend there agreed to meet the Member who raised that concern. I will discuss it further with him and come back to my noble friend, and perhaps she and I can have a meeting once I have been able to catch up with my ministerial colleague on that matter.
My noble friends Lady Gardner and Lady Hanham raised some questions about how the ombudsman would relate to the schemes and the detailed conditions currently available on the Government’s website. Those detailed draft conditions will be finalised when the order comes into force. Only schemes that can satisfactorily prove that they meet these conditions will be approved. It is for the schemes to decide whether there should be an ombudsman. All schemes will provide an independent way of investigating complaints, which is a condition that we will apply when a scheme comes forward for approval.
My noble friend also raised a point about the conversion from leasehold to commonhold. We will debate that matter on another day because I do not believe that it is directly relevant to the regulations in front of us. However, my noble friend makes the point well and I know that she feels very strongly about it.
In conclusion, the procedures and requirements set out in this order are key to delivering the first stage in the implementation of the requirement for letting and managing agents to belong to a Government-approved redress scheme. The order will enable the Secretary of State to approve redress schemes against a clear set of criteria that will ensure that all approved schemes will provide an independent and transparent service, and that consumer complaints will be dealt with fairly and consistently. On that basis, I beg to move.
Children: Development
(10 years, 12 months ago)
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Baroness Walmsley
To ask Her Majesty’s Government what steps they are taking to promote early childhood development in the post-2015 development framework.
Baroness Walmsley
My Lords, the millennium development goals, or MDGs, helped to channel political commitment and investment to bring about reductions in poverty and child mortality and improvements in health and education. They expire in 2015. This presents me with an opportunity to advocate today the inclusion of an integrated early childhood development target in the post-2015 agenda. In this debate, I hope to demonstrate that we need a measurable and actionable ECD goal to reduce by half the number of children under five who fail to reach their potential. This will not only strengthen progress towards the health and well-being of all children but also help reduce the intergenerational transmission of poverty and inequality.
My right honourable friend David Cameron, our Prime Minister, is one of three co-chairs of the high-level panel appointed by the United Nations. This panel is one of the elements which, working together with others, will craft the new goals. It is intended that the post-2015 goals will be more inclusive of various stakeholders than before and have an agenda that builds on the strengths of the MDGs but also addresses their shortfalls. They should be implemented by all countries, not just those in the developing world.
Why are we talking about early childhood development today? It is because focus on early childhood holds the long-term solutions to solving the economic and social problems of intergenerational poverty, and to achieving world peace and our environmental survival. That may sound like a very big claim, but mountains of evidence from almost every discipline come to one conclusion: the earliest years of life can give us the strongest foundation for individual, societal, national and global sustainable development. Research has shown that the key to the survival of our species is our long early childhood. This is the period of our lives when we are at our most vulnerable but, because we take so many years to develop to maturity, there is time for our brains to develop into much more complex organs, capable of more complex thought and action than any other species.
Evidence from neuroscience has shown that when a baby is born, its billions of brain cells are mostly unconnected. To function properly, these cells must be connected to each other, and these connections develop in response to the baby’s experiences. These early connections form the basis of personality and the lifelong capacity to learn, adapt to change and have resilience in case of unexpected circumstances, as well as physical and mental health. We develop these foundations at great speed in the first few years of life and we never again learn so fast. We also know that the quality of early care-giving can alter the brain’s chemistry and structure. That is why we need to pay attention to the early experiences of the world’s children, from before birth and right through childhood.
Economic studies have provided evidence that the largest returns on investment are realised in programmes for children prior to primary school. Therefore, although the MDGs have ensured that most children now attend primary school, we have to ask ourselves how well they are learning when they get there. Do they have the capacity to make the best use of that education and of the best instrument with which to learn—in other words, their brain? It is a bit like having all the parts of the engine of a very fast Formula 1 car. If you do not put it together in the right way and connect all the parts and tune them carefully, the car will not go very fast. It may limp along, but it will not beat Sebastian Vettel or Jenson Button.
Therefore, I should like to highlight something very rare: experts from many different disciplines are all coming to the conclusion that early childhood matters enormously. At a time like this, when money is scarce and needs are great, we must spend money smartly. The smart way is early, because it works in two ways. Not only does it produce better results, it will avoid the cost of putting things right when they go wrong. Therefore, I argue that an early childhood development target in the post-2015 goals will help us to achieve some of the other targets. The MDGs have achieved a lot, but the targets have not been fully achieved, so business as usual is no longer an option. Transformative and holistic solutions are required, addressing the root causes of problems rather than applying an Elastoplast to the symptoms.
Let us look at the role of early childhood programmes in achieving the UN’s aims. Let us take peace, for example. There is neurobiological evidence to show that in early childhood, we develop the capacity to love, empathise and show compassion. Through early childhood programmes, we teach children social skills and develop their decision-making capability. Those are carried forward into adulthood, resulting in better co-operation, aggression control and a reduction in violence. Wars are not instigated by armies; they are started by individuals who feel that aggression is the answer to their problems. It is not very clever. Wars contribute to poverty and environmental degradation, as well as suffering and death.
Let us take sustainability. In early life, we have an innate capacity to love nature. One has only to watch a young child with animals or in a garden. It is very clear: if we nurture that innate tendency, we can leave the world a generation of people who believe in sustainability and care for the environment.
Take the target of inclusive development. Here, again, when children are very young we have a window of opportunity to provide good nutrition and care in a responsive and safe environment. Early child development programmes promote an equitable start to a healthy life, especially if they start when babies are still in the womb. One of the greatest challenges for the next generation is the inexorable rise of non-communicable diseases, such as cardiovascular disease, diabetes, chronic lung disease and cancer. Although the symptoms of these diseases develop in adulthood, the foundations are laid in early childhood. That is when we need to lay the foundations for lifelong good health.
Let us look at gender equality. Early child development programmes improve outcomes for the girl child herself and often also for other female members of her family. Evidence shows that disadvantaged girl students are the ones making the most dramatic gains from such programmes. In Brazil, for example, girls from low-income families who attend pre-school are twice as likely to reach grade 5 and three times more likely to reach grade 8 as those who do not attend. In poor families, when the mother is at work, it is often older girls who have to look after the young children. If the toddlers are at pre-school, the older girls, too, can attend school.
However, the most obvious benefit of early years programmes is in the achievement of the target of learning for all. It has been said recently:
“A child born today must master skills and knowledge that were needed only by elites a century ago”.
I am sure that that is true. However, although progress has been made in school enrolment, great inequality occurs in actual learning.
Learning begins at birth. Does it not make sense for the UN to invest its efforts in the period when human beings learn fastest, thus also laying the foundations for a generation that eschews violence, cares for the natural environment and has developed the full capacity of its wonderful human brains? Learning is the result of a sequential and cumulative process of skills acquisition, with a hierarchy of achievement based on mastering early skills and then building on them, so early learning is vital for later achievement.
The UK, along with Nordic countries, is well positioned to be a beacon for early childhood development globally. We have already embraced the evidence of the benefits of early intervention and invested in the family nurse partnership, more health visitors and free early years provision for disadvantaged two year-olds. Now we need to become a global leader in championing early childhood abroad. The time to act is now, while the next set of goals is being developed. Will we be influenced by the mountain of scientific evidence? I hope so. I have a book full of evidence and solutions from the world’s experts. All we need now is the political will.
Will my noble friend pass on to her right honourable friend the Prime Minister our wish that he ensure that there is an integrated early child development goal in the next set of UN goals post-2015? Can she tell us how your Lordships’ House can influence the Prime Minister in his work with the UN? As the new goals will affect all countries, not just developing countries, will the UK Government take a lead by demonstrating the amount of economic and human capital that can be saved by investing in young children and their families?
Finally, I understand that there are to be multi-stakeholder consultations within countries on the post-2015 agenda to ensure a transparent process and meaningful participation from Governments. How is that being done in the UK? Can my noble friend assure me that the process will be comprehensive and that the Prime Minister will use its results when he works in his co-chair capacity?
Baroness Hodgson of Abinger (Con)
My Lords, I begin by thanking my noble friend Lady Walmsley for raising this issue today, because it is one of the utmost importance. The millennium development goals were undoubtedly the single biggest push to combat world poverty in our history. Although they have succeeded in reducing poverty and child mortality, unfortunately, there is still much to do. In that respect, the post-2015 development agenda has a vital role to play.
Early childhood generally refers to the period of a child’s life between nought and eight when, as my noble friend Lady Walmsley mentioned, critical development occurs—physical, cognitive, linguistic and socio-emotional. I argue that this debate should have a broader scope, because what happens in utero is also critical.
Research into brain development and early childhood development has shown that in utero development and the first three to four years are critical for the development of sensory pathways for social and emotional development. During the early years, the brain develops most rapidly so that children can acquire the habits and skills needed for social and educational success and self-protection. If that development does not occur, children are at risk of mental health, learning and behavioural disorders. Thus, those children will fail to reach their full potential and may also become a challenge to their societies.
MDG 5 focuses on maternal health and is one of the MDGs on which more progress needs to be made. Although maternal mortality has nearly halved since 1990, an estimated 287,000 maternal deaths still occurred in 2010, with the maternal mortality ratio in developing regions being 15 times higher than in developed regions. Having a baby at a very young age also increases the risk and it is estimated that 70,000 adolescents in developing countries die each year from complications during pregnancy and childbirth. Thus, early forced marriage is a factor, and FGM also increases birth risk. In those maternal deaths, many of the babies will also die.
Although more women today receive antenatal care, only half of women in developing regions receive the recommended amount of healthcare that they need. Still, today, nearly 50 million babies are delivered without skilled care. The figures that are never produced are for those births which go wrong and result in live babies that are damaged. Very minor damage or slight oxygen deprivation can mean that a child will never reach his or her full potential.
According to UNICEF, in spite of four out of five children now getting vaccinated for a range of diseases and deaths from malaria having fallen by a quarter, around 29,000 children under the age of five still die each day, mainly from preventable causes. Although the death rate has nearly halved since 1990, these deaths mainly occur in developing countries. In sub-Saharan Africa, one in nine children die before the age of five, while an Ethiopian child is 30 times more likely to die before his fifth birthday than a child in western Europe. Children born into poverty are almost twice as likely to die before the age of five as those from wealthier families. The majority of those living in extreme poverty are female, and they are the ones who will struggle most to raise their children.
Nurture is essential to the development of a baby and very young child, and of course the mother plays a vital role. To provide good care to her child, the mother’s health and well-being are essential. It is estimated that one in seven women in the UK experiences some degree of depression after giving birth, but in developing countries there are simply no statistics about this. Yet we know that when mothers have depression, it can affect the bonding process and thus the child’s development, so postnatal care is extremely important. However, such healthcare may be scarce in many developing countries.
The events of a child’s early life are formative and play a critical role in shaping the way a child develops, and thus in building human capital and promoting economic productivity in later life. Yesterday was the International Day for the Elimination of Violence against Women. Nearly a third of women who have been in a relationship have experienced physical and/or sexual violence at the hands of a partner. For a young child, seeing his or her mother being beaten up is a terrifying experience and one which will affect them for the rest of their lives.
Freedom from conflict and violence is the most fundamental human entitlement. War tears children’s lives apart and has a devastating effect on their development. Young children who live in war zones or who are refugees will be severely affected by what they have seen and experienced. Today, it is said to more dangerous to be a woman or a child in war than a soldier. Not only is there imminent physical danger but, usually, a lack of food, an interruption of education and enormous stress. A UNICEF report estimates that during the past decade, through conflict: 2 million children have been killed; 4 million to 5 million have been disabled; 12 million left homeless; more than 1 million left orphaned or separated from their parents; and some 10 million have been psychologically traumatised.
In May this year, I visited Syrian refugees in Lebanon. Meeting some of the families camping in the Bekaa valley gave me some understanding on how hard it was to look after children in such circumstances. I met a woman trying to care for her eight children in a small tent. Having insufficient sanitation and very little clean water meant that maintaining hygiene was especially difficult in those conditions. Diarrhoea was already starting to spread through the camp, which can be fatal for very small and vulnerable children. While the women were trying to look after the children, the men who were there had nothing to do and were frustrated by their situation. We heard that domestic violence was rising. Trying to resolve conflict and promoting peace are also essential for ensuring good childhood development.
Today, in spite of relatively improved nutrition, it is estimated that more than 200 million under-fives in low and middle-income countries will not reach their developmental potential. Children are central to sustainable development. Current and future global development goals, including education goals, will be met only with attention to the overall development of young children, which will involve the rolling out of global and localised maternal and children’s healthcare. Dedicated political support is now required to ensure that there is a focus on guaranteeing that every child around the world is given the very best chance for the very best start in life.
Baroness Tyler of Enfield (LD)
My Lords, the inclusion of an early childhood development target in the post-2015 UN millennium development goals would be a hugely important action on behalf of children around the world. I agree with my noble friend Lady Walmsley—I congratulate her on securing this debate—that a global focus on early childhood development is essential as we move into a post-2015 global agenda. I also agree that the UK should be playing a leadership role in this crucial issue. However, if we are to take the lead on early childhood development we need to look long and hard at our own domestic policies to ensure that we truly are a world leader in our policies on early childhood. We must be seen to practise what we preach. That will be part of my focus today.
There is no escaping the unfortunate fact that of the children born around the UK today each will be born with different life chances. Sadly these chances will depend not on innate ability but, in large measure, upon the economic and social conditions into which these children are born. Of course, this inequality is magnified many times over for children living in countries with high levels of absolute poverty.
As policymakers, the natural question to ask ourselves is this: what can be done to improve the life chances of children, both in this country and around the world? To draw an analogy, last year the All-Party Group on Social Mobility, of which I am vice-chair, published a report entitled Seven Key Truths about Social Mobility. The first of those key truths—the one highlighted by my noble friend Lady Walmsley in her speech—is that the point of greatest leverage is what happens to a person between birth and the age of three. Basic cost-effective interventions in the first few years of life can pay big dividends later on in a person’s overall chances of a healthy and fulfilling life.
In the light of these conclusions, early childhood development emerges as one of the key issues for any policymaker or legislator who is seriously concerned about a fair chance in life for all our children. It is my hope that in the coming years the UK will lead the push, both internationally and at home, to put a strong emphasis on ensuring that all young children have that fair chance for a fulfilling life.
In addition to the benefits of early years intervention, the Seven Key Truths about Social Mobility report identified another key causal factor in improving life chances, and that is developing what is called character and resilience among children and young people. By that term “character and resilience”, I mean those habits of mind such as perseverance in the face of setbacks, sticking with it when the going gets really tough, high expectations, confidence, self-esteem and belief that your life is heading in a positive direction and that you can improve things by your own efforts. These habits of mind are even more crucial for children from far less privileged nations than our own. The inclusion of specific targets for early childhood development in the UN’s post-2015 millennium development goals should help to ensure that young children across the world are in an environment that will promote the development of these crucial characteristics that can make such a difference to their later life.
So what concrete interventions can Governments make in those early years that might lead to the development of the resilience that I was talking about? Given that most early-years development takes place in the home, the most important thing that Governments can do is to put policies in place that support parents during the first few years of their child’s life. Clearly a secure and nurturing home life during those early years is crucial for a child’s development. Of course, sadly, as we have already heard in the debate, in too many countries that simply is not possible because of the social and economic conditions, as well as war and conflict.
Many reports, in this country and abroad, have pointed to the fact that one of the most unhelpful assumptions is that people know instinctively how to parent. Of course, all parents want to provide a nurturing environment for their young children, but those from more privileged backgrounds tend to take for granted both the resources and the strong support networks that allow them to parent effectively. For those without those networks, the prospect of parenting on a low income can be extremely daunting. These challenges begin in the prenatal period and continue throughout early childhood and, of course, the quality of parenting varies hugely in both rich and poor households and rich and poor nations. However, clearly, having less time, fewer money worries and fewer resources makes the job of consistent and attentive parenting far harder. While what goes on in the home is, first and foremost, a matter for families, Governments can do more to provide the resources to ensure that mothers and fathers have the degree of physical and mental health, financial security and overall preparedness necessary for raising a child.
As the United Nations develops a plan for global action on early childhood development, we need to look around the world for examples of successful policies that really help parents. I believe that one model for these efforts can be found in Sweden, where expectant mothers and fathers are invited to join local groups run by a trained midwife to prepare them for the birthing process. These groups do not disband at birth but continue to meet throughout the first few years of the child’s life to offer advice and support throughout the parenting process. The data available so far suggest that parents find these programmes helpful, as more than half the parents who join prior to birth are still involved at the time of their child’s third birthday.
In addition to positive parenting, we know that education plays such a large role in enabling young children to develop into capable learners. Although the UK is above the average for OECD countries in overall participation in early-years education, a gap still exists between the more affluent and the less affluent in terms of both participation in and effectiveness of early-years education, particularly in preparing children to be ready to enter primary school. In its report entitled Greater Expectations: Raising Aspirations for our Children, the National Children’s Bureau—of which I am president—notes that, while two-thirds of children overall experience good development during early-years education, only half of children on free school meals in the UK experience that good development.
So what can be done? I suggest that there are three key components. First, we need a strategy for ensuring that success in early-years education, both in this country and elsewhere, is not tied to income. The first step must be to ensure that parents of underprivileged children have easy access to early-years education that is of good quality and promotes good child development, both intellectual and emotional.
Secondly, we need good practice guidance for early-years educators, which can be shared internationally, in order to ensure that early-years education is preparing young children to succeed when they enter school. This also means ensuring that early-years education facilities are staffed with qualified educational professionals, regardless of the affluence of the communities they serve. We need to think critically about the nature of the curriculum in the early years. In my view, early-years education should have a distinct emphasis on educating the whole person.
Finally, we need to understand and organise the way that we address the interests of children and young people at the level of public policy. This is what is so important about the specific inclusion of early childhood development in the UN’s post-2015 goals. Currently, in far too many countries the interests of children and young people are addressed in a decidedly fractured way. Some issues fall under the umbrella of education and others of health—physical, mental and so on. As Dr Nurper Ulkuer, formerly a senior adviser at UNICEF, remarked at a reception in Parliament on early childhood development earlier this month, a unified, holistic approach is needed in order to ensure that our children are physically healthy, mentally healthy, socially engaged, and ready to learn.
The importance of this holistic approach is at the core of the push to include specific benchmarks for early childhood development in the UN’s post-2015 development goals. However, this shift in how children’s issues are addressed can also happen at the national level. In the UK, the National Children’s Bureau makes two key recommendations in its report on how to organise policy-making, which I think are equally applicable in other countries. The first is the creation of a government children and young people’s board with full ministerial representation. This board can help set the agenda on policy that affects children across all levels and dimensions of government.
The second recommendation is to look—in this country it could be through the independent Office for Budget Responsibility—at the impact of each Budget on child poverty and inequality among children. Both these recommendations could help ensure that children’s issues are placed at the centre of all policy decisions and could be used as a model in other countries. Of course, that is ultimately the heart of the matter. Every Government around the world has to be held accountable for the way in which their actions promote the well-being and development of the youngest children. That is why I believe that the UK should use its international profile to push strongly for the inclusion of an early childhood development target in the post-2015 development goals to promote the interests of young children around the world.
Lord Collins of Highbury (Lab)
My Lords, I, too, thank the noble Baroness, Lady Walmsley, for initiating this debate. She has a tremendous record in the field of child welfare.
The UN high-level panel report based its analysis on five transformative shifts, including the idea of leaving no one behind. I welcome many of the recommendations in the panel’s report, especially the objective to end extreme poverty by 2030 and the bringing together of the sustainability and poverty reduction agendas. The report is an important contribution to the debate about a new covenant for development, but there is still a lot of work to be done to ensure that the new goals and partnerships drive the radical change which is essential if we are to be the generation that ends poverty and safeguards scarce planetary resources.
Many questions still remain on content, financing and accountability, but the principles set out in the outcome document represent a good starting point. Having said that, my hope is that the more ambitious parts of the report, including its call for a stand-alone goal on gender equality and women’s empowerment, will be built on as the negotiations now move forward.
The five shifts I have described are only part of the equation. They help to build momentum to meet our aspirations. However, goals with effective monitoring will ensure that the international community moves in the same direction. As we have heard in this debate, the benefits of investment in early childhood development are strong, but the cost of inaction is also very clear.
Science has demonstrated that early childhood interventions are important because they help to mitigate the impact of adverse early experiences which, if not addressed, lead to poor health, poor educational attainment, economic dependency, increased violence and crime, all of which add to the costs and burdens on society. UNICEF and Save the Children operational research published in 2003 revealed the significant improvement in primary education grade promotion, repetition and drop-out rates attributable to school readiness and ECD programmes.
As the noble Baroness, Lady Walmsley, said, children are central to sustainable development. Decreased child mortality, relatively improved nutrition and school enrolment may give a picture that the world is on track on its promises for children. However, many of the children who are surviving now are not achieving their full developmental potential. According to an estimate, 200 million children around the world are not achieving their potential because they suffer from the negative consequences of poverty, nutritional deficiencies and inadequate learning opportunities. Moreover, 61 million children around the world are out of school and thus at risk. If one digs deeper, beyond national averages, one sees widening disparities among regions and countries and within countries based on wealth, gender and geographic location. In the face of increasing conflict, early childhood development is also considered an entry point for peacebuilding in communities. Furthermore, as we have heard, good early learning programmes can help to build the resilience of children and families in emergency and fragile situations.
Each year, about 19 million children in developing countries are born underweight because of poor growth in the womb. More than 200 million children below the age of five living in low and middle-income countries fail to reach their developmental potential. This failure to ensure that children have access to early childhood development has significant consequences for eradicating global poverty and achieving sustainable development. These twin objectives cannot be achieved when significant numbers of children start life at a disadvantage, one that continues to widen as they grow and develop, and becomes an intergenerational transfer of poverty. Eradicating poverty and achieving sustainable development therefore require that significant attention is paid to early childhood development and that strategies to ensure adequate health, nutrition, stimulation and early learning are part of all programmes to eradicate poverty and achieve sustainable development.
On 22 October in a supplementary Oral Question to the Minister, I referred to evidence that investing in children’s earliest years makes the biggest difference to their lives and to the country’s social and economic fortune. I asked the noble Baroness then whether she would support calls to put early childhood development at the heart of the new post-2015 development framework. In response, the Minister correctly pointed to the illustrative universal goals in the high-level panel report, which highlight the new emphasis on, for example, good nutrition, which is so important in the first 1,000 days of a child’s life, as well as education—not just primary education but a wider scope of education. The noble Baroness suggested that, as concerns for young children are built into a number of the goals, the early childhood development approach can be assumed to be there.
The goals to provide quality education and to ensure a healthy life, food security and good nutrition are strong component parts of a comprehensive approach to early childhood development. However, as the noble Baroness, Lady Tyler, said, policies and programmes need to be fully comprehensive if the approach is to be carried through. They must also include parenting support, developmental monitoring with early intervention, and childcare.
It is important that we do not let up on making a strong case for these important points of principle at events and debates in the General Assembly throughout 2014. These will set the scene for member state negotiations, which will culminate in the summit in 2015. Will the noble Baroness give us some indication of how the Government plan to highlight these issues leading up to 2015? I, too, would like to see the good examples being highlighted. Can the noble Baroness highlight some of the programmes that the department is currently engaged in to support the provision of a comprehensive approach to early childhood development?
Children are key stakeholders in the future. The evidence shows clearly that investing in children’s earliest years makes the biggest difference to their lives and to a country’s social and economic fortunes. Straying slightly off my remit, I am only sorry that since 2010 many of the Sure Start centres in this country have been closed.
Baroness Northover (LD)
My Lords, I thank my noble friend Lady Walmsley for securing this important debate and for introducing it, as ever, so cogently.
As the 2015 deadline for the MDGs approaches, it is very important that we seek to ensure that we build on what has already been achieved and move forward in seeking the MDGs’ replacements, having learnt from what worked in the current set and where we need to head in the future. The MDGs seek the relief of poverty internationally and they use various means to do that. As my noble friend Lady Hodgson emphasised, much has been achieved but much still needs to be done.
In the proposed new goals, there is the aim to eradicate extreme poverty and to ensure that no one is left behind, and that clearly includes children. I welcome the opportunity to explore the core issues surrounding progress on early child development globally and how those issues can best be reflected in the post-2015 development framework.
As my noble friend Lady Walmsley stated, the case for a major global effort on early childhood development is compelling. As she indicated, evidence from multiple disciplines, including neuroscience and epigenetics, and across the social sciences tells a similar story: that early childhood matters. When everyone gets a good start in life, we are more likely to see better education and health outcomes, and higher earnings with more inclusive economic and sustainable development for all.
We know that we need to emphasise child development, support for parents and education in the United Kingdom, as my noble friend Lady Tyler noted. Internationally, we are some way off our aims. Of those children who survive birth, globally it is estimated that in low and middle-income countries more than 200 million under-fives are failing to reach their true cognitive development potential and that 165 million are stunted. However, of course, millions never even reach their first birthday. Four overlapping constraints are at the root of these challenges, and noble Lords have referred to them: poverty, nutritional deficiencies, poor healthcare and inadequate learning opportunities. The noble Lord, Lord Collins, crossed over all those.
The UK Government have a long-standing tradition of engagement in development and they work hard to improve early childhood outcomes globally. The noble Lord, Lord Collins, and others have shown how desperate is the situation of many children around the world, and he rightly emphasised the significance of intergenerational poverty.
To achieve their full potential, it is essential that children have a healthy and nutritious start to life, as my noble friend Lady Hodgson and the noble Lord, Lord Collins, emphasised, and that they should be supported by mothers who are in good health themselves. DfID funding for family planning is helping to avert 2.6 million unwanted pregnancies and prevent 70,000 deaths during pregnancy, childbirth and infancy. The benefits of family planning go well beyond the health sector. Evidence shows that when families are able to choose the number of children they have, they choose to have fewer children and do more for them. They particularly choose to invest in their children’s education. As my noble friend Lady Hodgson pointed out, paternal health is critical before, during and after birth.
My noble friend also pointed out the importance of good nutrition, as did the noble Lord, Lord Collins. We recognise that good nutrition is essential, particularly in a child’s first 1,000 days—from conception to their second birthday—to ensure that they reach their full physical and cognitive potential. Noble Lords will no doubt remember the Nutrition for Growth event that we held on 8 June. That brought together partner Governments, civil society, business and science to try to address the neglect of undernutrition. DfID also supports efforts here to increase vaccine coverage and reduce avoidable child deaths, illness and disability. Between 2011 and 2015, UK funding for GAVI—formerly the Global Alliance for Vaccines and Immunisation—will help to vaccinate more than 80 million children.
It is estimated that diarrhoeal diseases are now a leading cause of child deaths in Africa and the second leading cause of child deaths globally. After pneumonia, they are the biggest killer of children under five in the world. DfID is committed to reaching 60 million people with improved water, sanitation and hygiene—WASH—by December 2015. Through partnership with UNICEF, this includes WASH in schools and WASH in health units. Globally, DfID is assisting pre-primary education through core support to UNICEF—an organisation that I know my noble friend Lady Walmsley strongly supports—the World Bank and international NGOs, such as Save the Children, and through our work directly with partner Governments. Ensuring quality early-years provision for all when education budgets are already stretched is key.
While the evidence base on the impact of early childhood development on life chances for all is strong, the capacity and resources needed to implement cost-effective, sustainable and quality programmes that reach the poorest, which is what noble Lords have been emphasising, remain a cause for concern. I hope I can reassure the noble Lord, Lord Collins, and my noble friend Lady Tyler that this is why DfID is stepping up efforts with its partners, such as the World Bank, UNICEF and the Children’s Investment Fund Foundation, to scale up programming in this area. We are working with these partners to explore ways to improve the cross-sectoral links between health, education, water and sanitation and social protection, which is key here, in the provision of services that target children from birth to eight years old. I can tell the noble Lord, Lord Collins, that innovative cross-sectoral programmes have already been developed in Zimbabwe and Bangladesh.
The UK is also currently engaged in a range of research activities to fill gaps in our knowledge of the impacts of early interventions and how they can best be delivered. For example, DfID currently supports the young lives study of childhood poverty, involving 12,000 children in Ethiopia, India, Peru and Vietnam over 15 years. We also recently commissioned a multi-disciplinary team to undertake a rigorous literature review on early childhood development and cognitive development. That report will be published soon and used to inform future research and policy direction. I hope my noble friends are pleased to hear that.
My noble friend Lady Tyler spoke of confidence and self-esteem. I think she should stay and participate in the following debate in the name of the noble Baroness, Lady Grey-Thompson, which addresses such issues and which I shall also be answering. I reassure my noble friend that in the UK we recognise the importance of early years development. There is an overwhelming evidence base from the UK and around the world that shows that high-quality early education has long-lasting benefits for children. By the time that children reach the age of five, there is already a 12% achievement gap between those from lower-income households and the rest. That is unacceptable to us, as a Government who believe in opportunities for all children. The evidence shows that there are social and cognitive benefits for children who receive good quality pre-school provision between the ages of two and two and a half, compared with children who started at the age of three or more. My noble friend will know the details of the provision that the United Kingdom Government are putting in place.
My noble friend Lady Walmsley asked how the UK Government can lead on the post-2015 development settlement. She referred to my right honourable friend the Prime Minister’s role in co-chairing the high-level panel. Through that, we were able to ensure that a commitment to leave no one behind is at the heart of the final report. That is the key to all this. The report, published in May 2013, recognises the importance of early childhood development with illustrative targets on the provision of pre-primary schooling, reduced stunting and wasting among the under-fives and ending preventable infant and under-five deaths.
The high-level panel gave us an excellent starting point for the next two years of discussions on the framework to replace the MDGs. It is extremely important that we focus hard on trying to deliver something that is as comprehensive and deep-rooted as the proposals before us at the moment. We will continue to work hard and actively with others to highlight the important issues raised on early childhood development as part of the ongoing dialogue on a post-2015 development framework. I can assure my noble friend that outreach to civil society, businesses and other key stakeholders, both in the UK and internationally, will continue to be a key part of the UK Government’s work on post-2015. I am pretty sure that my honourable friend the Minister of State in DfID is having a meeting with parliamentarians in the CPA as part of that. It was during the Prime Minister’s tenure as co-chair of the high-level panel reports that those issues were brought forward.
As noble Lords have made abundantly clear, our children are our future. Noble Lords are right to focus on children and their development. I assure noble Lords that we share that view. This has been a wide-ranging debate covering life, death, war and peace among women, men, children and adults, and many other things. It is to ensure that the children of the future survive and thrive and that none are left behind that the new MDGs are needed.
Women: Sport and Physical Activity
(10 years, 12 months ago)
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Baroness Grey-Thompson
To ask Her Majesty’s Government what assessment they have made of the role of sport and physical activity in providing a positive body image among young women.
Baroness Grey-Thompson
My Lords, I thank the Whips’ Office for finding time for this debate and those noble friends who have stayed on.
I have a number of interests in sport—all listed in the register—but perhaps the most pertinent is that I co-chair the All-Party Group on Women's Sport with the right honourable Barbara Keeley MP, which is supported by the Women’s Sport and Fitness Foundation. I also thank the Lords Library for its notes on this topic.
I do not think that we could have picked a better time for this debate. Anyone who was watching Rebecca Adlington on “I'm a Celebrity, Get Me Out of Here” last week will have seen her tearful reaction when talking about body image. She said: “It’s making me very, very insecure that I have to look a certain way. For me, I was an athlete. I wasn't trying to be a model, but pretty much every single week on Twitter I get somebody commenting on the way I look”.
This is a young women that we should all be proud of. She is a four-time Olympic medalist and a world champion, but many will understand how she feels. It is a worrying trend that young women are increasingly put under pressure to conform to look a certain way.
If I had said at the age of 15 that I thought I had poor body image, I would have been told to pull myself together. However, body image anxiety is a leading cause of depression and low self-esteem; health and relationship problems; poor participation at school; and lack of progression at work.
It is worrying that body image has become more important than health; that the majority of young people would rather be thin than healthy. In the UK, 1.6 million people suffer from an eating disorder. Dieting can lead to eating disorders, and girls who diet are 12 times more likely to binge eat. However, a positive body image can help with academic attainment, cutting down on smoking and teenage pregnancy
We need to understand that the relationship between body image and physical activity can be both positive and negative. The reality is that young women are facing pressure from many directions. For many women, a poor body image and lack of self-confidence is the biggest barrier that prevents them being active and it is easy to understand why. Bizarrely it is one of the things that could help them. If you put “Jessica Ennis” and “abs” in to a search engine, there are pages that show how you can look like Jess in just two minutes a day. The reality is more like six hours a day, 50 weeks of the year for about 15 years.
Skimming through some of the other comments over the weekend, I noticed that Chantelle Houghton—described as a former reality TV star, which is a whole other debate in itself—was heavily criticised for going out jogging in a pair of running tights and a cropped top. The obsession with how quickly celebrities lose their baby weight and get back into their pair of jeans puts undue pressure on others. Many of the women's magazines are full of pictures of bodies which are either beach-ready or not. It is hard to find many that do not contain some diet that will help you to look like your chosen celebrity. I cannot even begin to add up the number of women who get more coverage for the colour they have dyed their hair than they do for their achievements.
The data that the YMCA presents is compelling: more than half the UK population suffers from body image anxiety. Media, advertising and celebrity culture account for 75% of the influence on body image in society; and 95% of the population cannot physically achieve the typical “body ideal” presented in media and advertising.
Physical activity in schools is not going to right all those wrongs, but the right PE will help. For most women and girls, we know that once they become physically active, their body image and self-confidence improves, leading to greater academic success and job prospects. Research by Ernst & Young in the USA shows that many of the top female executives played competitive sport at a high level all the way through university.
We need to define a new language around sport. People often say “sport” when they mean “physical activity”—physical literacy as well as competitive sport. You have only to mention PE to most women and they shudder. We need to be clear in thinking about a health agenda and getting more people active. Getting girls to be active will lead to more of them playing competitive sport, which would be great. However, if the starting focus is on competition, it is likely to lead to fewer girls being active.
Since the Olympics and Paralympics, the Department for Education has suggested that there will be an increased focus on competitive sport in schools. That is fine for many. It would have suited me fine at the age of 20 but not when I was 13. So why do we need to find a new way of doing PE in schools? Evidence from the Women’s Sport and Fitness Foundation shows that 46% of the least active girls say that they do not like the activities they do in PE; 45% of girls agree that “sport is too competitive”; and over a third of the least active girls do not think that they have the skills to do well in sport, so it is obvious that we need to do more to build confidence. Some 75% of girls agreed that girls are self-conscious of their bodies and 59% of the least active girls do not think that it is important to be good at physical activity. In many schools it is okay to be a sporty boy but not to be a sporty girl.
On average, female athletes are more likely to have a positive body image, and less likely to consider themselves overweight, than female non-athletes. Earlier this year, I chaired a Task and Finish Group for the Welsh Assembly Government, looking at the role of PE in schools. We recommended that it became a core subject, and that was picked up by the Select Committee on Olympic and Paralympic Legacy, which the noble Lord, Lord Addington, sat on.
We must teach good skills at a young age, which for girls also means a mix of sports and activities as well as being given the option of single-sex and mixed sessions. A number of women wrote to me about this issue. Arriene, who is 28, said:
“I never joined a gym because PE taught me that I wasn't good enough and sport made me feel useless”.
The Women’s Sport and Fitness Foundation’s Changing the Games for Girls shows that 51% of school sport and PE put girls off. Kate Allenby MBE, an Olympian who is now a PE teacher, said that girls need good role models. Keith Kendrick, who wrote on the website Parentdish, said that he desperately needed Becky Adlington to be a strong role model for his stepdaughter. Many women have written to me to express the horror of communal changing rooms—and a few men as well. I am sure that most of us can remember that dreadful feeling. However fit and strong you feel, it puts much undue pressure on people.
The YMCA suggests that if we do not get this right, we will jeopardise the health and well-being of future generations, and I agree. Its research has shown that five year-olds now worry about their size and appearance, that body image is the biggest single worry for many 10 year-olds, that by the age of 14 half of girls and a third of boys have started dieting, and that children are directly influenced by parents’ body image, whether that is positive or negative
Today’s young people aged between 18 and 34 are much more likely than previous generations to have heard their parents talking about dieting, criticising their own appearance or even teasing their children about their appearance or weight. Girlguiding UK has some fantastic research results in its Girls’ Attitudes Survey 2012. When it asked why girls do sport, 29% said that they did it to keep fit, 46% said that it was to lose weight or control their weight, but 44 % said that it helped them to feel good about their bodies. It has also shown that one in seven young people would prefer to be slim than healthy, and findings from the WSFF show that 19% have said that being slim is more important than being healthy.
There is a huge pressure on girls to be skinny. The size zero that we hear about—there is a great deal of discussion about this being the size of many models—is the size of a 12 year-old girl. It is not normal or acceptable. It is worrying that so many women have an aspiration that they cannot achieve.
We need a balanced approached in schools. We need to look at best practice; to celebrate participation and not only winning. We need to look at the uniforms that girls wear—luckily, we have moved on a long way from my days in school, where it was gym knickers and an Aertex blouse—because a key component is that many girls worry about how they look. We need to address the issue of changing rooms and consider putting hairdryers in them. If that is one of the things that stops girls being active, how difficult can it be to put a couple of hairdryers in every changing room? We need to work with young girls to give them confidence.
For me this is a very important area and I would like to ask the Minister a question: how much have the different departments—Health, Education and DCMS—discussed the matter? How can they work together across departments to find a workable solution—because a solution to this will not be found through one department alone?
Lord Addington (LD)
My Lords, I thank the noble Baroness for bringing this subject before us. My point, as the token man in the debate, is that although there is conclusive evidence that body image is a problem that may bite harder on women, it still bites men—and for virtually the same reasons.
Body image is where the problem starts to manifest itself and where physical activity might provide an answer. If you are doing a sport, the starting point is not what your body looks like but what it does, and suddenly a change will be there through physical activity. As an athlete it does not matter whether you look like Adonis or like Venus rising from the sea if you come last consistently. We have a little input there, a point where physical activity and sport put in a reality check.
As the noble Baroness said, what someone decides in a magazine is the fashionable and desirable size and shape, or the best shape to hang clothes on, often bears little resemblance to what most people look like. The fact that tall, thin people are easy to dress and can model the clothes, and thus become the style, does not change the fact that to sell those clothes you will have to be adapt them to what people look like. We could go on in this vein forever—I admit that I have never been able to buy an off-the-peg suit—but we have to try to insert a degree of reality.
We should also address the language of weight. We talk about weight all the time and imply from it that we are referring to fat. However, if you become more physically active it is possible that you will gain weight because muscle is heavier than fat. You can reduce all your measurements and gain weight—that is quiet easy to do. Anyone who plays a sport or takes a reasonable degree of physical activity will, at the very least, increase the density of their muscles. So the language we use and the way in which we approach this issue has to change.
I have ranted against the body mass index, which was clearly designed for an inactive person in the 1950s. I have been dead for 20 years according to the BMI, as has every other rugby player on the planet. Yet it is still actively used despite the fact that it has been proven again and again not to imply anything. We cannot counter it because people go, “Oh, that weight is not right”. We must have a better degree of education about what is required in that, with an awareness that if you are doing physical activities your body will change. For example, how many tennis players look like models? Not many. Indeed, somebody commented that the last female Wimbledon champion did not look like that, and they got their knuckles severely rapped for saying it. We must do something about that because this is a person at the top of an area of very competitive activity.
If sport provides help and a series of answers for these people, how do we access it? Looking at the same information as the noble Baroness, Lady Grey-Thompson, used earlier, I note that it talks about people lacking the skills to do well in sport but not liking the activities in PE. That is not uncommon, because we do not invest in basic physical literacy and good introductory skills. Traditionally it has been far too easy to concentrate on the person who does sport naturally and well—they get the attention, not the person below them. If you do that, you allow for the idea of casual—use sport—I do not like the term “non-competitive”. The fact is we do not have that idea of sport. What you get is a long structured list, and you are expected to turn up every week to complete a series of activities. Being able to take on a casual, non-organised, occasional type of activity with a degree of confidence means that you will have greater enthusiasm for it. If, for instance, you know how to hold a tennis racquet properly and can hit a shot that enables someone to rally with you, then that becomes available, it is easier to do. Racquet sports provide us with excellent casual-use sports activity. You only need two or four of you to do it. My own sport, rugby union, needs 31.
We need to get the skill levels, and the educational levels, right. Most introductory-level types of education, even if they are based on one sport, open you up to other sports: you learn the language of movement and how to be instructed, and when somebody tells you to move your body you get an idea why you have to move your body in order to be better at it. For instance, in racquet sports you learn how to move your feet in order to make a shot. This type of education has to be instilled fairly early if we are to have easy access throughout. We can of course go back later, but it is easier this way. We must try to get into this structure.
One of the ways to improve the situation is to encourage more women to get involved in coaching. At the moment it is quite common for men to coach women; at senior level it is expected. The reverse is very unusual. There is no great difference in the way a woman throws her foot to kick a ball in the right direction to the way a man does it. I have not heard that said and cannot see why it should be true. Yet professional coaching at all levels, including high-level sport, seems to be dominated by men. When we cut into this, and those sports involved make it no longer noteworthy for a woman to coach men, we will have taken a step forward. I do not aim for parity yet, because we must take one step at a time, but we are encouraging women into some of the traditionally male-dominated sports. Surely it is time coaching followed.
To conclude, if we encourage people to be active, and they see their bodies as functional, rather than as clothes-horses, or something seen as an image in itself, then we stand a chance of giving people a better body image, so that they see themselves as individuals who do something as opposed to someone who just stands there. Take the preparation of a male model before a modelling job; it is described as being like the process a bodybuilder goes through before a competition. After amassing the muscle you go on a crash diet, strip away fluid then pump yourself full of sugar to have your photo shoot. That sounds rather more painful than Photoshop, and apparently it is about as sustainable in real life. Across the board, we must get people more used to the idea that their body is a functional thing that will allow them to do various forms of activity. In this way we will start to attack this neurosis and possibly take a step forward.
Baroness Kidron (CB)
My Lords, given that both the previous speakers are sportspeople of considerable stature, I will just add to the very powerful speech of my noble friend Lady Grey-Thompson by talking a little about the landscape in which young women grow up. Unless we look at the entire landscape, we really cannot address the problem of sport, and we will never get beyond the rather shameful statistic that only 12% of 14 year-old girls are doing the recommended amount of exercise. That statistic promises a multitude of future problems for their health and probably for the public purse.
Adolescence is a time of extreme self-consciousness as the body makes the crucial developmental journey from childhood to adulthood. It is a journey fraught with hormonal changes, where the relative anonymity of being camouflaged in a group of little people suddenly changes when differences in shape and image become very manifest. Clifford Nass, who was a professor of communications at Stanford University, did a lot of work on investigating the way that young people see themselves as a reflection of how they see others. He found that the narrow definitions of social success and desirability that are fed to young women distort their self-image, and that heavy users of social media are measurably more negative about their own image and emotional state as they seek to emulate the unachievable. The message of that is almost identical in the Government’s report on body confidence, led by the Minister for Women and Equalities, Jo Swinson. It is in this context that we ask young women to make mature choices about their bodies.
For young women, one of the biggest obstacles to participating is the question of what their friends are prioritising. What we increasingly understand from the data that we are collecting is that they are prioritising their bodies for the way they look and not for what they can do, as the noble Lord said. In this context, it is hugely important that young girls have safe and secure opportunities to talk about their fears and anxieties around their bodies, for example in high-quality PHSE, in addition to the opportunities they may or may not have within their own families. It is important that they see women celebrated for qualities other than their ability to wear a dress, and it is essential for them to be invited into the sports arena in a participatory way. There is some dispute about competition, but I would say that in team sports you learn not only the limits of your own body but the strengths and limits of other people’s contributions. That is a social skill and a skill for life way beyond that of an individual’s fitness.
The Sport England activity programme report says that girls leave school only half as likely as boys to meet the recommended activity level, and one-third of 16 year-old girls do no physical activity at all. It is crucial, even within the terms of this debate, that we imagine how adult women provide role models—or, I would suggest, a lack of role models—for young women. We have to resource and promote activity among the mothers of these young girls, otherwise we will never break the cycle.
For a number of reasons recorded in the register, I visit scores of schools each year. So many girls describe the sports changing room as if it were a gangplank. It is simply the worst moment in their time at school. This needs to be addressed. As my noble friend said, there are specific things here.
I am also a bit concerned as a non-pro about some of the murmurings that I am beginning to hear that sport has become more competitive and that this focus on the elite, the good and the excellent is further alienating young women who should be being encouraged to participate.
I wonder whether Her Majesty’s Government could insist that UK Sport and Sport England take a much stronger position on gender and make their funding of professional sports bodies conditional on imaginative and proactive programmes designed to redress the balance between sportswomen and their male colleagues. As it stands, there are six governing bodies, including cycling, that do not have a single woman on their board.
How important is it for the young women whom we are discussing in this Room that the vilification and objectification of sportswomen, such as Rebecca Adlington or Marion Bartoli, to name just two, should be simply unacceptable? Those women, both talented and triumphant in reaching their aspirations—and ours for them—are a crucial part of the solution. John Inverdale and Derek McGovern today are part of the problem. I feel that all publicly funded bodies—indeed, all sports bodies—should speak publicly and loudly against this kind of offensive abuse of women at the top of their game and the top of their bodies.
It is a miserable state of affairs that the promise of the Olympic legacy one year on has been found so wanting. The Beyond 2012—Outstanding Physical Education For All report states that very few schools have found a balance between participation and elite performance. I am consistently disappointed that the Minister for Education fails to recognise that we must educate the whole child in drama, art, relationships and sexual education, and sport. Happy, fit and confident young people are ready to learn and excel in the ways that we wish them to.
Sport delivers physical confidence and competence. It is essential for health, and it plays an important part in rehearsing social relationships. It allows a young person to feel their strength rather than worry about how they are seen. It helps brain plasticity and developmental growth. As my noble friend said, it is disappointing that DCMS, the Department for Education and the Department of Health publish report after report, all of which we were sent by the Library, yet we do not have a joined-up and effective post-Olympic strategy that even begins to address the statistic that only 12% of girls undertake the recommended amount of activity. That young women do not participate is a problem for us all. In the words of the previous debate, we must not leave them behind.
Baroness Jones of Whitchurch (Lab)
My Lords, I thank the noble Baroness, Lady Grey-Thompson, for initiating this debate today, contributing in a thoughtful way and raising some important and complicated issues, as did the other speakers. We have had a very wise and well informed debate, and I am conscious that I may not be able to live up to it because, rather like the noble Baroness, Lady Kidron, I can talk about sport more than I can do it. I occasionally put my running shoes on—not often enough, I am sure.
The fact is that we have been faced with some pretty depressing statistics about young women’s alienation from sport and exercise. If we are not careful, this will develop—we can already see it developing—into on the one hand an epidemic of obesity among young girls and on the other a whole strata of young women with eating disorders or who resort to cosmetic surgery as a solution. That cannot be right and it shows a real distortion in the minds of young people that that is thought to be the solution to having a beautiful body. If we allow those trends to carry on, it is predicted, for the first time since records began, that the next generation will have a lower life expectancy that the previous one—and that when we have so much good food and capacity for healthy living. It is a real challenge to us. Meanwhile, as noble Lords said, an inquiry by the All-Party Parliamentary Group on Body Image heard evidence that more than half the public had a negative body image, and girls as young as five worry about how they look.
We can place clear responsibility for this at the door of the media. We have heard some examples of that this evening. But that is an easy cop-out because, in a sense, we all bear some responsibility for what has happened. All of us, to a greater or lesser degree, have subliminally absorbed some of those messages. Even people who should be more intelligent and knowledgeable seek to improve their body shape and allow their self-confidence to be damaged by images of people with a more perfect body. For example, I think I have been on a diet for most of my adult life. I am probably still on one. I am not quite sure when the last one finished and the new one started. I would like to think I am a sensible grown-up but I still allow myself to be trapped by those sorts of quick fixes about how to get my body back in shape.
As noble Lords have said, although exercise has a crucial role to play, nutrition and the whole concept of food—understanding it and a healthy relationship to it—are equally important in this whole debate. For example, schoolgirls often oscillate between skipping meals and snacking on calories at fast-food outlets. They get into a cycle of unhealthy eating and body rejection. The noble Lord, Lord Addington, made the point that this is not just about girls but about all young people, yet there is a particular problem about girls. A research project by University College London showed that only 38% of girls had an hour’s exercise a day compared to 68% of boys. We can probably all identify with that: it feels about right.
How do we address this problem? We have to start with the school experience. Regrettably, we are still picking up the pieces from the early decision of the coalition to pull the funds from the school sports partnerships. For the first time, we had a successful model of school activities for all ages, combined with targets for every child to do at least two hours’ PE a week. We were well on the way to achieving that goal when the funding was withdrawn. Although some of the money has been reinstated following massive protest, it no longer has the same coverage, co-ordination or clout. In retrospect, that decision was a disaster for sport in schools, particularly as it coincided with the Olympics. It is not surprising that the recent Lords Select Committee on the Olympic and Paralympic Legacy was so critical of what had happened in school sports over that period. What steps are being taken to retrieve the situation and ensure that, going forward, we provide a comprehensive PE programme in schools?
There is another aspect of school sports policy, one that has already been touched upon, where the Government have been equally misguided. Unfortunately, Michael Gove’s decision to focus on competitive team sports has been a complete turn-off for many girls. This has been compounded by the Prime Minister’s disparaging comments about Indian dance. Sadly, both examples illustrate that the Government do not really understand the psychology of teenage girls. We have heard some examples of the problems of teenage girls and how anxious they feel about being expected to join in some school sports activities. Can the Minister reassure us that the Government have now got the message that we need a range of exercise options to ensure the widespread participation of girls in school sports?
Surely, the strategy has to be to start addressing the issue in early years. We have to find ways of making sport fun; anything, I would say, to keep girls moving so that they get to the point where they feel the natural high that you get from exercise. If you have not had it once or only have it occasionally, you do not crave it any more, but we all know that when you are exercising well and properly it is both physically and, in the same way, mentally rewarding. We somehow need to get them on that loop of progressive physical and mental benefit. We obviously welcome the money that the Government recently invested in primary school sports but, again, we are concerned that it has a two-year limit. I am anxious that that is not enough to ingrain a new sports ethos. Perhaps the Minister can also address that point.
If we are to be effective, we have to create a “sport for all” policy which is not just about the achievement of the most talented and able. Sport in schools should be about establishing healthy lifestyles that can lead to a healthy body weight in adulthood as well. As the noble Baroness pointed out, we need to break the cycle whereby young girls are so embarrassed about their bodies that they refuse to wear sports clothes, which they feel would expose them to ridicule. For example, a recent study found that 41% of women avoid exercise altogether because they are worried about their appearance and the clothes that they would be expected to wear. A survey by the beauty product brand Dove’s Campaign for Real Beauty showed that 22% of girls would never go to a beach or a pool for similar reasons—because they are concerned about the clothes that they would have to wear in their circumstances—and that is just very depressing.
We will not break these cycles of the lack of exercise and body loathing unless we educate young women to rise above the advertising and social media hype, and love their bodies for what they are. There is a role for role models, particularly sporting icons, but it is wrong to place too much emphasis on them. What we need are images of women being active in all sorts of aspects of their lives—as second nature and as an essential part of their lives. Media coverage of women’s sports could also do a great deal to spark interest and participation. We could also do a great deal more to invest not only in women coaches but in local women’s sports clubs.
The Government’s Body Confidence campaign is a good initiative but it needs to be rolled out as part of a comprehensive PSHE curriculum. Perhaps the Minister could update us on the plans for the roll-out of this campaign. At the same time, we have to accept that health professionals need better training, so that they are better able, particularly in schools, to address the issues of obesity and body image when they talk to young people.
I agree with the noble Lord, Lord Addington, that the use of the body mass index as an indicator of health is very limiting. Perhaps we should be looking at replacing it, or supplementing it with more accurate measures of overall health, such as cardiovascular fitness, waist circumference and body fat composition. There is a debate to be had about that. Can the Minister confirm whether such a move is being considered? Ultimately, I believe that we will only improve young women’s body image and physical health if we can find a way of making sport enjoyable again at all ages. That is our real challenge and I look forward to hearing what the Minister has to say on the issue.
Baroness Northover (LD)
My Lords, I thank the noble Baroness, Lady Grey-Thompson for tabling this important debate and opening it so effectively. The debate has been wide-ranging, as was the previous debate, and I may need to write to cover anything that I do not have time to address.
The noble Baroness, Lady Grey-Thompson, and other noble Lords are right. There is no doubt that sport and physical fitness play a significant role in promoting a positive body image among young women. Similarly, women with good body confidence are far more likely to participate in sport. Participation in sport does not just get women fitter, it improves their resilience, confidence and self-belief, as noble Lords have said. As the noble Baroness, Lady Jones, said, it is physically and mentally beneficial. Noble Lords will be familiar with my honourable friend Jo Swinson’s work on body confidence. I thank the noble Baroness, Lady Jones, for her tribute to it and the noble Baroness, Lady Kidron, for her reference to it.
We know that girls and women, in particular, but also boys, can have low body confidence which affects their very sense of self. Low body image can contribute to poor mental well-being, eating disorders and a number of risky behaviours. As the noble Baroness, Lady Kidron, made clear, the media’s focus on an unrealistic image can be very damaging; my noble friend Lord Addington also took up that point. It is not just girls who are affected. Studies show that one-third of adolescent boys have been on a diet to change their body shape. That is chilling.
We have been working with the media, advertising, retail and fashion industries to encourage a more diverse and realistic representation of human bodies. I note what my noble friend Lord Addington said about what bodies are for, as opposed to what they might look like. Clearly, the way that the media represent bodies affects involvement in sport. Almost a quarter of girls aged seven to 21 do not participate in exercise because they are unhappy with their body image. I was struck by what the noble Baroness, Lady Kidron, said about changing for PE and games.
More than half of the bullying experienced by young people focuses on appearance, so the noble Baroness, Lady Grey-Thompson, and others are right: poor body confidence can block people from involvement in sport; yet involvement in sport can promote better body confidence. Sport has the potential to show young people that they can master new skills and increase their self-esteem, whether individually or in teams. There has been some discussion of that.
Physical activity helps children developmentally and can often promote a sense of well-being. My noble friend Lord Addington is clearly alive and well despite whatever his BMI might be, which is clearly made up of some weighty muscles. I can vouch for that by his effectiveness when it comes to the annual parliamentary tug-of-war. You want to have him on your side.
The point has been made to me that we need to help not just young women but middle-aged and older women to tackle negative messages. We have packs for parents and teachers of primary school children, which have been developed with the Media Smart trust. They have been downloaded 35,000 times, so they are obviously being used. They will include a guide for parents of teenagers during 2014. I hope that the noble Baronesses, Lady Kidron and Lady Jones, will be pleased to hear about that.
Obviously, we recognise that competition is not for everyone—a point made by the noble Baroness, Lady Kidron. Just as people are diverse, sports in schools need to be diverse. We share the goals of noble Lords in trying both to address body image and to encourage children, young people and everyone to keep themselves fit through various physical activities or through involvement in competitive sport.
I assure noble Lords that the Government remain committed to delivering a lasting sports participation legacy from London 2012. The long-term trends show that we are on track; 1.4 million more people are playing sport regularly since we won the bid in 2005. We are committed to building on that and are delighted that there are good underlying trends in the number of young people, women and disabled people playing sport regularly. Recent data show that 6.8 million women do sport at least once a week, every week. This demonstrates an increase of half a million from 2005. However, we are not sanguine about this and realise that it needs to go a great deal further.
There is still a gender gap in sports participation, but it is shrinking and our ambition is to close it by 2022. That is why, through Sport England, we have put in place a strong programme of different approaches designed to get more women playing sport each week. These include investing £2.3 million of lottery funding in the I Will If You Will project, a year-long pilot in Bury that began earlier this year. This project focuses on listening to why women are not attracted to sport and exploring ways to give them the fitness opportunities they want. There is scope to roll out the emerging solutions across the country so that others can share in the programme’s insights. There are now 100 girl-only satellite clubs in secondary schools which offer opportunities to take up a variety of sports, including netball and football.
My noble friend Lord Addington referred to coaching. Some 31% of sports coaches in the UK are women and Sport England is investing £5 million to improve the standard and availability of coaching. That includes a pilot project to recruit and retain 500 new female coaches in the south-east. The aim is to roll this out nationally from 2015 and to recruit up to 5,000 new female coaches. We recognise the importance of what the noble Lord is saying.
In addition to these activities, we recognise that we need to focus on the involvement of women in sport at the highest level. That is why my right honourable friend the Secretary of State for Culture, Media and Sport recently set up a women and sport advisory board. It has some impressive people serving on it and they are already providing new ideas and support to take the programme forward. We are determined to increase women’s participation in sport, to raise the profile of women’s sport in the media and to get more women into senior roles within sports bodies.
One of the challenges this group will examine is how to raise the profile of women’s sports coverage. In many ways it is encouraging to hear the noise that is being made, not least by women journalists, about this and to see it being pushed forward. Having been familiar with this field for many years, it is good to hear different voices coming in and arguing the same case. The Women’s Sport and Fitness Foundation estimates that before the 2012 Games, only 5% of sports coverage was dedicated to women’s sport. While broadcasters, in particular, have improved things recently, we are always looking at ways of boosting the media profile of women’s sport.
We are also working to help make sports boards more balanced and representative bodies, and Sport England and UK Sport are leading by example on this with women in senior management positions within the organisations at board and CEO level. I should tell the noble Baroness, Lady Kidron, that we expect all national governing bodies for sport to have at least 25% of women on their boards by 2017, and 24 out of 57 national governing bodies already meet this target.
The noble Baroness, Lady Jones, asked me about school sports. She will be aware that despite the previous Government’s no doubt admirable efforts to try to improve them in their time in government, and despite a £2.4 billion investment, only two out of five pupils were competing regularly, which did not seem to be the most effective way of moving the issue forward. Schools obviously remain free to work in partnership if they wish, and a £300 million fund has gone into school sports, which is in the hands of head teachers. We are seeking above all to increase participation for everybody right across the age range. I recognise what the previous Government did and hope that we can take forward that further and wider participation.
The noble Baroness, Lady Grey-Thompson, asked about working across departments. Sometimes I think that we Lords Whips are joined-up government. I used to deputise in health and DCMS matters, and I now lead for GEO and various other things. From my time working across all these departments, I know that these issues come up in every department and I assure the noble Baroness that there is discussion between them. GEO is currently housed within the DCMS, so Helen Grant is in both, and Jo Swinson is working across departments from BIS to GEO and the DCMS.
I realise that I am about to run out of time. In conclusion, it is enough to make me weep to hear about Rebecca Adlington. I know, tangentially, as it were, how much she has put in to reach this point. My kids trained at the same swimming club as her fiancé, Harry Needs, and I know about the early mornings, the late nights, the galas and the falling into bed absolutely exhausted. That is what she has done, and much more, to get to where she is. She should be proud of what she has achieved, and we should be proud of what she has achieved. As we celebrate people’s diversity and encourage girls, as well as boys, to have the confidence to participate in sport, keep themselves fit and find satisfaction in doing so, we will help to address this linkage between how people view themselves and their body and the way they participate in society and, through that, in sport.
House of Lords
(10 years, 12 months ago)
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Food: Food Banks
(10 years, 12 months ago)
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Lord Haskel
To ask Her Majesty’s Government what is their response to the request by the Executive Chairman of the Trussell Trust for an inquiry into the causes of food poverty and the incidence of the usage of food banks.
The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Lord De Mauley) (Con)
My Lords, the Government recognise the good work of organisations that redistribute surplus food to those who might otherwise struggle to access nutritional meals. However, the root causes of household food insecurity are varied and complex. We are not proposing to record the number of food banks or the potential number of people using them or other types of food aid. To do so would place unnecessary burdens on volunteers trying to help their communities.
Lord Haskel (Lab)
My Lords, yesterday I visited the Trussell food bank in Richmond—the third wealthiest place in the country. There the food bank distributes a tonne of food a month, up 60% on the year, to people referred to it from 40 agencies, many of them associated with the Minister’s department. Is the Minister content to leave it to charity to feed thousands of people who fall through the cracks of his department? Does the Minister agree that this food poverty must not—cannot—go on? How will the Government bring it to an end?
Lord De Mauley
My Lords, the gist of the noble Lord’s question was whether the Government think that it is okay to rely on the voluntary sector. The answer is no. The Government recognise the good work of charitable organisations that redistribute surplus food, but the Government also have a role. It is not the Government’s role to set prices, but we work to promote open and competitive markets that help to offer the best prices to consumers. Through Healthy Start and other initiatives, we provide a nutritional safety net in a way that encourages healthy eating among more than 500,000 pregnant women and children under four years old in very low-income and disadvantaged families throughout the UK.
Lord Martin of Springburn (CB)
My Lords, is it not the case that we are subjecting people—decent men and women—to great indignities by having them queue up for food at the food banks, and that we should find some other way of helping families in need?
Lord De Mauley
I agree with the noble Lord. Of course we appreciate that some of the poorest people are struggling. The best way to help people out of poverty is to help them into work. The latest labour market statistics show employment up, unemployment down and the number of workless households down. We operate a number of government initiatives aimed at helping families with food: Healthy Start, Change4Life and the school fruit and vegetable scheme; and we are extending free school meals. In addition, there are a number of other measures designed to help households in the wider context: the personal tax allowance up £235 from April 2013, 2.4 million people taken out of tax altogether, and fuel duty increases cancelled, to name a few.
Lord Soley (Lab)
Do the Government not understand that while the international financial crisis has hit people on low incomes in many countries, in this country we have an additional problem that the Government are not addressing, which is that utilities—gas, electricity and water—are hitting people on low incomes so hard that they are choosing between the utilities and food? That is what the Government need to address.
Lord De Mauley
The noble Lord makes a fair point about energy prices. Although we cannot control volatile world energy prices, we can still help people get their bills down. The best way to keep everyone’s bills down is to help people save energy, ensure fair tariffs and encourage competition, and that is exactly what we are doing.
Baroness Parminter (LD)
My Lords, usage of food banks is rising right across Europe, including in the relatively wealthy countries of the United Kingdom, France and Germany. In light of this, what discussions have the Government had with the European Commission in advance of its planned initiative on sustainable food?
Lord De Mauley
My noble friend asks an important question. We have been working closely with the Commission and other member states with regard to the communication on sustainable food. We met members of the food and drink sector before responding to the Commission’s consultation in October. We have also convened a meeting between interested parties and the Commission. It is a very complex matter but we have ensured that the Commission is aware of the many sustainability and resource-efficiency initiatives undertaken by the UK food industry in recent years.
Lord Davies of Coity (Lab)
My Lords, does the Minister remember that a very long time ago a man by the name of Galbraith coined the phrase “private affluence and public squalor”? In view of the increase in poverty and the growth of food banks, does the Minister believe that this country is heading for the same situation?
Lord De Mauley
No, my Lords, and I think I have somewhat laboured the point as to the policy initiatives that we are following.
Lord Lucas (Con)
Does my noble friend not take comfort from the fact that there are poor people in Richmond, that we do not live in a segregated society, and that we are not wasting all the food that is in danger of going out of date but are finding a good place for it to go? What would the party opposite do—abolish food banks and send the food to landfill?
Lord De Mauley
My Lords, my noble friend makes a fair point. I am not going to accept his invitation to suggest what the party opposite might or might not do.
Lord McKenzie of Luton (Lab)
My Lords, is it not the case that the increased use of food banks is at least in part attributable to the fact that we have a harsher benefits system, a harsher sanctions system and a harsher hardship system? In the year to June, some 860,000 JSA claimants were sanctioned; under the new three-year sanction, which we were told would apply only to a handful of people, more than 700 people were sanctioned. How healthily can you eat on £42 a week?
Lord De Mauley
My Lords, I think it is right to expect claimants who are able to look for or prepare for work to do so. Claimants will only ever be required to meet reasonable requirements, taking into account their circumstances and capability. A sanction will never be imposed if a claimant has good reason for failing to meet requirements, and sanctions can be reconsidered or appealed. If claimants demonstrate that they cannot buy essential items, including food, as a result of their sanction, they can claim a hardship payment. This means that no claimant should ever have to go without essentials as a result of their sanction.
Lord Kennedy of Southwark (Lab)
My Lords, this year the Government commissioned research on the landscape of food provision. They have had the review since June; they have been reviewing it for longer than it took to write it. Is the reason why they have kept the report and have not published it yet the fact that it shows that the recent increase in food aid provision is due to their own disastrous policies? If I am wrong, publish the report.
Lord De Mauley
My Lords, the noble Lord is right that we have commissioned research to assess publicly available evidence on food aid provision in the UK, including food banks. This work will be made available in due course. All government-funded research reports are required to go through an appropriate review and quality assurance process before publication. The report will be published once this is complete.
Tanzania: North Mara Mine
(10 years, 12 months ago)
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The Lord Bishop of Wakefield
To ask Her Majesty’s Government what representations they have made to the government of Tanzania regarding allegations of human rights violations at the North Mara Mine.
The Lord Bishop of Wakefield
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 the joint leader of the Wakefield-Tanzania Diocesan Link.
Lord Ahmad of Wimbledon (Con)
My Lords, the UK’s high commissioner to Tanzania visited the North Mara mine in March 2013 to raise concerns directly about the alleged human rights violations with African Barrick Gold, the mine owner, and also discussed a range of issues with the local authorities. We are, of course, working closely with the Tanzanian Government on improving respect for human rights and also encouraging them to sign up to the voluntary principles on security and human rights in the extractive sector.
The Lord Bishop of Wakefield
My Lords, I thank the Minister for that response. Would he not agree, however, that the human rights abuse at the North Mara mine, which I have experienced directly and recently, ought to be solved by a proper community relations effort in the region, and would be best resolved by a conciliar process, taking into account community leaders, Barrick Gold and the local police force? What further steps might the Foreign and Commonwealth Office take, please, to move that forward?
Lord Ahmad of Wimbledon
I agree with the right reverend Prelate, and ABG—Barrick Gold—has taken various initiatives. Indeed, our high commissioner, on visiting the area, found that up to $12 million-worth has been spent on corporate social responsibility, including healthcare centres, schools and water boreholes. There is more to be done. For example, she pointed out that although there is a healthcare centre, it is not properly manned with healthcare professionals. We have taken this up with the local authorities, working with our EU partners on the ground.
Baroness Kinnock of Holyhead (Lab)
My Lords, is the Minister aware that African Barrick Gold, which is a British company, has continued to rely on the Tanzanian police to provide security at the North Mara goldmine, despite the shocking number of gunshot deaths and injuries to local people? Will the Government put pressure on African Barrick Gold and insist that it respect the human rights of desperately poor and vulnerable people?
Lord Ahmad of Wimbledon
My Lords, it is my understanding that Barrick Gold is actually a Canadian company, although it is listed on the London Stock Exchange. As for the other matter that the noble Baroness raises, I agree with her: of course it is important for all companies, including Barrick Gold, to work with the local people on the ground to ensure that any human rights violations are addressed. Secondly, I notice that the main purpose of people being there with Barrick Gold is employment, to ensure that local people get the opportunity to gain full employment.
Lord Dholakia (LD)
My Lords, there is a lawsuit by the local residents against the company alleging that it is responsible for injuries to local villagers. While we await the outcome in the court, would it be appropriate to ask the Tanzanian Government about the role of the police in the death of at least six villagers? Should we not encourage them to investigate this matter, as a human rights violation in those mining communities? I declare an interest, as one born in Tanzania.
Lord Ahmad of Wimbledon
My noble friend, of course, knows the country much better than I, and I take on board his valid points. My understanding is indeed that the police authorities and the local authorities are looking at the incident and investigating it. I assure my noble friend that my honourable friend Mark Simmonds, the Minister for Africa, has raised the issue on three separate occasions this year when meeting officials from the Government.
Lord Triesman (Lab)
My Lords, the Minister is right—it is a Canadian company—but it is listed in London and, potentially, we have some responsibilities. Quite aside from the North Mara mine, there are many other reports of human rights issues involving this company—at Marinduque in the Philippines and in Papua New Guinea, where rape victims, allegedly, of the guards employed by the company, have been offered a minimal remedy provided that they give up all legal proceedings. In New Zealand, superannuation funds have now excluded investment in this company. Will the Minister give an undertaking on behalf of the FCO that in the next FCO human rights annual report the dealings of that company will be reviewed?
Lord Ahmad of Wimbledon
I shall certainly take back the views expressed during questions to my noble friend and, indeed, to my right honourable friend the Foreign Secretary. Let me assure the House that ABG is signed up to the voluntary principles on security and human rights. That is a point that we have again reinforced in discussions and representations made.
Lord Avebury (LD)
My Lords, given that this company is listed on the Stock Exchange, what are the responsibilities of the UK Listing Authority in respect of a member company accused of serious criminal offences? Could my noble friend also say what sanctions there are against a company that contravenes the UN guiding principles on business and human rights in that its grievance mechanisms are neither transparent nor equitable?
Lord Ahmad of Wimbledon
My Lords, the Financial Conduct Authority, which includes the UK Listing Authority, is authorised to fine, suspend, prohibit, order injunctions and bring criminal prosecutions, or take other actions against firms or individuals acting illegally. The UN guiding principles are, of course, a voluntary framework, so sanctions would not be applied. But most companies understand the business argument for having transparent grievance mechanisms, not only for their own employees but also to hear local concerns in which they operate.
Bovine Tuberculosis
(10 years, 12 months ago)
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The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Lord De Mauley) (Con)
My Lords, there is, indeed, a debate among veterinarians on this matter. While the evidence does not provide a definitive answer, it is important to note that TB has been eradicated from Scotland and many other countries despite the use of artificial insemination and, furthermore, that bovine TB was already endemic throughout Great Britain well before the widespread adoption of AI in the 1950s.
Lord Dubs (Lab)
My Lords, is the Minister aware that I got the idea for this Question through talking to a local farmer in my valley in Cumbria? He told me that, although there were many badgers in the valley, there was no bovine TB at all, and that local farmers did not use artificial insemination. Given that there is at least some scientific basis for this, would it be right to pursue this rather than going for a badger cull for which the scientific evidence is doubtful?
Lord De Mauley
The noble Lord will not be surprised to hear that I do not agree with the last thing he said, but he might be interested to know that bull pedigree and TB data analysis of Holstein Friesian bulls, carried out by the Roslin Institute for Defra, have shown clear evidence of genetic variation to bovine TB susceptibility with a moderate heritability of 18%. However, no link was found in those studies between selection of bulls for milk yield and greater susceptibility to bovine TB. The study authors went on to conclude that,
“selection for milk yield is unlikely to have contributed to the current”,
bovine TB epidemic in Great Britain.
The Countess of Mar (CB)
My Lords, is it not the case that the bulls chosen at insemination centres are kept to the very highest health standards and are not exposed to TB in any way, and that artificial insemination is probably safer than the ordinary method of insemination?
Lord De Mauley
The noble Countess makes an extremely good point, and I cannot disagree with what she says.
Lord Soulsby of Swaffham Prior (Con)
My Lords, artificial insemination has been a practice in this country in dairy cattle for more than 30 years, and I wonder where this suggestion has come from. There is very little evidence—no evidence whatever to my mind—that AI can result in the transmission of TB to cattle. I hope that the Minister will scotch that idea, because we have an amazing health record in this country for AI and tuberculosis control.
Lord De Mauley
I am most grateful to my noble friend because he enables me to say, perhaps more categorically than I said to start with, that research indicates that there is no link between TB susceptibility and milk production traits.
Lord Clark of Windermere (Lab)
Will the Minister accept my noble friend’s point that in many parts of the country there are plenty of badgers but no TB, and that one of the dangers is not the badgers bringing in TB to the cattle but cattle imported from other parts of the country being transferred into these areas?
Lord De Mauley
My Lords, that is something on which we can all agree. Indeed, our strategy is based on TB being particularly rife in the south and west and moving northwards and eastwards, but in the part of the world that the noble Lord, Lord Dubs, comes from it is not yet endemic in the badger population. What we find in the high-incidence areas is that it forms a reservoir in that element of wildlife, unfortunately badgers. As I say, our strategy is built on trying to slow the spread across the country.
Viscount Ridley (Con)
My Lords, I declare an interest as somebody who has just sold a much loved White Park bull from Northumberland to Gloucestershire, where it promptly got TB and died. The lesson I have learnt is that in future I am going to use artificial insemination instead so as not to risk these animals.
Baroness Parminter (LD)
My Lords, the Minister said that there is an ongoing debate about the role of artificial insemination, and therefore it could merit further research. I suggest that the Government could use the money they are putting aside to research the gassing of badgers, which was deemed inhumane by a Member of this House’s committee in the 1980s.
Lord De Mauley
I can confirm to my noble friend that we are indeed continuing research into AI.
Lord Elystan-Morgan (CB)
The Minister may well recall some weeks ago, in reply to a supplementary question which I raised, that I was told that about 50% of bovine tuberculosis was attributable to badgers and about 50% to other sources. Can the Minister tell the House roughly, in the last financial year or in any other meaningful period, how much money from public sources was spent in relation to non-badger-related bovine tuberculosis?
Lord De Mauley
My Lords, perhaps I should clarify the answer I gave to the noble Lord. Research by Professor Christl Donnelly indicates that up to 50% of infections in the high-incidence area are due to badgers. Bovine TB can affect a wide range of species, including pigs, sheep, goats and camelids; it can affect wildlife—for example, badgers and wild deer—and pets, including cats and dogs, and of course humans. The key thing, however, is that in cattle and badgers the infection is self-sustaining. It is thought that most other species generally only act as spillover hosts.
Lord Knight of Weymouth (Lab)
My Lords, the Government’s strategy is obsessed by badgers and the transfer in what is a really difficult issue for farmers and is costly to the taxpayer. What are the Government learning from the recent outbreak of bovine tuberculosis in County Durham, clearly caused by cattle-to-cattle transmission?
Lord De Mauley
I cannot accept the noble Lord’s first contention, but in response to his question about Durham, this is a beef-fattening unit, and it will therefore have bought animals in from elsewhere. That is why we introduced risk-based trading in partnership with auctioneers and the industry, to provide fuller information about TB status and history of selling herds to the market. Initially this is on a voluntary basis, but we will look at it again if necessary. We are also considering post-movement testing of cattle for those moving from high-incidence areas.
Baroness Hayman (CB)
My Lords, when I arrived at the Ministry of Agriculture in 1999, I was told that a vaccine for bovine TB was 10 years away. I was quite enthusiastic until I learnt that every Minister for animal health during the past 40 years had been told that a vaccine was 10 years away. More than 10 years further on—and I suspect that the same message has been given ever since—could I ask the Minister what the timeframe is now thought to be?
Lord De Mauley
That is a very interesting question, because we had the same discussion with the EU commissioner, Commissioner Borg, on that very subject and he, rather surprisingly, gave the same date. Developing both an oral badger vaccine—noble Lords will know that an injectable badger vaccine already exists—and a cattle vaccine remains a top priority for the Government. Since 1994, more than £43 million has been spent on developing a cattle vaccine and an oral badger vaccine. We have committed to investing a further £15.5 million in vaccine development over four years, but it is an extremely complex issue, involving extensive field trials and so on.
Local Authorities: Child Protection
(10 years, 12 months ago)
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Baroness Howarth of Breckland
To ask Her Majesty’s Government what steps they will take to ensure that local authorities have sufficient social workers employed to undertake child protection work in their areas.
The Parliamentary Under-Secretary of State for Schools (Lord Nash) (Con)
My Lords, local authorities are responsible for judging what the level of need is locally and recruiting accordingly. Ofsted inspects children’s services and, if an authority is judged inadequate in its provision, we intervene. We should not judge the success of local authority children’s services solely by the size of their workforces. Management is also very important, as is the quality of social workers. However, since 2010, we have spent nearly £0.25 billion on social work training programmes and I am delighted to say that one of these, Frontline, has received more than 5,000 applications from top graduates in just a few weeks for its first 100 posts. The other, Step Up to Social Work, for career-changers with good first degrees, has already trained nearly 400 people and has a third cohort of 320 people in 76 local authorities beginning next year.
Baroness Howarth of Breckland (CB)
I thank the Minister for his reply, but only last week the Association of Directors of Children’s Services said that child protection services in England were under greater pressure than ever. We also heard last week that, following the Francis report, the number of nurses in hospital wards is to be monitored. We have a ratio for the number of children to teachers in education, yet social workers up and down the country are left to deal with uncontrolled caseloads—when the next case comes in, someone has to take it.
With the number of children in care at the moment at a higher level than in the past 30 years and social workers suggesting that the level of need required to get support is greater, is it not time for the Government to do even more to intervene? The position is dangerous for children at risk and social workers alike, and responding simply by saying that social workers are committed and hard-working, and that more money is now being put in, is not good enough. Are the Government waiting for the next report of a child’s death, when no doubt it will not be the institution seen as responsible but some poor individual social worker? Is it not time that greater attention is paid at a national level to what is a crisis in our children’s services?
Lord Nash
The noble Baroness speaks with great experience in this area and anything she has to say on the subject we should all listen to very carefully. We all acknowledge that social workers have a very tough job and, of course, we hear only about the disasters—there are plenty of Daniel Pelkas or Hamzah Khans whom they save and whom we never hear about. It can be a question of volume of cases, but there is evidence that there is no direct correlation between failure and caseload; indeed, a number of local authorities have failed with relatively mild caseloads. It is a question of managing those caseloads and whether the more experienced social workers get the more difficult cases. The Troubled Families programme, for which we have just announced an investment of a further £200 million, is undoubtedly helping in this regard, as are innovative ways of working such as those seen in Hackney. It is also a question of local authorities recruiting better managers for these services.
Baroness Eaton (Con)
In the light of the increased numbers of children in care, what steps is my noble friend the Minister taking to ensure sufficient numbers of adoptive parents are recruited?
Lord Nash
My Lords, this matter is at the top of our list of priorities and my right honourable friend the Secretary of State for Education feels extremely strongly about it, as does my colleague Edward Timpson. We have established the adoption leadership board to drive improvements in adoption recruitment. We have the adoption scorecard, and the adoption support fund for voluntary agencies. We have invested £150 million in the adoption reform grant, and are encouraging partnerships between local authorities and voluntary agencies. Through the Children and Families Bill we are also opening up access to the adoption register.
I can report some good news. Today we announced that in the past year we have recruited just over 4,000 new adopters, an increase of 34%. Nevertheless, the gap between children waiting to be adopted and the numbers of adopters is sadly still widening.
Baroness Pitkeathley (Lab)
My Lords, does the Minister agree that child protection, such as that called for by the noble Baroness, Lady Howarth, requires not just numbers but intense social work casework with troubled and problem families? If there were sufficient people undertaking enough of that, would it help to address some of the horrific problems that we heard about this morning from the Deputy Children’s Commissioner of children being forced into sexual activity, often associated with violence, at an unacceptably young age?
Lord Nash
The matters to which the noble Baroness refers are of course shocking. As I say, we have innovated and started the Troubled Families programme. It seems to be working well and having quite substantial effect, which is why we are expanding it to 400,000 high-risk families until 2016.
Lord Storey (LD)
My Lords, my noble friend the Minister will be aware of the child protection register, which is an important means of recording children at risk. There is also an opportunity to be proactive through use of this register. What plans do Her Majesty’s Government have for the child protection register in future?
Baroness Hughes of Stretford (Lab)
My Lords, in the light of the shocking findings published today by the Children’s Commissioner—that the extensive use by boys of adult pornography is fuelling sexual exploitation and abuse of girls on an apparently massive scale—what action are the Government taking to ensure that social workers and teachers in particular are better equipped to protect young people from this new and escalating abuse taking place among them? In view of the widespread concern across the House about these serious issues, will the Minister host a meeting with the commissioner and interested Peers to discuss further her findings and recommendations?
Defamation (Operators of Websites) Regulations 2013
(10 years, 12 months ago)
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Lord McNally
That the draft regulations, draft order and draft rules laid before the House on 14 and 21 October be approved.
Relevant documents: 10th and 11th Reports from the Joint Committee on Statutory Instruments, considered in Grand Committee on 19 November.
Financial Services (Banking Reform) Bill
(10 years, 12 months ago)
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16:44 - Division on Amendment 3 - Ayes: 220 / Noes: 229 - Amendment 3 disagreed.
17:53 - Division on Amendment 21 - Ayes: 222 / Noes: 217 - Amendment 21 agreed.
Lord Barnett
Lord Barnett (Lab)
My Lords, in Committee I promised the House that I would table amendments to debate the question of whether we should have separation rather than the present system. The arrangements under the Bill show that it may not work very well.
The speakers we had on the first day in Committee went to the heart of the issue. The noble Lord, Lord Turnbull, a distinguished former head of the Civil Service, told us that the amendment he moved dealt with the whole issue. In practice, I hope that my amendment deals with what I said it would deal with. However, given the problems with drafting amendments to this complex Bill, I had to use the services of a very excellent person in the Public Bill Office, Simon Blackburn. Between us we drafted the amendments, which I hope work. If they do not, and the House agrees, no doubt the Minister will be able to amend the amendments to make sure that they do what I want them to do—that is, reconstruction, not ring-fencing.
The noble Lord, Lord Turnbull, told us at col. 18 —and of course he knows about these things—that the Government’s response to the problem here, and what they plan to do, is to “change banking for good”. Of course, if that could be done, it would be marvellous. However, the plain fact is, as the noble Lord, Lord Turnbull, pointed out, that the reality is somewhat different. The Government have, of course, embraced some recommendations, but the provisions in the Bill make sure that they are heavily diluted. Speaking as a senior official, the noble Lord knows about dilution. Certainly, if you look through the Bill, there are all kinds of dilutions and provisions that make a nonsense of the original recommendation. However, with this complex new Bill it is good to have a former distinguished leader of officials tell us what it will and will not do.
The noble Lord went on to speak about the vigorous debate the parliamentary commission had on Glass-Steagall, which is the US separation of banking. He said that eventually they came down against it because the United States had abandoned it. He was followed by my noble friend Lord Eatwell, who spoke of the importance of reviews. He said that what is being proposed here is,
“a leap in the dark and we have no idea whether it will work”.
As it is, it is a “novel innovation” and we,
“cannot be sure whether it will … have … unintended consequences”.—[Official Report, 8/10/13; col. 20.]
I do not know what kind of unintended consequences those might be, but clearly all kinds of consequences could arise from not dealing with the real issue here.
We therefore have my new amendments, which I hope that the House will eventually approve. However, we are a long way at the moment from achieving what we all want to see. We started with a Bill of 37 pages; the noble Lord, Lord Deighton, paid a well deserved tribute to his staff, who had converted 37 pages to 170 pages—virtually a new Bill. By the time we finish it is likely to be more than 200 pages long, as he knows from his own amendments that have been tabled. I certainly share his approbation of his officials, who have done an incredible job in the most difficult of circumstances. I have never known a Bill of this kind before in either House of Parliament. However, I assume that the House of Commons, which gave us this 37-page Bill, will now have to have a Second Reading on a new Bill, because it will not be able to cope with it as it is.
Lord Eatwell (Lab)
My Lords, I am grateful to my noble friend for moving his amendment and for pointing out the extraordinary complexity and confusion about the procedure that the Bill has gone through to get to this stage. As he pointed out, it came from the Commons as 35 pages and is now 170 pages. Substantial matters were introduced in Committee. Substantial errors were identified in Committee—even, as we shall hear, regarding the definition of a bank in a Bill on banking.
More substantial material is now being introduced under the more restrictive circumstances of Report, and I hope that the government Whips will restrain themselves if the rules are bent somewhat in our attempt to scrutinise nearly 200 new government amendments effectively. Yesterday, on the “Today” programme, the Chancellor announced that further substantial amendments will be introduced at Third Reading with respect to payday loans. Then the Treasury was circulating extra material in e-mails after 9pm last night. We have received copies of correspondence dated today between the Chancellor and the Governor of the Bank of England that changes the perspective on leverage. These measures are relevant to the most important industry in this country, and are measures to which we are supposed to give our consideration.
The correct procedure for a Government who are serious about getting this legislation right is to recommit the Bill. If they undertake that responsible step then we on this side of the House will give them every assistance in ensuring that the passage is completed within the restrictive timetable of a carryover measure. I understand the nature of the restrictions and realise that the Minister cannot make this decision at the Dispatch Box. However, will he at least give the House an assurance that he will take this proposal seriously and ensure that the usual channels also take it seriously?
On Amendment 1, moved by my noble friend, will the Minister tell us exactly what the phrase which my noble friend wishes to have omitted actually means? Can he give the House an illustration of the circumstances in which the taking of deposits from UK households and SMEs would not be a ring-fenced activity as the phrase suggests?
The Commercial Secretary to the Treasury (Lord Deighton) (Con)
My Lords, it is a great pleasure for me to resume our debates on the Bill. We do not believe that there is any need to recommit it. These are radical and important reforms—ring-fencing, bail-in, depositor preference, a new senior person’s regime and new criminal sanctions. The Government wish to put them in action, move forward and leave the period of deliberation behind. We wish to end the uncertainty for the economy, consumers and taxpayers that prolonged reviewing can bring. Where the reforms can be improved to increase their effectiveness, the Government have been prepared to listen, and you will see that we have responded. However, where the Government do not believe the proposals are backed by evidence, or are unreasonable, we have respectfully disagreed and set out our reasons. This is the approach that we have taken to all the amendments.
Specifically on Amendment 1, from the noble Lord, Lord Barnett, the ICB recommended that only retail deposits—that is, the deposits of individuals and small businesses—should be ring-fenced. This amendment would require all deposits to be ring-fenced. The ICB recommended that large organisations and wealthy individuals should be able—though, importantly, not obliged—to deposit with non-ring-fenced banks. This was because these depositors are sufficiently financially sophisticated to tolerate an interruption in access to a single bank, for example because they have multiple banking relationships. These sophisticated depositors therefore do not need the protection that is being mandated inside the ring-fence provides. They may choose to deposit in a ring-fenced bank if they wish, of course. It also provides a little bit more competition. It gives wealthy individuals and businesses the opportunity to shop around.
Large corporates and financial institutions also use complex financial products which ring-fenced banks will rightly be prohibited from selling. To obtain these products, such as complex derivatives, large companies or financial institutions will need to go to a non-ring-fenced bank. Given this, it is reasonable that these customers should be permitted also to deposit with non-ring-fenced banks, as the ICB recommended. The Government accepted the ICB’s recommendation. Therefore the Bill allows the Treasury to specify by order that a non-ring-fenced bank can accept deposits in certain circumstances.
The deposits of individuals—other than very wealthy and sophisticated ones—and small businesses will have to be within the ring-fence. There is no compulsion for large organisations or wealthy individuals to deposit outside the ring-fence, only the option for them to do so if they so choose. This option is provided for in secondary legislation. The Government published a draft of the relevant order for consultation in July this year. It is appropriate that detailed provisions such as this should be made in secondary rather than primary legislation to allow the legislation to keep pace with future developments in the market and to keep it fit for purpose. This approach was endorsed by the PCBS in its first report.
It is also important to highlight that under the Bill the Treasury does not have unlimited power to determine which deposits do not have to be ring-fenced. The Treasury may only allow deposits outside the ring-fence if it is convinced that doing so does not undermine the ring-fence and that the depositors concerned do not need the protection of the ring-fence. This is therefore a constrained power that is needed to implement the recommendations of the ICB. I therefore urge the noble Lord to withdraw his amendment.
Lord Barnett
My Lords, I do not think that the Minister has dealt with the central arguments about separation; he dealt mainly with something quite different and did not reply to my questions. Whether or not he has the information to hand, perhaps he could think about whether the staff of the FSA received millions of pounds in compensation for redundancy before they were reappointed to the FCA. Can he at least tell us that?
Lord Deighton
The central question of full separation is in Amendment 2, which we will address next, and we can go on to discuss it. With respect to the FSA redundancy arrangements, I would be delighted to write to the noble Lord with that information when I have it at my fingertips.
Lord Flight (Con)
My Lords, can I ask the Minister for a little clarity on ring-fencing in terms of what is in this pot and what is in the other pot? The point he has made is that the ring-fenced pot will essentially be individual family deposits while commercial deposits would be outside the ring-fence; but what about the other side of the balance sheet in the sense of which part of the loan portfolio is to be in the ring-fence and which part is to be outside it? My previous understanding was that the ring-fence was going to be all deposit-taking and all lending. My reservations, if you like, with regard to the Glass-Steagall solution are that history has shown it is lending and not investment banking that has always caused banks trouble. This time round it was CDO lending and the unwise lending by HBOS and RBS that actually caused the banks trouble. The idea of separating absolutely banking and investment banking as a great protection for the deposits of ordinary citizens is entirely false in terms of economic history.
Lord Deighton
The clarification is that the ring-fence effectively operates on the liabilities side, so we are dealing with core deposits. Just to correct the point and make it clear, the most sophisticated investors can be either inside or outside the ring-fence, and they have the choice. However, the asset side of the bank’s balance sheet is unconstrained in the rules.
Lord Barnett
My Lords, I will withdraw Amendment 1 and then move Amendment 2, although I spoke to it generally in my first speech and I do not wish to detain the House for too much longer. But as the noble Lord, Lord Lawson, said at the time, these are two totally different cultures and it is going to be virtually impossible to put the two together—those were his words. I therefore suggest to the Minister that Glass-Steagall, which worked for 60 years in the United States, could be made effective here if we had stronger regulations to make sure that those banking lobbyists could not succeed in stopping the separation. That was the major point that I made, and will continue to make. That is also where I would like to leave it so that the Minister can reply to Amendment 2. I beg leave to withdraw the amendment.
Lord Barnett
“Group restructuring powers142K Group restructuring of ring-fenced bodies
(1) A ring-fenced body may not be part of a group which—
(a) carries on an excluded activity or purports to do so, or (b) contravenes any provision of an order under section 142E.(2) The appropriate regulator must exercise the group restructuring powers if it is satisfied that a ring-fenced body is operating in contravention of subsection (1).”
Lord Deighton
My Lords, this Bill legislates for ring-fencing. That is the Government’s policy, not Glass-Steagall-style full separation. The Government support ring-fencing, but not as a compromise option or a lukewarm version of separation, and not as a watered-down policy. Rather, the Government have adopted the ring-fence after careful consideration of the recommendations of the Independent Commission on Banking. As noble Lords will recall, the ICB was established in June 2010. It deliberated for 15 months before making its recommendations in September 2011. As part of its deliberations, the ICB considered full separation as an alternative to ring-fencing, but it rejected that alternative and instead recommended ring-fencing. The Government have accepted the ICB’s recommendation, and the commission set out its rationale for rejecting full separation in its final report.
Let me remind the House of the ICB’s line of reasoning. The ICB argued that an effective, robust ring-fence would deliver the same benefits to financial stability as full separation, on the model of Glass-Steagall. A robust ring-fence will insulate vital retail banking services from shocks to global financial markets—for example, reducing the risk that British high-street banks will be brought down by swings in the prices of complex securities. Let us recall, too, that retail banking has its risks and that market discipline demands that badly run banks must be allowed to fail. If a retail bank fails, a robust ring-fence will enable the authorities to manage that failure in a controlled way, with essential services kept running with the core deposits we were talking about, but without any injection of taxpayers’ money. So, a strong ring-fence will minimise the chance that a future Government will ever be forced to bail out a failing bank. The moral hazard that encouraged excessive risk-taking before the recent crisis would be removed.
The ICB argued that a robust ring-fence would deliver the same benefits as full separation, and would avoid some of full separation’s main disadvantages. In particular, a ring-fenced bank that found itself in financial difficulties could be supported by other group members, such as a healthy sister investment bank. Full separation would not allow this. Essentially the ring-fence is a valve; it does not let any of the bad stuff get into the ring-fence but allows support to come in if it needs it.
Under ring-fencing, a banking group could offer a one-stop-shop service to customers, especially business customers, so there is a strong marketing advantage to the group. Deposits or simple loans could be arranged with the group’s ring-fenced bank, while more complex products are supplied by the group’s investment bank. Full separation would not allow this. Finally, the ICB estimated that by denying banks the legitimate benefits of diversification, full separation would impose higher costs—costs that would likely be passed on to banks’ customers and to lending.
In summary, ring-fencing will bring the same benefits as full separation, but with fewer disadvantages. A rational, sober evaluation of the two thus brought the ICB to identify ring-fencing as the superior policy. I would like to use this opportunity to put paid to some myths around ring-fencing versus full separation. First, some claim that full separation is simpler to legislate for, and there is no complexity. Any separation of banks’ business will inevitably involve detailed rules to specify where the line, whether it is a ring-fence or a complete separation, is to be drawn, and prescribe which activities must take place either side of that line. As banks’ business is complex and involves a wide range of different products and services, so drawing that line will inevitably be complex. But a line will have to be drawn and someone will have to decide what is in each separated type of bank. It is the same problem for ring-fencing and full separation.
Secondly, either form of separation will, unless vigilantly maintained, be vulnerable to erosion or bank lobbying. There are plenty of examples of that through history. I do not, therefore, accept that full separation is either more simple or more robust than ring-fencing. As I have already said, the ICB conducted an exhaustive and detailed investigation of the case for different types of structural reform before coming to its recommendation in favour of ring-fencing. That recommendation commanded a wide consensus—including regulators, industry and the Opposition. Let me quote the shadow Chancellor speaking in the Commons when the Government first responded to the ICB in December 2011. He said that,
“we, too, support the commission’s radical reforms on ring-fencing”.—[Official Report, Commons, 19/12/11; col. 1074.]
Of course, no matter what the weight of evidence, there will always be some who disagree with the consensus. But to those who advocate full separation as an alternative, we need to ask: what is the evidence that supports this alternative policy? Throughout this process so far, the Government have openly invited others to give their views and present new evidence. We consulted widely, and submitted this Bill to pre-legislative scrutiny by the PCBS to seek its input. I do not think that the PCBS produced hard evidence in favour of full separation. It presented nothing that compared the two proposals, although it elicited some strong expressions of scepticism on whether it would work. Those are valid. It is certainly a new way of doing things.
Baroness Cohen of Pimlico (Lab)
My Lords, I have spoken before against ring-fencing and for full separation. We may not be in any kind of agreement on that, but what we ought to be in agreement on is that ring-fencing will require particularly scrupulous and detailed regulation. It will require more of our regulators than full separation, because institutional separation to some extent requires less regulation.
I wonder whether we are quite sane in putting so much faith in our regulators. The people who gave us Mr Flowers as chairman of the Co-operative are hardly those I feel very confident about exercising the very complex regulation that ring-fencing will require. It is complex and it is difficult. It is more difficult than it needs to be than with the policy of full separation. I therefore continue to support my noble friend Lord Barnett in his amendment.
Lord Barnett
My Lords, the Minister has told us that the Government consulted widely and got agreement. Well, more recently, there were 300 professionals who were consulted in a survey and only 35 of them thought it would work. I do not know who he consulted. He also talked about the robust regulations. Who is going to supervise these robust regulations—the old FSA, now called the FCA? Is he confident that it can? I am certainly not clear myself, nor do many people have a lot of confidence that the old FSA, now the FCA, can do that job. He is confident, however, that it can.
My noble friend Lord McFall pointed out what Volcker said to that committee: the chairman of a holding company, of which some part got into trouble because of the lack of regulation or whatever—what would he do? I know what he would do. He would seek to save it. These merchant banks may lose money at times—indeed they have done—but most of the time they make a lot of money and do not want to lose it. They want it separated, but under the same roof, with one holding company. That is what they have got and are going to get under the new administration.
I cannot see this regulation working and would like to hear the views of any other Member of the House who has an interest in this.
Lord Flight
My Lords, can I ask the Minister whether I am right in thinking that the PRA would be the main regulator of the balance sheets of the two entities under ring-fencing, and not the FCA, which is about protecting customers? Secondly, if there were a Glass-Steagall separation, is the job not exactly the same, in that you would need to look carefully at a separate investment bank and a separate banking bank to make sure that one did not have things in it which ought to be in the other? I would have thought that the job of regulating would be exactly the same as under a ring-fenced structure.
Lord Deighton
I agree with my noble friend’s explanation of the roles and responsibilities of the respective regulators in each case.
The Lord Speaker (Baroness D'Souza)
Does the noble Lord wish to withdraw his amendment?
Lord Barnett
If the House is no longer interested in the matter, I beg leave to withdraw.
Lord Eatwell
“Full separation142VA General requirement of separation
(1) Where the members of any group include one or more ring-fenced bodies and one or more other bodies, the members of the group must, before the end of the period of five years beginning with the relevant commencement date, take steps to secure that there are no members of the group that are ring-fenced bodies.
(2) If in the case of any group steps to secure that there are no members of the group that are ring-fenced bodies are not taken within the period specified in subsection (1)—
(a) at the end of that period the Part 4A permission of each member of the group that is a ring-fenced body shall be treated as having been cancelled to the extent that it relates to a core activity, and(b) after the end of that period the appropriate regulator must refuse to give any member of the group a Part 4A permission to carry on a core activity.(3) At the end of the period specified in subsection (1)—
(a) section 142H, subsections (1)(b) and (4) to (7), and, in subsection (8), the definition of “specified”, and(b) sections 142K to 142V,cease to have effect.(4) In subsection (1) “the relevant commencement date” means the day appointed for the coming into force of section 4 of the Financial Services (Banking Reform) Act 2013 so far as it inserts this section.”
Lord Eatwell
My Lords, noble Lords will notice that Amendment 3 is identical to Amendment 6, which is in the name of the group of people who we could perhaps call the commissioners—members of the Parliamentary Commission on Banking Standards who have considered these matters with care and at great length. It is interesting that the noble Lord said just now that no evidence had been provided about issues associated with separation. The parliamentary commission provided extensive evidence, to which I would refer the Minister.
In speaking to Amendment 3, I will argue that the “reserve power” of full separation, as it was described by the parliamentary commission, is a logical and coherent part of the entire strategy of ring-fencing, which consists of three parts. First, there is the provision of the ring-fence itself. Secondly, there is electrification of the ring-fence in the case of individual groups that transgress and are subsequently required to separate. Thirdly, there is the measure put forward in Amendments 3 and 6, under which there is full separation where the process has not been followed successfully or appropriately by the banking industry.
The whole thrust of the commission’s report is about the need to maintain these three stages. Each reinforces the other. The noble Lord argued just now that the Government had seen no case at all for separation. Why then did the Government accept the case for the separation of individual groups should they transgress? That case came from the commission and the case for full separation came from the commission. If he accepts one, he should accept the other. It is quite ridiculous to suggest that the commission’s processes were somehow less rigorous than those of the ICB. Indeed, the whole package put forward in this group, which consists of the case for full separation as the final reserve power and the case for review, is a single coherent package. The case for review and the case for full separation, if that review should argue that ring-fencing is not working successfully, is a coherent structure set out by the commission. The Government are lopping off an essential leg of a three-legged stool.
Let us examine the arguments made against this amendment when it was first put by the commissioners in Committee. As well as the argument that it was somehow less rigorous—an argument that I think is almost offensive to the commission—the Government put forward the suggestion that, should the ring-fence not work, other options might be considered. The Minister raised the red herring of the possible introduction of a Volcker rule. Surely this is spurious, as here we have a coherent, structured package of three nested sets of measures to ensure the stability of the banking industry, which rely on and strengthen each other.
What I found most surprising in the Government’s rejection of the argument for full separation is that they rejected the idea that the ring-fence will consequently be made stronger by self-policing. The banks will have a major concern that others do not transgress lest they be caught in a final decision for full separation. The noble Lord said:
“The notion that banks will watch each other is not how the industry operates”.—[Official Report, 8/10/13; col.51.]
I must tell the noble Lord that that is exactly how a competitive market operates in a capitalist economy—everyone watches each other. The banking market is no different. Each pursues its own interest. As Adam Smith put it—the Chancellor of the Exchequer has taken to quoting him—it is not the benevolence of the butcher or baker that provides us with meat and bread, but the pursuit of their own interest. If the banks see it as being in their own interest to avoid full separation, we can be sure that they will take all necessary steps, including mutual surveillance, to ensure that full separation does not take place. That is why the commission’s proposal is such a strong one. It strengthens the ring-fence by giving those within it the incentive to ensure that it be maintained and be not transgressed. That is why this is a coherent package.
The Minister omitted to mention that the proposals for full separation are predicated on a thorough, independent review of the progress of ring-fencing. We have not only a nested structure, which strengthens at each stage, but, in the amendments put forward by the commissioners, a process of independent review that suggests when each stage should be introduced. That is why, for example, Amendments 15 and 195 are consequential on Amendment 3 and, with respect to Amendment 6—the identical amendment put forward by the commissioners—Amendments 15 and 196 are consequential. Those amendments involve the review of the entire procedure.
If we are to have a successful ring-fence, what better than to have a structure that incentivises the banks within it to maintain the integrity of the ring-fence? That is what the commission’s three-stage process does. I beg to move.
Lord Lawson of Blaby (Con)
My Lords, this is a very important Bill indeed. We all know the great damage that the banking meltdown in the western world has caused, not least in this country. This Bill seeks to deal with that. There are few more important matters—there may be more important matters in the world but they are not susceptible to legislation. This is a vital matter that we can do something about by legislation, and that is what this Bill is about.
In chronological order, I thank the noble Lord, Lord Barnett, for the kind things he said about points that I had made in earlier debates on this Bill. I agree with much of what he said. I also agree with much of what the noble Lord, Lord Eatwell, has just said. I congratulate the Government on setting up the Vickers commission, on having accepted the recommendations of the Vickers commission and on their amendment endorsing part of the recommendations of the Parliamentary Commission on Banking Standards, of which I was a member. The most reverend Primate the Archbishop of Canterbury was a distinguished member; I hope that he will contribute to our debate. The noble Lords, Lord Turnbull and Lord McFall, whose names are on Amendment 4, were also commissioners. I congratulate them on suggesting that there needs to be a review.
The Government have moved a very long way—and I am delighted—but not quite far enough. That is what we are discussing in this group of amendments. To get to the core of the issue, what the Vickers commission concluded and what the Government have accepted is that there is a problem with the relationship and, indeed, the mixing of commercial and retail banking with investment banking. The Vickers commission accepted that; that is why it introduced the ring-fence. The Government accepted that; that is why they accepted the recommendation of the Vickers commission for the ring-fence.
I have always been in favour of full separation—I came out publicly in favour of it long before the Vickers commission was even set up. We know that this works. It worked in the United States for many, many years under the Glass-Steagall arrangements and it is no accident that serious problems emerged after the Glass-Steagall Act had been repealed. Indeed, the Glass-Steagall Act would have worked for a great deal longer had not successive American Administrations been lobbied by the banks to introduce loopholes in one place and another. Anyhow, that is water under the bridge.
What is the danger? The danger accepted by the Vickers commission and the Government is twofold. First, although my noble friend Lord Flight is absolutely right that ordinary, plain, vanilla banking is a very risky business and often goes wrong, there is one particular range of risks in lending: the bad lending. In investment banking you had a whole new and very complex range of risks. It is not the case that nothing has ever gone wrong there; for example, there have been huge problems with derivatives that are a product of the complexity of investment banking. So there is first the question of whether it is sensible—when straightforward, plain, vanilla banking is risking enough —to add to that a whole new range of risks, a whole new complexity, which can make it more likely that the retail deposit-taking banks will get into difficulties. It must be unwise to do that.
The other problem is about the cultures. The Vickers commission did not talk about this, or think about it; it did not raise the issue of culture. But culture is very important. I was glad that when my right honourable friend the Prime Minister introduced the setting up of the Parliamentary Commission on Banking Standards, he explicitly said that it needed to look at the culture of banking, because something had gone wrong with it.
The culture of retail banking and the culture of investment banking are two quite separate things. One is, or should be, a culture of caution and prudence; the other is a culture of creativeness—which is very desirable—and risk-taking of a totally different order. That is another thing that the Vickers commission did not look at.
Now we come to the question of whether the proposal for a ring-fence will do the trick. We do not know. In the Parliamentary Commission on Banking Standards, we decided that although we had our doubts, it should be given a chance—but that there should be a proper review process, so that if it is proved not to be working, we shall move to something that will work.
Another of the things that the Vickers commission did not consider is the problem of governance. The ring-fence is a curious system, because there is one company with two subsidiaries—the retail bank and the investment bank—and we are told that they are completely separate, yet they are together. There is a real question whether that model of governance is workable. I know of distinguished bankers—at least one of whom is present in the Chamber as I speak—who have grave doubts on this score.
There is also a problem within the law. Boards of directors are responsible to the shareholders, so if there is complete separation it is clear that the board of the retail bank has responsibility to the shareholders of the retail bank and the board of the investment bank has responsibility to its shareholders. But under the ring-fence proposal there are two entities that we are told are completely separate, yet there is a single group of shareholders to whom they are responsible. We do not know whether this will work. We do not know whether there might be cultural contamination across the ring-fence. There is no legislation that can prevent cultural contamination, and that would be a very serious matter.
In the commission, we said that two kinds of review powers were needed. The first would look at individual institutions. If, after a number of years, we find that an institution has found a way round, or has burrowed under, the ring-fence and found a way of evading what the Government and Parliament decided, it should be obliged to separate its retail banking and its investment banking. But we also said that a second kind of review power was vital. The proposed system is a right idea of the Vickers commission. A number of the Vickers commission are friends of mine, they are very clever, and I have nothing against them—but they do not know whether it will work either. It has never been tried anywhere in the world, whereas complete separation has been tried, and it has worked. So it is vital that if the system proves not to do the trick, we move to complete separation.
Therefore, we need two kinds of review. The first is a review of an individual institution behaving in a way that undermines the ring-fence, and the second is a review to consider whether the system itself does the trick. The government amendment accepts in principle the first kind of review, but it does not accept the second kind.
I ask my noble friend to give a firm assurance that, as part of the review, the Government will look at whether the system is working and, therefore, whether full separation will be moved to. With the best will in the world, I know that he will wish to make it work, that the PRA and FCA will wish to make it work, and so will Uncle Tom Cobley and all. But if it is not working, will the Government look at full separation? Unless that undertaking is given here, in this House, I will seek to take the opinion of the House on Amendments 5 and 6, which are linked. Amendment 6 derives from Amendment 5, as noble Lords will know.
Given that the Government have gone so far, which I welcome, I hope that they will be prepared to make this further step and give this clear undertaking to the House.
Lord Flight
My Lords, I have broadly been in support of a Glass-Steagall separation of investment and banking banks, but there seems to me something slightly wrong with the concept of having a review and prejudging the outcome of that review. Playing devil’s advocate, I make a point on the other side of the coin. Europe has had universal banking for a long time; that is the banking tradition in continental Europe and there is still a case for universal banking to continue, although it is right out of fashion now. I repeat my point that, to a fair extent, the profits of investment banking have subsidised ordinary banking and benefited ordinary retail customers; the losses have generally come from bad lending. So it is slightly premature to prejudge the review. I cannot see what is wrong with having a review with the understanding that the Government will act on the basis of the recommendation of that review at the time. We will have moved on from the present and other factors may have come to light as well. I do not see what is gained by prejudging the result of the review.
The Archbishop of Canterbury
My Lords, as did the noble Lord, Lord Lawson, I begin by expressing my gratitude to the Government that they have listened to the speeches of many noble Lords and my PCBS colleagues on the need for a full and independent review of the ring-fence. I hope that they will realise that the amendments that have been tabled today are the final pieces of the puzzle in this regard. This work, combined with the vast improvements that we have seen to the electrification of the ring-fence—what is officially known as the first reserve power—is most welcome. The noble Lord, Lord Eatwell, put the case very clearly, not only for them but for the second reserve power. The Government’s approach to that is so far disappointing.
The Minister said that he believed that a robust ring-fence will work, and so do we, as the commission. It is just that we do not think that it is robust—that is the problem. The point of the second reserve power is to make the ring-fence sufficiently robust that it will carry the day if the first one is over a period of years overwhelmed.
The swirling floods unleashed in 2008 with the banking collapse continue to cause eddies all over our economy, particularly in the most vulnerable parts, which so many of us on these Benches are so deeply involved in supporting. Both the ICB and the PCBS concluded that the most appropriate way in which to reform the structure of the industry today is to have the ring-fence within a parent company. It is experimental —we hear the arguments, and we know so. This partial structural separation, with the added provision of ring-fence, should create a disincentive for banks to attempt to test the limits or game the ring-fence, but “should” is not sufficient.
The advantage of the second reserve power and the first reserve power together, in addition to the ones that the noble Lord, Lord Eatwell, put so eloquently, is that they give a second shot to the gun. If the first reserve power fails, and a bank or two has been forced into full separation but the whole industry is still gaming the system, then you have still got the second reserve power. It appears that the Government’s policy on this is to have only one shot and then to say, following that, “We’ll do something. As yet, we know not what. But we will do something, and it will be something very, very serious”.
Lord Hodgson of Astley Abbotts (Con)
My Lords, I have not so far taken part in the debate on this Bill, although I participated during the passage of the earlier Financial Services Act. I therefore need to declare my interests as the chairman of two regulated entities and an as approved person under FiSMA.
I have listened carefully to the arguments deployed on both sides of this complex debate and have a couple of concerns about what is being proposed. The noble Lord, Lord Eatwell, described his amendments as designed to provide—I think that I have got the words right—a three-stage, self-reinforcing regulatory process. In doing that, he may have overlooked the degree of uncertainty that his amendments may cause. If I may follow his analogy further, I think that it is his amendment that may remove the third leg from the three-legged stool that he mentioned.
I agree with my noble friend Lord Lawson about the importance of reviews, particularly in cases where the likely outcome of fundamental legislation is so uncertain. In a parallel case in the Transparency of Lobbying Bill, I have tabled amendments that would have that Bill reviewed in a couple of years when one can begin to distinguish reality from supposition. I therefore favour reviews, but—and it is an important but—a review, as my noble friend Lord Flight said, must not begin with any presuppositions as to its outcome. If I may use a rather vulgar card-playing metaphor, one must not play with a loaded deck. Listening to some of the arguments so far, I formed the impression that these amendments could lead to a loaded deck because of the implicit power of the review to trigger separation without further primary legislation and therefore to introduce radical change without serious parliamentary consideration. As I read it, this would be the result of the House accepting Amendment 196. I think that this implication—and, of course, it is an implication—will weigh heavily on the banks and their executives and, as a result, be by no means to the advantage of the financial services industry specifically or the United Kingdom generally.
It is an oft-repeated truism that financial markets hate uncertainty. Perhaps I may offer at a rather lower level an example from my experience of what I mean. I was for a number of years a chairman of a network of independent financial advisers. For a prolonged period, the IFA sector suffered in the shadow of the uncertainty caused by the drawn-out processes of the retail distribution review. I have absolutely no doubt that the savings regime of this country, a very important part of our body politic, was set back by this elongated debate. I feel the same may be true for the banking sector if these amendments are passed.
Further, I am not quite clear how this approach will impose discipline, unless it is intended that some could suffer full separation and others would not. I have not yet heard that suggested by the noble Lord, Lord Eatwell, although I may have misunderstood him. If I, as a good guy, obey the ring-fence but am treated in exactly the same way as my competitor, a bad guy who has jumped the ring-fence, what incentive is there for me to follow the prescribed path?
My second area of concern can best be summed up by the well rehearsed argument that generals always plan to fight battles that are like the ones of the last war. Of course, we have discovered egregious examples of corporate and personal behaviour that took place in the period leading up to 2008, but it is by no means clear, to me at least, that ring-fencing or not ring-fencing will have any relevance to solving the next financial crisis—and, if history tells us anything, one will be along in due time.
Having listened to the arguments, I am forced to the conclusion that there should be a review but that it should be a review without preconceptions, and that, in any case, to trigger a move to full separation on the basis of secondary legislation, of which the ability of this House to scrutinise and amend is in my view woefully weak, would not be the right way to proceed.
Lord Lea of Crondall (Lab)
My Lords, there are a lot of very interesting propositions in this group. Am I right in thinking that what is in due course printed in Hansard will be one amendment which is moved, with other amendments not printed because they are part of a single group? If so, how can one proceed with that?
Lord Phillips of Sudbury (LD)
My Lords, surely there is no more important issue in relation to this banking situation than whether to go with ring-fencing or with separation—we have had that very clearly debated today. The noble Baroness, Lady Cohen of Pimlico, raised an issue in relation to that, which my noble friend the Minister placed some emphasis on in responding earlier, as he did at the last stage of this debate—namely, to state that the cost of total separation would be exorbitant. The noble Baroness rightly made the riposte that the cost of policing the ring-fence will not be a one-off, as the cost of a separation would be; the cost will be year after year. The task of the regulators in policing a ring-fencing arrangement will be intensely difficult. It is easy to jibe at the regulators, but we may underestimate the extreme difficulty of doing a thorough job in this field, where you have a single holding company and two companies under it. I take the point made vividly by the noble Lord, Lord Lawson of Blaby, about cultural contamination that can easily infect a group, such as the one that the ring-fenced company will be part of.
I hope that my noble friend will feel able to accept Amendment 5. We are all speculating madly. To have a review of how this has gone, and to look at it coolly, objectively and professionally in the period prescribed, must make absolute sense. Frankly, it is not worth taking the risk of not having such a review. The cost of getting this wrong will be insupportable. We are apt to underestimate, in what has happened over the past five years, the cost to this country in all sorts of non-financial ways. We must not let it happen again. The review that Amendment 5 proposes must be prudent, sensible and ultimately economical.
Lord Hamilton of Epsom (Con)
My Lords, I support my noble friend Lord Lawson’s amendment as well. Like him and the noble Baroness, Lady Cohen, I have always been a believer in Glass-Steagall, and in the complete separation of investment banks from clearing banks as the only way in which you can guarantee that there will be no contamination.
My noble friend the Minister described the ring-fencing as robust. I do not know how he can speak with such confidence about the robustness of the ring-fencing. I do know that many people in the City today are, as we speak, working on ways to get round the ring-fence and to make sure that money held in clearing banks can be used in investment banks. The problem is that there is an enormous financial incentive to get round this ring-fence. If that incentive remains when you do not have separation, it is only a matter of time before the clever people employed in the City will find a way round it.
I agree with my noble friend Lord Phillips. Much has been made of the cost of separation, but there is also the cost of ring-fencing. There are a one-off cost and a continuing cost. It would be regrettable if we did not support my noble friend Lord Lawson’s amendment and I intend to do so.
Lord Deighton
My Lords, before I turn to the substance of these amendments, I would like briefly to pause and reflect on the process that has brought us to this point. Throughout the course of this Bill the Government have consistently tried to adopt the most constructive approach possible, welcoming contributions from all sides to help us get this right. I am particularly grateful for the constructive comments to that effect from my noble friend Lord Lawson and the most reverend Primate. I thank them for those.
Our ambition has just been to get this right. Even before the Bill was introduced to Parliament, we asked the PCBS to conduct pre-legislative scrutiny. We considered seriously its recommendations both on the draft Bill and on banking conduct and standards more generally. Almost a third of the Bill before us today was either added or heavily amended in response to its recommendations. We have also showed ourselves to be open to considering ideas proposed by the Opposition, both in the Commons and in this House. Where we have been convinced by the points made, we have been willing to amend the Bill to reflect that. I think that the sentiment of the House has demonstrated that. That includes changes to the process of scrutiny of the ring-fencing proposals, introducing the single bank separation power, putting the so-called Haldane principles in the Bill and clarifying the regulator’s objectives.
Lord Eatwell
My Lords, I am very grateful to the Minister for that expert summary of a complex set of amendments. However, I hope that I may ask him one question before he sits down. He referred to our Amendment 12, which would shorten the period before a review takes place, and said that he was very sympathetic and receptive to that point. Will he therefore accept Amendment 12?
Lord Deighton
I think the right thing for us to do is to discuss it together with our colleagues from the PCBS. The noble Lord is, of course, entitled to take the amendment to a vote, but I have not yet had the chance to discuss it with PCBS colleagues. The Government have an open mind on the relevant period, so I would prefer a fuller discussion.
Lord Eatwell
Does the Minister mean that he is content to return to this issue at Third Reading?
Lord Eatwell
Thank you very much.
This is a complicated set of interrelated amendments. I congratulate the Government on their Amendments 11 and 16 in which they have moved towards the commission’s position in proposing an independent review. By the way, I did not find any evidence that new Section 142J had been deleted, which was the previous requirement that the PRA conducted the review. Is there supposed to be a PRA review and an independent review? Surely that is not the case. It is not an important point but we should not leave both of them on the statute book. As I say, I did not detect that new Section 142J had been deleted.
We have a coherent package with the nested structure of the ring-fence, the electrification applied to individual groups and the electrification applied to the whole structure of banking—the so-called complete separation. That seems to me a coherent, rational structure which is supported by the review. Therefore, there will be the opportunity to take into account the detailed scrutiny by the ICB and the commission and consider which stage of this nested structure should be accepted. It seems to me that that coherence provides certainty as regards the way forward—not uncertainty, as the noble Lord, Lord Hodgson, suggested—because the review will not throw everything up in the air and lead to more years of parliamentary debate. We have been doing this for three years already, leaving the industry in a state of uncertainty. We should not throw it up in the air again but create a clear, rational structure that has been carefully put together by the ICB and the commission to provide for the review and separation.
The ordering of amendments before us makes our consideration a little awkward because we first have to consider my amendment on separation, Amendment 3 —which is identical to the commission’s amendment, Amendment 6—and then talk about the review. However, in the light of the care and consideration that the commission has given, I am content to fully support the commission’s position on the triumvirate of ring-fencing, group separation and full separation. I therefore wish to test the opinion of the House on Amendment 3.
Lord Lawson of Blaby
“142VA Review of operation of legislation relating to ring-fencing
(1) The Treasury must, before the end of the initial period, appoint a panel of at least 5 persons (the review panel) to carry out a review of the operation of the legislation relating to ring-fencing.
(2) The legislation relating to ring-fencing means—
(a) Part 9B of FSMA 2000 (as inserted by section 4);(b) orders and regulations made by the Treasury under that Part;(c) ring-fencing rules, as defined by section 142H(3) of FSMA 2000, made by the FCA or the PRA;(d) section 192JA of FSMA 2000 (as inserted by section 116);(e) rules made by the FCA or the PRA under that section. (3) The initial period is the period of 4 years beginning with the first day on which section 142G of FSMA 2000 is fully in force.
(4) The members of the review panel must be persons—
(a) who appear to the Treasury to be independent of the PRA, the FCA, the Bank of England and the Treasury, and(b) who do not appear to the Treasury to have any financial or other interests that could reasonably be regarded as affecting their suitability to serve as members of the review panel.(5) In appointing the members of the review panel, the Treasury—
(a) must have regard to the need to ensure that the review panel (considered as a whole) has the necessary experience to undertake the review,(b) must ensure that at least one of the members is a person appearing to the Treasury to have substantial experience in central banking or banking regulation at a senior level, and(c) must obtain the consent of the chairman of the Economic Affairs Committee of the House of Lords and the chairman of the Treasury Committee of the House of Commons.(6) The Treasury must appoint one of the members of the review panel to be chair of the panel.
(7) The review panel must, within a reasonable time after the end of the initial period, make a written report to the Treasury—
(a) setting out the results of the review,(b) making such recommendations (if any) as the panel considers appropriate.(8) The report must in particular include—
(a) an assessment of the extent to which the operation of the legislation relating to ring-fencing is facilitating the advancement by the PRA of the objective in section 2B(3)(c) and by the FCA of the continuity objective, and(b) any recommendations which the panel considers appropriate for the making of further changes in the law with a view to better facilitating the advancement of those objectives; provided that such recommendations are consistent with the continued protection of core activities as defined in section 142B of FSMA 2000.(9) The Treasury must—
(a) lay a copy of the report before Parliament, and(b) publish the report in such manner as they think fit.(10) Any expenses reasonably incurred in the conduct of the review are to be paid by the Treasury out of money provided by Parliament.”
Lord Lawson of Blaby
My Lords, in the light of the clear and explicit assurance given by the Minister that the independent review will be able to recommend full separation, I will not move the amendment.
Lord Deighton
Lord Deighton
My Lords, these amendments make a number of minor and technical amendments to the Bill. Amendments 7 and 8 amend new Section 142W, which gives the Treasury the power to require that ring-fenced banks make arrangements to ensure that they cannot become liable for the pension liabilities of any non-ring-fenced entity, and that they minimise such potential liabilities if they cannot entirely prevent them arising. In the process of making these arrangements, the pension scheme trustees may wish to transfer assets or liabilities between schemes. These amendments clarify that the Treasury can make regulations enabling trustees or managers to transfer to another pension scheme all the pension liabilities arising in connection with persons’ service before the date on which ring-fencing comes into effect, together with all the scheme’s assets and not just part of those liabilities and assets.
The Government’s intention is to give banks and trustees flexibility in how they carry out any segregation or separation of pension schemes. If trustees judge that transferring all such liabilities or assets is in the best interests of scheme members, the legislation should not prevent that. The trustees have a duty to act in the best interests of scheme members throughout any restructuring that takes place to comply with ring-fencing. As an added safeguard, we are taking the power under the Bill to require the banks by regulation to do all they can to get clearance from the pensions regulator for their scheme restructuring.
Amendment 9 is a minor and technical amendment which clarifies the definition of a qualifying parent undertaking for the purposes of Part 9B of FiSMA, which deals with ring-fencing. A qualifying parent undertaking is defined in proposed new Section 142L(4), and this amendment ensures that this definition will apply wherever the term is used in Part 9B.
Amendment 173 is a minor and technical amendment which clarifies that the definition of regulator in Section 3A does not apply for the purposes of Sections 410A and 410B, which deal with the Treasury’s power to impose fees on the financial services industry to cover the costs of UK participation in certain international organisations. The amendment ensures that the definition of regulator that applies to these sections includes the Bank of England, rather than the definition given in Section 3A of FiSMA, which is limited to the FCA and the PRA.
Lord Deighton
“(4) Any reference to a qualifying parent undertaking is to be read in accordance with section 142L(4).””
Lord Deighton
Lord Deighton
My Lords, this amendment removes Clause 5 from the Bill. It will leave the regulators, the PRA and the FCA to decide among themselves which one of them designates board members of ring-fenced banks as senior managers and which directors should be designated. Clause 5 requires that the PRA on its own designates all directors of a ring-fenced bank as senior managers under the new senior managers regime. This clause was introduced originally before the senior managers regime was proposed. It now needs to be updated to reflect those changes.
The PRA is considering how to implement the PCBS’s recommendation of focusing the new senior managers regime to strengthen individual responsibility for actions of the firm. The PRA wants to develop the new regime in a way that improves its ability to bring enforcement action against individuals when things go wrong. To achieve this, the PRA thinks that it may be best to limit the number of board members it designates as senior managers, to narrow the scope of accountability. Those directors designated senior managers by the PRA will need to comply with conduct standards that will further the PRA’s safety and soundness objective.
Clause 5 would force the PRA to designate all board members of ring-fenced banks as senior managers. It prejudges the outcome of the regulators’ policy development and could result in the application of the senior managers regime to ring-fenced banks being less focused than for the rest of the sector. A focused regime should improve the ability of the PRA to take enforcement action against individual directors by making clearer which senior managers are responsible for different aspects of the firm’s business. The Government therefore agree with the PRA that Clause 5 should be removed.
Some directors not designated as senior managers by the PRA may be more appropriately designated by the FCA. The precise calibration should be left to the regulators, who will consult on this next year. The removal of the clause also brings the application of the senior managers regime to ring-fenced banks into line with how it will be applied outside the ring-fence. Outside the ring-fence the PRA or the FCA can designate directors as senior managers.
Moving on, the minor and technical amendments to Schedule 2 will help to ensure that the bail-in provisions can be used effectively and as intended. Following the introduction of these provisions in Committee, we have discussed them with various stakeholders and experts. These amendments are the result of those discussions.
First, we have specified that special bail-in provision can be made to release guarantees which are not provided directly by the bank, but by other companies in the banking group, in consequence of the application of the powers to make special bail-in provision in relation to the liabilities of the bank under resolution. This ensures that guarantee arrangements can be adjusted in line with any write-down or cancellation of a liability of a bank covered by that guarantee.
Secondly, the amendments will give the Bank of England the ability to make an agreement with the director or directors of a bank with regard to the preparation of the business reorganisation plan. The existing drafting already allows such an agreement between the Bank of England and the bail-in administrator when appointed to prepare the plan. This is simply an extension of the arrangement to cover the case in which a director is appointed to perform that task.
Thirdly, we have clarified that where any person is acting under the direction of the Treasury for purposes related to state aid, that person is granted immunity from liability in damages save in relation to action in bad faith or in breach of the European Convention on Human Rights. There is a minor linguistic change to subsection (3) of new Section 48D to be inserted into the Banking Act.
Finally, the exercise of any of the stabilisation powers under Part 1 of the Banking Act 2009 to reduce a bank’s debt may lead to taxable loan relationship profits that would hinder its rescue. Consequently we will bring in measures in the next Finance Bill, with retrospective effect to this date, to relieve any such taxable profits that arise. I beg to move.
Lord Deighton
“Independent review of operation of legislation relating to ring-fencing
(1) The Treasury must, before the end of the initial period, appoint a panel of at least 5 persons (“the review panel”) to carry out a review of the operation of the legislation relating to ring-fencing.
(2) “The legislation relating to ring-fencing” means—
(a) Part 9B of FSMA 2000 (as inserted by section 4);(b) orders and regulations made by the Treasury under that Part;(c) ring-fencing rules, as defined by section 142H(3) of FSMA 2000, made by the FCA or the PRA;(d) section 192JA of FSMA 2000 (as inserted by section 116);(e) rules made by the FCA or the PRA under that section.(3) The initial period is the period of 4 years beginning with the first day on which section 142G of FSMA 2000 is fully in force.
(4) The members of the review panel must be persons—
(a) who appear to the Treasury to be independent of the PRA, the FCA, the Bank of England and the Treasury, and(b) who do not appear to the Treasury to have any financial or other interests that could reasonably be regarded as affecting their suitability to serve as members of the review panel.(5) In appointing the members of the review panel, the Treasury—
(a) must have regard to the need to ensure that the review panel (considered as a whole) has the necessary experience to undertake the review, and(b) must ensure that at least one of the members is a person appearing to the Treasury to have substantial experience in central banking or banking regulation at a senior level.(6) Before appointing the members of the review panel, the Treasury must consult the chairman of the Treasury Committee of the House of Commons.
(7) The reference in subsection (6) to the Treasury Committee of the House of Commons—
(a) if the name of that Committee is changed, is a reference to that Committee by its new name, and (b) if the functions of that Committee (or substantially corresponding functions) become functions of a different Committee of the House of Commons, is to be treated as a reference to the Committee by which the functions are exercisable;and any question arising under paragraph (a) or (b) is to be determined by the Speaker of the House of Commons.(8) The Treasury must appoint one of the members of the review panel to be the chair of the panel.
(9) The review panel must, within a reasonable time after the end of the initial period, make a written report to the Treasury—
(a) setting out the results of the review, and(b) making such recommendations (if any) as the panel considers appropriate.(10) The Treasury must—
(a) lay a copy of the report before Parliament, and(b) publish the report in such manner as they think fit.(11) Any expenses reasonably incurred in the conduct of the review are to be paid by the Treasury out of money provided by Parliament.”
Lord Eatwell
Lord Eatwell
My Lords, given the assurance given by the Minister that we will return to this matter at Third Reading, I beg to withdraw the amendment.
Lord Deighton
“Right to obtain documents and information
(1) A review panel appointed under section (Independent review of operation of legislation relating to ring-fencing)—
(a) has a right of access at any reasonable time to all such documents as the panel may reasonably require for the purposes of the review, and(b) may require any person holding or accountable for any such document to provide such information and explanation are reasonably necessary for that purpose.(2) An obligation imposed on a person as a result of the exercise of the powers conferred by subsection (1) is enforceable by injunction or, in Scotland, by an order for specific performance under section 45 of the Court of Session Act 1988.”
Lord Deighton
“(1A) “Special bail-in provision”, in relation to a bank, also includes any associated provision (see subsection (1B)) that the Bank of England may think it appropriate to make in consequence of any provision under subsection (1) that—
(a) is made in the same resolution instrument, or(b) has been made in another resolution instrument in respect of the bank.(1B) “Associated provision” means provision cancelling or modifying a contract under which a banking group company has a liability.”
“(6) A direction under this section may specify circumstances in which the person given the direction is immune from liability in damages.
(7) Immunity by virtue of subsection (6) does not extend to action—
(a) in bad faith, or(b) in contravention of section 6(1) of the Human Rights Act 1998.(8) Where a direction under this section is given to a director of the institution, the director is not to be regarded as failing to comply with any duty owed to any person (for example, a shareholder, creditor or employee of the institution) by virtue of any action in compliance with the direction.””
Lord Eatwell
“Professional standards
After section 65 of FSMA 2000 insert—“65A Professional standards
(1) The regulator will raise standards of professionalism in financial services by mandating a licensing regime based on training and competence.
(2) This licensing regime must—
(a) apply to all approved persons exercising controlled functions, regardless of financial sector;(b) specify minimum thresholds of competence including integrity, professional qualifications, continuous professional development and adherence to a recognised code of conduct and revised Banking Standards Rules;(c) make provisions in connection with—(i) the granting of a licence;(ii) the refusal of a licence;(iii) the withdrawal of a licence; and(iv) the revalidation of a licensed person of a prescribed description whenever the appropriate regulator sees fit, either as a condition of the person continuing to hold a licence or of the person’s licence being restored;(d) be evidenced by individuals holding an annual validation of competence;(e) include specific provision for a Senior Persons Regime in relation to activities involving the exercise of a significant influence over a controlled function under section 59 of the Act.(3) In section 59, for “authorised” substitute “licensed” throughout the section.””
Lord Eatwell
My Lords, Amendment 21, and Amendments 50 and 51 from the commissioners, refer to the professional standards to be required in the banking industry—particularly to licensing bankers who have attained the required professional standards and, of course, not licensing those who have not. With respect to the conduct and skills of members of the banking industry, the Bill currently refers to “rules of conduct”. Amendments from the commissioners use the words “licensing regime”, but continuously refer to the adherence to rules.
The notion of a licence surely refers to some level of professional competence or professional standards. The Co-operative Bank may have obeyed the rules, but we now know it would have failed even the simplest test for professional competence. Rules may require the attainment of professional qualifications, but we cannot be sure and, as the Government regularly argue, certainty is important in this legislation. The clause in the Bill as drafted refers to rules of conduct. The commissioners’ amendment refers to,
“training in the effect and application of the rules of conduct”.
However, neither of them seem to convey the true context of professional standards.
As an academic, I am perhaps rather overly keen on examinations and the attainment of professional standards. Doctors have professional standards because they are required to pass examinations, undergo rigorous professional training and be thoroughly trained in ethical standards. Lawyers have professional standards because they are required to pass examinations, undergo rigorous professional training and be thoroughly trained in ethical standards. Of course, doctors and lawyers may, on occasion, not maintain the standards we would expect.
Lord Phillips of Sudbury
I hate to interrupt the noble Lord but I cannot resist saying that, unfortunately, the training of solicitors at this time does not involve rigorous ethical training. In fact, it involves little ethical training at all.
Lord Eatwell
I am sure that the noble Lord, as a distinguished solicitor, would attest to that, as indeed he has done. It seems to me that if members of the professions are required to pass examinations to show professional competence and to undertake rigorous training, bankers should do the same. That is what Amendment 21 seeks to achieve. For example, proposed new Section 65A(2)(b) says that the licensing regime must,
“specify minimum thresholds of competence including integrity, professional qualifications, continuous professional development and adherence to a recognised code of conduct and revised Banking Standards Rules”.
Lord Eatwell
Being a “fit and proper person” would perhaps be appropriate. If the noble Lord is not aware of the phrase, it is the standard regulatory threshold which anybody operating in financial services must attain.
Amendment 21 seeks to capture the need for proper training, continuous development and the maintenance of proper professional standards via a licensing regime. I have enormous sympathy with Amendments 50 and 51, tabled by the commissioners, but I am afraid that they do not capture the need for professional qualifications.
With respect to the government amendments in this group, they are mostly concerned with the correct definition of a bank. I am delighted to see that we now have a definition of a bank. It may be of interest to the House to know which banks are now included that were excluded in the past. Barclays Capital, Citigroup, Credit Suisse Securities and Goldman Sachs International were not included in the previous definition of a bank, but I am glad to say that they are now. I congratulate the Government on appropriately incorporating them. However, those government amendments stand slightly aside from the issue of professional standards addressed in Amendment 21 and in Amendments 50 and 51, tabled by the commissioners.
I suggest to your Lordships that this House asserting that the banking industry must maintain appropriate professional standards is the minimum that the public expect of us. I beg to move.
The Archbishop of Canterbury
My Lords, Amendment 50 is in my name and those of the noble Lords, Lord Turnbull, Lord Lawson of Blaby and Lord McFall of Alcluith. It clarifies the scope of who the new senior persons regime will apply to, to ensure that it is rightly focused on material risk-takers, not on all bank employees. I will also speak to Amendments 51 and 60 which stand in my name and those of the noble Lords as colleagues on the commission. Amendment 51 sets out the duties relating to the application of the new licensing regime for the banking regime. Amendment 60 also deals with clarifications in the scope of the senior persons regime.
In Committee, on a day that I was unfortunately unable to attend owing to having to baptise someone, my noble friend Lord Turnbull welcomed many of the Government’s proposals relating to the functions of senior managers in banks, including ensuring that senior managers have a statement of responsibilities and the reversal of the burden of proof on whether a person is fit and proper to take up a senior management position. We are very grateful for that. However, my noble friend Lord Turnbull also raised a number of questions that I hope can be adequately answered today, although I realise that there is still a lot of reflection going on in this area.
At that stage, the Bill made no reference to the second tier of the two-tier system proposed by the Parliamentary Commission on Banking Standards: the licensing regime. As the Bill stands, it simply allows the regulator to,
“make rules about the conduct”,
of any “employee of the bank” if it,
“appears … to be necessary or expedient”.
As both Amendment 50 and Amendment 60 deal with our concerns around the application of these rules to any “employee of the bank”, let me turn to the issues that this language raises.
The commissioners argued that a two-tier system is the right way to deal with the issue. The expectations on senior managers must be high. However, it is also right that those who are not part of the senior management of the bank should have high standards. The noble Lord, Lord Eatwell, has addressed this. By making it explicit that the rules of conduct and the definition of misconduct in Clause 22 refer to,
“employees whose actions or behaviour could seriously harm their employer, its reputation or its customers”,
the amendment is aimed at ensuring that the FCA and the PRA focus their regulatory duties on those employees who could inflict the most significant and material damage on their institutions and on the banking system as a whole. These are not always the most senior employees. They could be a junior dealer, fairly new in the business, who, ignoring his internal limits, deals in a way that does great damage both to customers and to his employer. He can be fired and even sent to prison, but the deals are still the responsibility of the bank.
It is therefore necessary to have an amendment that not only widens beyond the senior management, obviously, but narrows so that it does not try to cover all the employees but has a very focused look at those who are going to be able to do the most damage the most often, and who are at highest risk. In our regular and ongoing conversations with the regulators and in the light of their official responses to our work, the commission has not yet been convinced that they would go far enough to ensure that this specific group of material risk-takers would be central in any further regulation and thus that neither the spirit nor the letter of the commission recommendations would be implemented.
Amendment 51 seeks to correct the failings of the approved persons regime that this new two-tier system replaces. The noble Lord, Lord Turnbull, also stated previously that this regime operates mostly as an initial gateway to taking up a post rather than serving as a system through which regulators can ensure the continuing exercise of responsibility.
The amendment also deals with another concern articulated by the noble Lord, Lord Turnbull, that there is still no requirement that the regulator operate a licensing regime. The Bill states that the regulator may make rules relating to conduct if it appears “necessary or expedient”. By setting out explicitly that the,
“relevant authorised person has a duty to ensure that all relevant employees comply with rules of conduct”
made by the regulator, the amendment makes it clear that the rules of conduct for material risk-takers who are not senior management are just as seriously applied as those governing senior management. This gives a clear identity to the new second tier of the system, which is vital if it is to be taken seriously by regulators and banks.
As I said a few moments ago, I am aware of ongoing conversations between my colleagues and the Treasury over a few remaining issues around the implementation of the licensing regime. I believe that these are mostly in relation to the most appropriate names for the licensing regime and the senior persons regime and, I hope, to some of the matters that I have raised this afternoon. I hope that the Minister will be able to update the House on these areas and that the news can be welcomed by myself and my colleagues.
Lord Davies of Stamford (Lab)
My Lords, I remind the House that for a number of years I was a director of a quite large British investment bank—in those days called a merchant bank. We had a substantial lending book as well as a much bigger investment banking business. The firm was the basis of the present London activities of Deutsche Bank.
The noble Lord, Lord Lawson, said earlier that we were focusing on an area where we could actually use legislation to address effectively a major human problem. It is not always possible to address human problems with legislation—he is absolutely right about that. We have spent much of the afternoon talking about separation and ring-fencing, which is important because there is a theoretical risk that any institution could be destabilised for example by speculation in high-risk instruments such as derivatives and that could undermine the rest of the business. That is a theoretical risk; it is sensible to address it and think about it. It has to be managed. It is not actually the reason why we had the collapse in 2008 or any of the recent banking difficulties.
Similarly, the much praised Glass-Steagall regime, which existed in America between the 1930s and 1980s, was premised on the theoretical risk that if an institution could be involved in both underwriting securities and making loans, and that if the underwriting losses were such as to compromise the capital of the bank, the deposits of the bank would be at risk. Again, that is a straightforward, plausible, coherent risk that it is sensible to address but that was not the reason for the banking crisis in America in the 1930s. I will not waste time by going into the reasons for that crisis. Nevertheless, it was a sensible thing to do.
We have been talking up to now about theoretical risks. I do not resent or reject that and I very much agreed with—and just voted for—my noble friend Lord Eatwell’s amendment to try to deal with some of those risks. Now, however, we are on the really key ground, because Amendments 21 and 51, in the names of my noble friend Lord Eatwell and the most reverend Primate, address the real problem that we have encountered face to face in this country in the past few years. That is human error, and even worse than human error, human negligence—and even worse than that, systematic human negligence and systematic human incompetence. I do not think that those words are in any way excessive to describe the activities of the British banking system, and banking systems elsewhere, in the past decade and a half.
Before 2008 there were an enormous number of bankers who appeared to be able to persuade themselves, and their boards, that when yields were coming down in the market, they could somehow preserve their yields without increasing their risk. In other words, fantastic sums of money were paid to people who appeared to be competent, whom the regulators seemed to trust—as we now know, the regulators were asleep at the time—and who appeared to have completely forgotten the first rule of financial theory, which is that there is always a positive relationship between reward and risk: if you get more of one, you will always have more of the other. That is an extraordinary state of affairs to have in a sophisticated society, but that is exactly what we had.
Again, this was systematic. It was not just one bad apple, or one bad individual. In the process of trying to preserve their yields, banks were putting enormous amounts of their assets into new instruments such as CDOs—collateralised debt obligations, which were, basically, securitised mortgages and other loans—without ever investigating what they actually contained. They acted simply on the basis of endorsements by rating agencies that were themselves incompetent. It is hard to imagine the state of Denmark being more rotten than the state of the City at that time. It was an extraordinary systematic problem. People were, for example, lending on real estate with 5% or less equity. They were making absurd and dangerous mistakes, doing things we cannot imagine they were not told about when they were 25 and doing their accountancy exams, or an economics course. We have to focus on that human area and ensure that we have procedures, filters and incentives that are robust and not perverse. Evidently, in this area we have been absolutely inadequate up to the present time.
We are making some progress this afternoon. These two amendments are moves in the right direction. We must ensure that we have the right professional qualifications and the right conduct standards, so that people are being properly monitored. We could—indeed, we should—go further afield and do more, particularly in terms of making individuals responsible. In the United States, when there are serious cases of negligence and breach of the rules, not only is the institution fined—institutions are fined here—but individuals are regularly fined. Individuals are never fined here. In this country, the people making the appalling mistakes that I just referred to have got away scot-free, without paying a penny. That is a national scandal; indeed, it is a national stupidity. It means that there is a real moral hazard: if you can get away with the irresponsibility, the money is for you—“Well done, congratulations”—and if you do not get away with it, you still will not pay anything.
That is why we had the appalling culture of bonuses, in which people in lots of institutions were regularly piling on to their book a whole lot of supposedly high-yielding rubbish and then taking massive bonuses based on the discounted present value of the supposed yield over future years. Then, when they got a large bonus on that completely bogus basis, they would move on to another institution and spread their poison further through the system in that way.
I have described this in dramatic language, and I do not think that I have exaggerated in any way. That is the awful reality of the situation. It is something that regulators—and the public—ought to think about. It is certainly something that legislators must think about. I congratulate the most reverend Primate and my noble friend on their amendments, which we should put to the vote. I hope that they do so, and I look forward to supporting them.
Lord Phillips of Sudbury
My Lords, I support Amendments 21 and 51 as strongly as I can. We all know that the vast majority of people in the City of London and other financial centres are decent people who try to do good rather than bad, but the system of which they are part has been largely stripped of its ethical underpinning. Although you cannot inculcate morality by statute law, you can at least provide support for the forces of good and truth in dealing.
These two amendments are the very minimum required. I wonder whether the wording of Amendment 51, which refers to “rules of conduct”, is ideal. As a lawyer, whenever I see the word “rules”, I slightly draw back, because lawyers spend their time avoiding rules on behalf of their clients.
I would have hoped, and still hope, that if either or both these amendments were incorporated into the Bill, they would be construed in a wide way. There is no shadow of doubt but that too many people arrive in positions of responsibility without regard to these rules. As the most reverend Primate said, you can have a junior dealer who can cause devastating damage to a bank or other firm. So I hope that the Government accept these amendments or agree to come back at Third Reading with something comparable, bearing in mind the astonishing fact that the vast majority of our business schools have no ethical component in their curriculum at all. I do not think that 10% of them do anything in terms of ethics. If anyone says to me that it is a waste of time and a lot of hot air, they need only glance back at where we have come from. As other noble Lords have said, the degree of cynicism manifest in the policies and actions of so many financial institutions is stunning.
I hope that, if these amendments are brought into the Bill, they are construed widely by those who have to implement them. I am particularly happy that Amendment 51 would require any breach of standards of conduct to be reported to the relevant authority, because that is a real deterrent. People would be anxious about that. This proposal must be the absolute rock-bottom minimum to provide some underpinning for the future of financial services.
Lord Flight
My Lords, I come down to a very practical issue. In the territory that we are discussing, pre-approval is absolutely necessary for dealing with staff and anti-money-laundering requirements.
Baroness Warnock (CB)
My Lords, I support this amendment, which we have heard is really at the heart of the disasters of 2008. I have felt a creeping horror since the 1980s, when I was head of a college. People would frequently come up to me and say, “I’ve changed my mind, I’m not going to go on to a further degree or teach classics—I have had an offer that I can’t refuse”. This would be a young man or woman of about 21. You could see that their ethical standards had dropped away; they did not exist anymore. That was a shock to me then and it has been a shock to me ever since, so I very strongly support the amendment.
Lord Hope of Craighead (CB)
I shall add just a bit, particularly to what the noble Lord, Lord Phillips, was saying. When I entered the legal profession about 40 years ago, the branch that I joined had no rules of conduct at all, and gradually we appreciated that the public would not stand for that. The position now is that the legal profession has rules of conduct, although they are sometimes called codes rather than rules for the reason that was mentioned. I support the amendment against that background. I also suspect that, if we do not take that step now, we will have to take it in five or 10 years’ time when some other crisis emerges. It is an important step and, I respectfully suggest, an inevitable one, in line with what all the professions have had to deal with over the past 10 or 20 years in modernising how they behave and making their behaviour acceptable to the public. There is a lot to be said for the amendment against that background.
Lord McFall of Alcluith (Lab)
I do not think that we should run away with the idea of codes of conduct because, if you look back over the past 10 or 20 years, you will have seen a proliferation of codes of conduct and ethics from banks. When they had rules, they circumvented them, so we must have something deeper here.
On the Parliamentary Commission on Banking Standards, if we heard the phrase, “This time it’s different”, once, we heard it 10,000 times. We were told that there was new management and a new executive, that the past was behind us and the future here, with new staff—and that everything would be better. Since we have taken evidence, tumbling out every month there has been another scandal. So we need to attest to something deeper here.
The lack of individual responsibility at the top is at the core of the problem. I say this with no understatement: many of the very senior individuals who came before the Parliamentary Commission on Banking Standards were economical with the truth. I give an example on PPI, where we now have a scandal of about £25 billion to £30 billion. There was a “no see, no tell” policy from those at the top. Why? Because they preferred to be seen as incompetent than to have any responsibility. There was a hiatus of responsibility from the top to lower down.
My own view was not accepted by the banking commission, which was fair enough. I thought that every year there should be an individual meeting between the chairman and chief executive of a bank and the regulator. That meeting would be recorded but it would not be made public—but they would have to attest to the regulator that they were responsible for their institution and what went on in their institution was their responsibility. If we implement a code, we will only repeat the mistakes of the past; there has to be a deeper cultural change.
Culture has been mentioned. Again, we had individuals coming before us saying, “Look, we have a new chief executive and a new culture—everything is okay”. You would ask how many employees were in that organisation and be told that it was 150,000. When we asked how long it would take to change the culture, they said, “Oh, three months”. That is for the birds. So the responsibility needs to start at the top.
The example I give of PPI is of a chief executive who came along to the commission and said, with a straight face, “As far as PPI is concerned, my organisation is on the side of the angels”. That organisation is the one with the highest PPI penalties in the United Kingdom. So do not let us kid ourselves that we can sort this problem with codes. We need to give the regulator authority—and we have seen a regulator that was captured, cowed and conned by the industry. There should be someone to go to in the organisation to whom we can say, “That was your responsibility”. If we are told, “Well, that person left”, we need to ask for the handover document that indicates that there was a transfer of responsibility that can be understood.
The director of enforcement at the FSA came before the commission at the time of the UBS scandal, which cost the bank billions of pounds. We had four from the top management of the bank before us and, when we asked them if they knew who the individual was, they said that they did not know at all. Then we asked them how they found out, and they said, “Bloomberg wires”. That is how corrupt the institutions are in terms of accountability.
We need to change. I am happy for the Government to accept this amendment, but I am certainly not happy for warm words or for anyone to say, “This time is different”. This time ain’t different. The scandal has kept going and will continue, and we need to do something severe to ensure individual accountability by those at the very top of those organisations.
Lord Spicer
I have enormous respect for the noble Lord, Lord McFall, but I think the idea of legislating to be more responsible—in fact, legislating for human character—is a very dangerous path. It is why I intervened on the question of minimum standards of integrity: you are either honest, or you are not honest. It is quite dangerous to keep loading the statute book with matters which attempt to affect human characteristics. I think that there should be some caution about some of these amendments.
Lord Newby (LD)
My Lords, this is a very large group of amendments dealing with another key aspect of the Government’s reform-namely, how to drive up standards across the banking system. The Government’s amendments in this group, and in the following group, widen the range of firms covered by the reform. They respond to points made in Committee, and I am grateful to the noble Lord, Lord Eatwell, for his welcome for them, but we will deal with them in more detail when we come to the next group.
I would like first to respond to the concern that the Government’s Committee stage amendments did not implement the commission’s recommendations for what it calls the licensing regime. To be completely clear, the Government are committed to implementing the vast majority of the commission’s recommendations on the regulation of individuals in banking, including its recommendations to introduce a licensing regime. The regulators, in their responses to the commission published in October, confirmed that they would do this.
The Government’s amendments in Committee put in place all the essential features of the commission’s licensing regime proposals in Clauses 22 and 23. These clauses give the regulator power to make rules of conduct imposing binding standards on employees and ensure that the regulators can take action when there is any breach of these rules. The relevant provisions would form part of FiSMA and confer powers on the regulators in the normal way.
However, we recognise that this may not be seen as giving the full weight and impetus to the commission’s proposals, so we are looking to see whether we can bring forward at Third Reading amendments which will highlight the proposals more and put beyond doubt the determination which we all share to see real change in this area. In the light of this, the Government are looking to introduce amendments at Third Reading to impose obligations on banks and PRA-regulated investment firms, first, to verify before appointing someone as a senior manager, an employee in a role that could do significant harm to the firm or another role requiring regulatory pre-approval that the person is fit and proper to perform that role in the firm; secondly, to maintain up-to-date lists of such persons which could be made available to the regulators when required; thirdly, to notify the appropriate regulator when they take formal disciplinary action against such persons—formal disciplinary action could include giving a formal written warning, dismissal, suspension or clawing back remuneration; and, fourthly, to notify all such persons of the banking standards rules that apply to them. All these obligations will be regulatory requirements under FiSMA. Failure to comply with the obligations will be a breach of regulatory requirements, and actions could be taken against the bank concerned by the regulators. In addition, deliberately or recklessly submitting a materially false or misleading list of persons to a regulator will be a criminal offence.
The Government will also look at tabling amendments requiring, rather than simply empowering, the regulators to set out those functions for which a bank must do the above. We anticipate that this class will match the category of staff defined in the PCBS report as being those whose actions or behaviour could seriously harm their employer, its reputation or its customers. I hope that when we produce those amendments they will satisfy the concerns addressed by the most reverend Primate.
There are certain detailed respects in which the Government have decided not to follow the recommendations of the commission. These do not change the substance of the impact of the regime, but they will ensure its effectiveness. First, the commission envisages that the licensing regime provisions would entirely replace the regime of regulators, giving pre-approval to people below senior management level. That would mean dropping regulatory pre-approval for all appointments below senior management level, including in areas such as money laundering, with which the noble Lord, Lord Brennan, and others were particularly concerned in Committee.
Lord Lawson of Blaby
Before my noble friend sits down, can he give an undertaking that he will produce the further amendments he proposes to introduce at Third Reading in good time so that we can thoroughly evaluate them and decide whether they go far enough in meeting the commission’s requirements? There has been a tendency recently—I know that a lot of work is involved—to produce complicated amendments at the last minute which do not give noble Lords time to assess them properly.
Lord Newby
I have a great deal of sympathy with what the noble Lord says, and I can give an assurance that we will bring the amendments forward at the earliest possible point. I cannot say what day that will be, and we may of course have different definitions of “giving short notice”, but we will do our best to give the noble Lord several days’ notice. We hope that, as we get towards Third Reading, the number of amendments we bring forward will be much lower than at the previous stage.
Lord Newby
It is not saying a huge amount, but it is saying something, and I hope that because we are talking about a much smaller number of amendments we will be able to concentrate the entire brainpower of the Treasury on them so that we can bring them forward with the maximum possible notice.
Lord Davies of Stamford
Does the noble Lord agree that if we are to make a real difference this time—and he will sense a scepticism about that, which we face in this country and even in this House as a result of the appalling situation that we have had—we will need to emphasise, and really substantially emphasise, the issue of personal responsibility? Would it not in that context be necessary that individuals in this country should in future be subject to fines for regulatory breaches, as happens elsewhere?
Lord Newby
My Lords, that is the key focus of the senior managers regime—that, for the first time, senior managers and their banks will have to tell the regulators what the specific responsibilities of those people are, and we are introducing enhanced penalties if people do not stick to those responsibilities and break the rules. I think that we are indeed doing what the noble Lord requires us to do. I hope that when the noble Lord, Lord Lawson, and the most reverend Primate see our amendments, they will feel that we have done everything we can to meet their requirements.
Amendment 21, proposed by the noble Lords, Lord Eatwell and Lord Tunnicliffe, is an amendment which we saw in Committee. As I explained on that occasion, it would really just rename the existing approved persons regime as a “licensed” persons regime. The only extra feature in the proposal is for annual validation of competence by the regulator. This would have the effect of increasing the number of approved person applications from around 30,000 to around 150,000 a year. This would mean an unnecessary and costly extra burden on firms and regulators.
The Official Opposition’s amendment would not deliver the real reforms proposed by the parliamentary commission, which Clauses 14 to 26 of the Bill deliver and which we will enhance. It would just add to regulatory burdens without producing any real improvement in standards of conduct in the industry. I hope, therefore, that the noble Lords, Lord Eatwell, will agree to withdraw his amendment.
Lord Eatwell
My Lords, I was intrigued by the proposals which the Minister suggests will be brought forward at Third Reading and I look forward to having the opportunity to see them—perhaps in good time—before we have to debate them.
The key issue in Amendment 21 is that of qualification: professional qualification, minimum thresholds of competence and continuous professional development. These are fundamental to any serious professional standards and are vital if we are to have in the future the sort of people who can deliver a banking industry of which we in Britain can once again be proud.
I should make it clear that Amendment 21 is not in any way contrary to Amendments 50 and 51 by the commission; it is complementary. It adds to the overall structure of the requirements to be met by those who seek to pursue a banking profession. It is that word “profession” which we regard as central. It is no accident that we have labelled our amendment “Professional standards”. That is what this amendment seeks and that is what I believe it would achieve in addition to, and complementary to, the amendments by the commission and, as I hear it, the endeavours by the Government to develop a framework of rules which ensure that standards are met. The professional standards must be the bedrock. That is why I have moved Amendment 21 and why I wish to test the opinion of the House.
Lord Newby
Lord Newby
My Lords, this group of amendments, and similar amendments in the previous group, respond to concerns expressed in Committee that the scope of the reform of the senior managers and banking standards regime should be extended beyond ordinary banks to cover what are known, in common parlance, as investment banks. A number of noble Lords were concerned about this point and I undertook to relay the feelings of the House to ministerial colleagues. These amendments are the result.
The definition that we propose is that of the UK investment firms that are regulated by the PRA as well as by the FCA. This captures all those investment firms the activities of which—above all, substantial wholesale market dealing in securities as proprietary traders—are systemically important. These are the most important City firms, and consequently would be treated by the senior managers and standards regime in the same way that banks are. It therefore excludes all investment firms that are regulated solely by the FCA.
The noble Lord, Lord Turnbull, tabled an amendment to a different part of the legislation that would have used the existing definition of “investment firm” in FiSMA. This would have encompassed investment firms solely regulated by the FCA. As explained in Committee, that would cover a wide range of ordinary investment firms—several thousand, in fact. This would include firms far outside what most people would think of as investment banks. The Government have shared this definition with the members of the PCBS and are hopeful that the scope now captures those firms that the PCBS had in mind.
Noble Lords who have had the opportunity to read the paper placed in the Library yesterday know, as the noble Lord, Lord Eatwell, has pointed out, that it covers only nine further firms. They also know that it covers the investment banks that everybody has heard of and would expect to see covered. The small number may be surprising, but the reason for that is simple. Many firms that would be thought of as investment banks will already have a deposit-taking permission, so they will already be covered by the definition in Clause 24. That definition is already broad enough to catch all retail and wholesale banks, whether ring-fenced or not. It covers any UK institution which has the permission to take deposits. It does not cover big City institutions which are not deposit-taking businesses. These amendments will bring them into the scope of the senior managers and banking standards regime. I beg to move.
Lord Newby
“(6D) For the meaning of “relevant authorised person”, see section 71A.””
Lord Brennan
“(b) those aspects involve, or might involve, a risk of—(i) serious consequences for the authorised person,(ii) serious consequences for business or other interests in the United Kingdom, or(iii) conduct or omissions by or on behalf of an authorised person otherwise than in accordance with the requirements of a relevant financial scheme giving rise to criminal liability.”
Lord Brennan (Lab)
My Lords, I declare an interest, as I have done before, as chairman of Global Financial Integrity. In Committee, the Minister, the noble Lord, Lord Newby, said:
“The scale of money-laundering is very large, and the Government and the regulators are determined to cut it down”.—[Official Report, 15/10/13; col. 406.]
The phrase “cut it down” was prudently chosen. Money-laundering, in its widest sense, never goes away. By “its widest sense”, I mean any attempt to create an illicit flow of money for illegal objectives: money-laundering, drugs, terrorism, bribery—whatever it might be. I will use the term in that sense throughout what I am about to say.
The purpose of this group of amendments in my name and that of my noble friend Lord Watson is to identify as clearly as possible a legislative framework within which our banks can be regulated and monitored so as to achieve one of the Financial Conduct Authority’s objectives: to preserve the integrity of the British banking system. I will deal with them briefly. Amendment 26 deals with a scope of responsibility of senior management so as to specify, in a very broad phrase,
“a relevant financial scheme giving rise to criminal liability”.
That is carefully chosen as an omnibus phrase to cover all the kinds of money-laundering activities that I have just described and relates such irresponsibility directly to senior management.
Amendment 28 deals with two issues: redundancy and specificity. “Redundancy” is in inverted commas because it was suggested in Committee that these changes were entirely unnecessary. Plainly, the Financial Conduct Authority and everybody else have a duty to obey the law—of course they do. However, equally, legislation has a component in it that should be designed to relate the existing law to the specific responsibilities to be carried out. No harm is done by such identification, and clarity is achieved. Nobody can say that they did not know. On specificity, subsection (4)(a) of proposed new Section 59ZA in Amendment 28 deals with a general provision for dealing with these schemes that might produce criminal liability. Paragraph (b) sets out the main statutes under which such activities can arise. Paragraph (b)(viii) makes clear that the FCA and the PRA themselves can refer to other relevant statutes, regulations or the like as they think appropriate and are specified in their rules.
Amendment 30 is an attempt, in substance, to achieve the objective of making all persons responsible who engage in money-laundering activities, so that there are no loopholes between different levels of staff and management. Amendments 45 and 47 would provide that the FCA and PRA should, in the banking standards rules, make rules about money-laundering similar to the effect of what these amendments seek to achieve.
Lord Eatwell
My Lords, in the past, anti-money-laundering legislation tended to be associated with crime, typically drugs or gun-running. These days it has achieved a much greater importance in the sense that it is also associated with terrorism. Therefore, the need to maintain the strictest anti-money-laundering rules and to ensure that they are adequately enforced is an element not only of the maintenance of the law, but of national security. Therefore, I would like to commend my noble friends who have put forward these amendments to strengthen the anti-money-laundering regime and to ensure that appropriate levels of criminality or criminal conduct are so defined within this area that suitable penalties for ignoring anti-money-laundering legislation or laundering money in various ways can be enforced.
I hope the Government will accept these amendments; they are hugely important and send a very important signal to the world that London is not a place in which money-laundering will be tolerated in any shape or form. If the Government are not able to accept them at this stage, I hope they will commit to providing in writing both a commentary on the amendments that my noble friend has put forward and a discussion of the relationship between the new personal responsibility mechanism for bankers and the AML compliance. Surely AML compliance should be included as one of the areas of responsibility that is allocated to a named senior banker under the new senior person regime; it should be in the banking standards rules to which all staff at banks will have to adhere, and one of the conditions of the new remuneration code, which makes deferred pay and bonuses contingent on upholding standards. There is no more important standard than those which my noble friend has dealt with in his amendments. I hope that the Government will be able to accept them—if not actually in form, then in spirit—and commit to bringing forward the appropriate form, if necessary, at Third Reading. The best move, however, would be to accept them now.
The Archbishop of Canterbury
I want briefly to add my support to the amendment of the noble Lord, Lord Brennan. Money laundering affects not only the areas that have been mentioned, but in my 10 years’ experience of dealing with conflict management and mitigation work in Africa, it was particularly significant in the ways in which illegal regimes or militias managed to fund and supply themselves. My experience, particularly in some parts of Africa, has shown that London, over time, as one of the deepest and most liquid financial markets on earth has, contrary to the impression given by many senior bankers, played a significant role—not through their collusion in any way at all, but because of its size and the complexity of preventing it. I believe that this amendment and the suggestions put forward by the noble Lord, Lord Eatwell, will contribute extensively to restricting that.
Lord Flight
My Lords, all Members of this House are what is known as PEPs for the purposes of anti-money-laundering. This means that any bank has to pay extra-special attention to any of our transactions. It is perfectly justified. The thought crossed my mind—and I have great sympathy with the noble Lord’s aspirations—that money laundering for corrupt purposes, for armaments, for terrorism and the rest of it, does not particularly come from an ordinary British family living in a suburb. It comes very much from parts of the world where such things are more prevalent. There is a case for requiring a more judicious anti-money-laundering regime for any form of transfer that comes from such parts of the world in an analogous fashion to a PEP if we really want to get to grips with the horrific money-laundering that can come from some parts of the world, causing misery to citizens there. As arrangements presently stand, there is no difference between an evil regime somewhere and an ordinary British citizen living in Birmingham.
Lord Harris of Haringey (Lab)
As I understand it, the money-laundering regulations specifically exclude British citizens, including parliamentarians, from their scope. What has happened is that the banks, as a matter of policy, following what they expect to be European directives on this subject, treat British parliamentarians as though they are politically exposed persons. The actual regulations do not.
Lord Flight
I think the noble Lord may be right, but in practice, we are thus treated as a more dangerous category. I was merely using that as an example of how the more obvious areas of money-laundering offences might be more carefully policed.
Lord Watson of Invergowrie (Lab)
My Lords, I am pleased to associate my name with all five amendments in this group, but I also want to speak to some extent about the FCA note which appeared at about 9 o’clock yesterday evening—typically late in the day, not just literally, as regards the progress of this Bill. I reiterate the point made by my noble friend Lord Brennan that the Government have provided no grounds for reassurance that their amendments adequately deal with the serious issue of anti-money laundering. The fact that the Minister’s promised letter of comfort has not materialised demonstrates that the House should be concerned by the absence of any coalition assurances on this crucial issue. I am not sure whether the FCA note is intended to be in place of such a letter, and I will come on to that later. However, I said in Committee that not only were the Government naive to assume that the amendments we tabled then were unnecessary, they were also complacent. I very much regret to say that the failure to produce the letter setting out the Government’s position which my noble friend Lord Brennan was promised clearly suggests that that complacency remains intact.
We also heard in more general terms in Committee about the devastating human cost caused by the banks’ failure to comply with anti-money-laundering laws. That has not been mentioned this evening but it bears repeating: it is not just a question of what happens in relation to the financial sector in this country but also of money laundering that often amounts to the state looting of developing countries’ aid and haemorrhages billions of pounds from their national budgets, trapping millions of the world’s poorest people in extreme poverty. However, as mentioned in the previous debate, it also threatens the economy of the UK. The integrity of our financial system is hugely compromised by banks failing to prevent access by the worst types of criminals from around the world, whether they be corrupt dictators, drug smugglers, arms dealers or terrorists, as other noble Lords have said. This shows that the stakes could not be higher. I wish that that were reflected in action taken by the Government to counter this problem. It makes their lack of willingness to deal meaningfully with the issue quite unfathomable. Their continuing naivety is potentially dangerous. I apologise for using the word “naivety” again but I feel that I have to do so.
As the noble Lord, Lord Phillips, rightly noted in Committee, should there be any doubt, following the Minister’s letter, about whether the Government’s amendments adequately dealt with money laundering or not, the House should err on the side of caution and choose the alternative amendments. We now know that no such letter has materialised. My noble friends and I have taken great care to move new and refined amendments which reflect the extensive and helpful debate in Committee. In stark contrast the Government have not even offered the explanation they promised. This should leave the House in no doubt as to which set of amendments should be favoured.
I turn to the note from the Financial Conduct Authority that appeared yesterday evening. My noble friend Lord Eatwell said in his opening remarks on Amendment 3, I think, that everything seemed to be done at the last minute as far as the Bill is concerned, and that has been very much the pattern since it first appeared. It is unhelpful in terms of enabling noble Lords to respond meaningfully to new information or, indeed, to draft amendments. It is not clear whether the FCA note on its anti-money-laundering supervision and the new senior managers regime proposed in the Bill is in lieu of the Minister’s letter to my noble friend Lord Brennan, as I said earlier. That letter was intended to outline why the latter’s amendments seeking the explicit inclusion of anti-money laundering in the new senior persons regime and other personal liability mechanisms were unnecessary because the government amendments implicitly did this. However, I submit that the note does not achieve what is required; namely, a guarantee that the FCA will include anti-money-laundering compliance as a key risk and make every bank name a senior banker with personal responsibility for it.
The FCA’s note is largely about what it does and has done, and even refers to what the FSA did. There are just two paragraphs at the end which focus on the proposed new senior managers regime. As the Bill stands, this could give the FCA the power to hold named, individual senior bankers accountable for failures to uphold key standards and risks. However, it seems to me there is a loophole in the Bill which means that it will be left open to the FCA’s interpretation as to whether it uses this power and insists that anti-money-laundering compliance should be one of the issues covered. The note does not indicate that the FCA will include this. It uses terminology such as, “We will consult”, “This will allow firms”, and it, “will help regulators”. These are key phrases in any document but I suggest that they are weak, possibly ambiguous and certainly open to interpretation. I believe that the word “consult” simply means that the outcome is by definition not certain. We should require firms to do something, which is a stronger word than “allowing” them to do something.
My next example is fundamental to the way we deal with anti-money laundering. Instead of the phrase, “for example, anti-money laundering systems”, we should state unequivocally, “including anti-money-laundering systems”. The language that is used is permissive and uncertain rather than being mandatory, which is what I and the noble Lord, Lord Brennan, seek to achieve with these amendments. The content of the note is disappointing and it would be helpful to have clarification of whether it is provided in lieu of the Minister’s letter.
I believe that anti-money laundering compliance should be included as one of the areas of responsibility that is allocated to a named senior banker under the new senior persons regime, is written into the banking standards rules to which staff at banks will have to adhere, and should be one of the conditions of the new remuneration code which makes deferred pay and bonuses contingent on upholding standards. Will the Minister, on behalf of the coalition, ensure that these important requirements are included?
Lord Newby
My Lords, we are dealing here with an issue that everybody realises is an extremely important one in terms of the way banks behave and the way that they are seen to behave. As the noble Lord, Lord Eatwell, pointed out, the importance of money-laundering in financing terrorism has given it an added twist.
These amendments are an expanded version of an amendment tabled by the noble Lord, Lord Brennan, in Committee. Since then, my colleagues in the Treasury have met the noble Lord and explained their view of his original amendment. I hope I can convince the House that the Government’s approach meets the requirements which the noble Lord, Lord Brennan, seeks to impose. These amendments would expand the scope of the senior managers regime to include all persons who are responsible for ensuring that a firm complies with specific obligations under the criminal law, irrespective of the level in the organisation at which they work.
No one doubts the importance of robust action to tackle financial crime such as money-laundering, but I can assure your Lordships that these amendments are not necessary to ensure that financial crime is adequately addressed under the reforms that the Government are bringing forward.
These amendments would bring subordinate staff with relevant responsibilities within the scope of the senior managers regime. That could lead to confusion at least and is contrary to the PCBS recommendation to narrow the senior persons regime to very senior people, and parts of the regime, such as the reversal of the burden of proof, make sense only when applied at the senior level. It is not necessary to bring subordinate staff with specific responsibilities for financial crime within the senior managers regime in order to ensure that these staff are subject to enhanced regulatory scrutiny. It will still be possible for the FCA to ensure that appointments of persons to be money-laundering reporting officers, for example, will be subject to prior regulatory scrutiny and approval under the approved persons regime, if that is considered appropriate, and then subject to rules and standards applicable to their role. This is because the approved persons regime is being retained for financial services firms that are not banks. It is also being retained within the banking sector for appointments below senior management level. The Government have always considered this necessary as there may be critical roles below senior management level with important responsibilities for consumer protection, market integrity or preventing financial crime where prior regulatory scrutiny of appointments remains necessary.
In addition, of course, the regulators will have the ability to make rules of conduct for bank employees who are not approved persons. This will mean that rules of conduct can be applied to staff with more limited roles in preventing financial crime in banks, as well as to approved persons and senior managers.
There is also no need to refer explicitly to breaches of the criminal law to bring senior managers with relevant responsibilities within the scope of the senior managers regime. Under the Government’s proposals, a function can be designated as a senior manager function if a person holding it would be responsible for aspects of the bank’s business that could involve serious consequences for the bank, or for business or other interests in the United Kingdom. There is no doubt that a serious breach of criminal law could have serious consequences for the firm as well as for other people. So senior managers in this area would be covered by this new regime.
The noble Lord, Lord Brennan, asked me three specific questions and for assurances on those points. First, he asked me to confirm that there was no reason to doubt the reliability of the conclusions of the FCA paper. There is no reason to doubt them. Secondly, he asked whether the FCA was properly financed to undertake the level of activity required for it effectively to fulfil its responsibilities under the rules on money-laundering. The FCA budget, as he will know, is funded by the sector as a whole. The FCA is therefore unconstrained, in practical terms, regarding its budget. It is for the authority to determine the resources that it thinks it requires and it can then get them. So no budgetary constraint is imposed on the FCA which reduces its ability to employ as many staff as it feels it wants in this area. Thirdly, he asked whether the FCA represented government policy. The FCA does represent government policy. I am sorry that the note was transmitted later than would ideally have been the case but that in no way undermines its significance as a definitive statement of government policy in this area.
I recognise the concern that noble Lords had in Committee, and still have, in this area. It may be of some minor comfort to know that since Committee I have had a meeting with one of the senior relevant staff at one of the largest UK banks to discuss whether, in its opinion, the FCA was pursuing money-laundering with greater rigour than had been the case in the past. The bank said that the FCA was doing so. It also said that the bank itself had recognised that it simply had to give greater priority to this area.
Two things must happen if we are to achieve the level of compliance that the noble Lord would like. The first, which the noble Lord has concentrated on now, is that the FCA has to do its job properly. As I say, it is putting more resources in and is being, as it states in its list of objectives, more intensive and intrusive. Secondly, as we have discussed in relation to a number of other areas, the banks have to accept that they must adopt a zero tolerance approach to money-laundering. It is clear from the evidence which the parliamentary commission received, and from much other evidence, that this has not always been the case. I believe that the banks are giving a priority to this that they have not done in the past. Is it adequate? It is a great improvement, but it will take some time to be fully clear about whether it is adequate. However there has been a sea change which has been effected in part by the regulatory regime and in part by the pressure put on the banks by a whole range of external stakeholders, not least your Lordships’ House.
The noble Lord, Lord Eatwell, suggested that a further letter might be of help between now and Third Reading to confirm the exact position. I am happy to agree to provide a letter in the terms that the noble Lord suggested. With that assurance, I hope that the noble Lord, Lord Brennan, will feel able not to press his amendments.
Lord Watson of Invergowrie
Perhaps the noble Lord could clarify something. He made it absolutely clear that the FCA note represents government policy. It therefore seems strange that that policy is allowed to be as—shall I say?—ambiguously worded as the FCA note is. It is of concern that it is left that way. Will he commit to write to the FCA before Third Reading to ask it to make anti-money-laundering explicit in the personal responsibility requirements of senior bankers?
Lord Newby
My Lords, I will cover that issue in my letter. I am sorry that the noble Lord thinks that the FCA note is ambiguous, because the fact that it is giving greater priority to this issue and being more intrusive and energetic should give him some comfort. However, as I say, I will write to him.
Lord Brennan
My Lords, first, I had a meeting with officials from the Treasury, the content of which was, in short form, declaratory and, in long form, advisory. It was declaratory when I explained to them that I and my colleagues with whom I am working on this problem were convinced that these amendments were necessary and that the Treasury officials and the Home Office man who was there should revise their thinking accordingly. So they informed our side of the argument of nothing new, except that they felt that they were right. The advisory part of the meeting related to a simple proposition that took a little time to adumbrate. I invited them—both officials were, I am sure, competent young government lawyers—to take advice on this issue and on the terms of the offence, which we shall turn to shortly, from senior Treasury counsel who would be independent and objective as to whether the government views on the strength of the Bill on this point were correct. I do not know whether that has been done. The fact is that the meeting took place but was not productive.
There are times in legislative life when those who see cannot persuade the blind where they are going. In Amendment 30 no attempt is made to disadvantage junior staff and every attempt is made to ensure that senior staff are not allowed to use the fault of junior staff as an excuse for their own responsibility. That is what that amendment is plainly directed at. It makes the senior management’s job crystal clear. It is necessary to consider what the Minister has said in reply and, for the moment, I beg leave to withdraw the amendment.
Lord Mackay of Drumadoon
Lord Mackay of Drumadoon (CB)
My Lords, the amendment seeks to amend Clause 15, and I will speak to Amendment 49, which seeks to amend Clause 22.
When those clauses were introduced into the Bill in Committee they provoked a measure of interest and concern on the part of the Law Society of Scotland, which suggested amendments to be introduced on Report. For that reason, it is necessary that I declare an interest as having been a qualified lawyer in Scotland since 1971, initially as a solicitor and thereafter as counsel at the Scottish Bar.
I mention that with a measure of diffidence, having regard to the comments made earlier about the ethical training of lawyers in general. Joking apart, it is right that your Lordships should be aware that the introduction of these two clauses gave rise to the concern to which I have referred.
I offer no criticism about this because I am aware that on the second day in Committee a considerable volume of amendments were dealt with, but the amendments that introduced Clauses 15 and 22 took place without any detailed discussion. Clause 15 would add an additional section, Section 59ZA, to the Financial Services and Markets Act 2000, the terms of which are relevant to determining whether the carrying on of a controlled function in relation to a regulated activity of an authorised person is for the purposes of the Act “a senior management function”.
Clause 22 would add a further section to the 2000 Act, Section 64A, which gives the Financial Conduct Authority and the Prudential Regulation Authority power to make rules of conduct for approved persons. Clauses 15 and 22 have given rise to concern from the Law Society as to how their provisions impact on the duty of Scottish solicitors to maintain confidentiality in all their dealings with their clients. As your Lordships will be aware, solicitors in Scotland are regulated by the Law Society of Scotland. They are bound to observe their professional obligations and are liable to be sanctioned at the instigation of the Law Society if they fail to meet those obligations. The duty of confidentiality is set out in detail in the Law Society of Scotland’s Rule B1.6. It places a duty on solicitors not to disclose information about their clients, including communications between solicitor and client unless permitted by the client, or compelled by a court or Parliament to do so. This ethical duty of maintaining confidentiality provides for checks and balances, as a solicitor is never the final judge as to whether the information must remain confidential. Legislation and court process, as well as client consent, provide means by which information might legitimately be disclosed. The policy considerations behind this rule of confidentiality are that the rule affords full and open exchange between clients and their lawyers. It also helps to ensure that full and frank advice is provided.
Legal professional privilege, which is also mentioned in the amendments, has a similar, albeit not identical, effect. It protects from disclosure confidential communications and evidence of those communications between a professional legal adviser and their client, provided the communications are for the purposes of preparing for litigation or the client seeking and receiving legal advice. For these purposes, the tendering of legal advice is not confined to informing a client what the law is; it includes the solicitor or counsel involved giving advice as to what action the client should prudently and sensibly take in the relevant legal context.
The need for these amendments was, as I have indicated, identified by the Law Society of Scotland, having consulted a number of its members. It sent earlier drafts of the amendments to among others, the Treasury and the noble and learned Lord, Lord Wallace of Tankerness, the Advocate-General for Scotland. The Law Society and I are grateful to the Treasury and indeed the Advocate-General for responding to that approach and giving us an indication of the Government’s thinking on the issues involved. Before saying a few more words about the details of the amendments, I think it right to note that other regulatory bodies in the United Kingdom which have members who are either solicitors or counsel may have similar interests in the subject matter of these amendments.
The arguments in support of Amendment 27 to Clause 15 can be put very shortly. They relate to the terms of the new Section 59 of the 2000 Act. Those provisions appear to open up the opportunity of legal advice given to a bank by a solicitor being deemed, whether by the Financial Conduct Authority or the Prudential Regulation Authority, as amounting to the taking of decisions or alternatively,
“to participating in the taking of decisions, about how one or more aspects”,
of a serious management function should be carried on. If such a view could be taken of the actions of a solicitor, such actions could be deemed to provide a factual basis for determining, in terms of new Section 59ZA(1) of the 2000 Act, whether a function within a bank is a “serious management function”. The Law Society is concerned that such events might lead to an erosion of the distinct professional relationship between solicitor and client and the obligations that solicitors undertake to provide advice to the client.
What is unclear from new Section 59ZA(3) is whether the Government intend that such solicitors, advising on legal issues alone, will also be considered as having participated in the taking of decisions. The Law Society of Scotland considers they should not be and it believes that that should be made clear in the Bill. That is what Amendment 27 seeks to achieve. If the Minister takes a different view, I am sure he will recognise that this issue is a concern to members of the legal profession in Scotland and I respectfully invite him to explain to your Lordships his reasons for doing so, so that those lawyers will be made aware of them.
The need for Amendment 49 arises out of Clause 22, which was introduced into the Bill on the second day in Committee. It would insert a new Section 64A into the 2000 Act, which would grant power to the regulatory authorities, the FCA and the PRA, to make rules of conduct for approved persons under Section 59 of the 2000 Act and persons who are employees of banks. Both categories could include solicitors, counsel and advocates in different parts of the United Kingdom. They would be under duties of confidentiality and legal professional privilege with regard to communication between agent and client.
It seems abundantly clear that the rules of conduct made by the regulatory authorities could conflict with the duty of confidentiality on solicitors and with legal professional privilege as they are understood and apply in Scotland. Amendment 49 is designed to resolve any potential conflict. In particular it provides in the proposed new Section 64A(12)(b) that in the application of new Section 64A of the 2000 Act in Scotland, no professional legal adviser, either advocate or solicitor, could be required, under the rules of conduct made by the FCA or the PRA, to answer any question that he would be entitled to refuse to answer by virtue of any rule of law relating to confidentiality. In that important respect, it adds to the protection currently afforded to professional legal advisers by Section 413 of the 2000 Act, which severely limits the extent to which a person can be required under the 2000 Act to produce, disclose or permit the inspection of protected items. What Section 413 does not do is make any reference to a lawyer refusing to answer a question.
There is concern that Section 413 of the 2000 Act as currently drafted would not entitle a solicitor in Scotland to refuse to answer questions posed in terms of rules of conduct made by either the FCA or the PRA, even though answering those questions would breach their duty of confidentiality to their client. The Law Society accordingly seeks to have this issue clarified. The society’s view, with which I agree, is that it is important to ensure that rules of conduct made in terms of new Section 64A of the 2000 Act do not place a solicitor who is either a senior manager or employee of a bank in a position where there would be a conflict between his or her duties under the rules of conduct and his or her duties as a professional legal adviser, duties that are regulated by the Law Society of Scotland.
I argue in terms of both amendments that these issues should be addressed now and not deferred until such time as the FCA or the PRA seek to exercise the new statutory powers they are to be given. Against that background, I beg to move.
Lord Flight
My Lords, these amendments have the support of the Law Society of England and Wales as well as that of Scotland—certainly for Amendment 27. The issue is pretty clear. The objective is to ensure that the provision of legal advice is not to be construed as taking decisions or participating in the taking of decisions, and for situations where solicitors or other legally qualified professionals frequently give advice on decisions which a bank or other institution may take. They do not make the decisions, but purely advise on legal issues where the Bill is currently unclear as to whether advising would be included in,
“participating in the taking of decisions”.
Amendment 27 seeks to clarify the position.
There is an irony here in that, as I understand it, Clause 15 creates a broad definition of a senior management function, and the term,
“participating in the taking of decisions”,
as currently drafted will capture legal advice. This could have some perverse results and disproportionate consequences, and a danger that all legal advice is considered as participating in decision-making. If that were to be the case, all banks’ lawyers might need authorisation from the Financial Conduct Authority to give legal advice, whereas of course they are already regulated through the Solicitors Regulation Authority.
Lord Newby
My Lords, I understand the concern of the noble and learned Lord and that of the Law Society about the position of lawyers under the new regime, and I hope very much to be able to reassure him.
Amendment 27 would amend Clause 15, which inserts new Section 59ZA into FiSMA, which provides the definition of a senior management function. A person becomes a senior manager only if they perform a function which has been designated by a regulator as a senior management function and have been approved to perform that function by the appropriate regulator on the application of the authorised person; that is, the firm concerned. A senior management function is one that will,
“require the person performing it to be responsible for managing one or more aspects of the authorised person’s affairs”,
and that,
“those aspects involve, or might involve, a risk of serious consequences—
(i) for the authorised person, or
(ii) for business or other interests in the United Kingdom”.
It is therefore highly unlikely that the regulators would designate being a legal adviser as a senior management function simply because giving advice does not constitute management as set out in the definition of senior management.
Clause 22 inserts new Section 64A into FiSMA, which allows the regulators to make rules of conduct for approved persons, including senior managers, and for bank employees. This implements the Parliamentary Commission on Banking Standards recommendation regarding the introduction of a “licensing regime”. This broadens the population who can be subject to the regulators’ rules, which could for example now apply to an in-house legal adviser in the capacity of an employee. In addition, the regulators already have a broad power to require firms to provide information, as set out in Section 165 of FiSMA. However, the regulators cannot make rules which would trump the protection of legal privilege. Section 413 of FiSMA provides expressly that no power under the Act can be used to require the disclosure of “protected items”. These are defined in terms which are materially identical to the definition of items subject to legal professional privilege in Section 10 of the Police and Criminal Evidence Act 1984. Consequently, FiSMA already prevents the regulator from obtaining legally privileged material.
The noble and learned Lord’s amendment would also introduce a protection against the disclosure to the regulator of “excluded materials” as defined in Section 11 of the Police and Criminal Evidence Act 1984. This includes personal records generated in the course of business and held in confidence, human tissue and journalistic material held in confidence. Clearly, the regulators would not request some of the categories of material included in this section. However, in relation to confidential information such as that compiled during the course of business, it might be appropriate, and indeed sometimes essential, for the regulators to receive it. However, FiSMA itself provides strong protection for confidential information received by the regulators when carrying out their regulatory functions. Section 348 of FiSMA prevents any such information being disclosed to a third party except for very narrow purposes. Further, where any such information constitutes personal data, it would be subject to the Data Protection Act.
The noble and learned Lord asked whether Section 413 of FiSMA covers communications as well as documents. I can give him that assurance. The section is not limited to documents, so regulators cannot require the disclosure of privileged communications. With those reassurances, I hope that the noble and learned Lord will feel able to withdraw his amendment.
Lord Mackay of Drumadoon
My Lords, I am grateful to the Minister for giving a very clear and detailed explanation of the Government’s position in regard to these very complicated statutory provisions. I always think that when you start running out of enough section numbers so that you have to add letters to them, it makes the construction of the contents of those sections much more complicated than it might otherwise be. For these reasons, I beg leave to withdraw the amendment.
Lord Deighton
Lord Deighton
Lord Deighton
“(7) For the meaning of “relevant authorised person”, see section 71A.””
Lord Deighton
“(6) For the meaning of “relevant authorised person”, see section 71A.”
Lord Deighton
Lord Deighton
Lord Deighton
“(7) This section applies only in relation to employees whose actions or behaviour could seriously harm their employer, its reputation or its customers.”
The Archbishop of Canterbury
I have already spoken to the amendment standing in my name. The members of the commission are delighted that the Government are broadly finding agreement with their recommendations, and on all the areas on which the Minister spoke we hope and expect that the government amendments at Third Reading will reflect closely the assurances that we have been given. To ensure that we get this right, we re-emphasise the need to see the amendments as early as possible and reserve the possibility, if we are not content and feel that they do not reflect what has been said, of returning to them at Third Reading. If I have those assurances, I will be happy to withdraw the amendment. I beg to move.
Lord Deighton
“(9) For the meaning of “relevant authorised person”, see section 71A.”
Lord Deighton
““relevant PRA-authorised person” means a PRA-authorised person that is a relevant authorised person;”
“(9) For the meaning of “relevant authorised person”, see section 71A.””
Lord McFall of Alcluith
“Independent review
After section 66B of FSMA 2000 (inserted by section 23 above) insert—“66C Independent review
(1) The Treasury shall commission an independent report in relation to the effectiveness of—
(a) any rules implemented under section 64A; and(b) any action taken by the FCA or PRA by virtue of section 66.(2) The Treasury shall ensure that the report prepared under subsection (1) shall—
(a) include such recommendations as considered appropriate for legislative and other action;(b) be laid before Parliament by the end of 2018; and(c) be published in such manner as it sees fit.””
Lord McFall of Alcluith
This amendment is in response to government amendments to the Bill which amend the Financial Services and Marketing Act 2000. The amendment would require the Treasury to commission a review to provide an opportunity to evaluate the effectiveness of the regulators, particularly the FCA, in implementing and effectively enforcing new powers in relation to individual standards rules and the licensing regime.
The amendment should allow for recommendations that may include the removal of powers from the current regulators or further separation within the current body. That would potentially allow for aspects covering licensing and individual standards rules to be considered for moving across to an independent professional body, should that be appropriate. That echoes the amendment that we on the Labour Front Bench successfully moved a short time ago.
Given the competing priorities for resources—which have the potential to be compounded with the inclusion of consumer credit regulation in 2014 and the payments system regulation, if approved—there is the concern that the FCA may struggle to carry out this challenging role it faces. Therefore, an independent review can assess the effectiveness of the FCA and PRA in being able to implement the recommendations made by the Parliamentary Commission on Banking Standards and, in doing so, provide feedback on how this can be improved, and whether it is more effective for the oversight and enforcement of the professional standards to be undertaken by a genuinely independent professional body.
Lord Newby
My Lords, I start by saying that we strongly agree with the last point made by the noble Lord; people who fall below the standards of conduct required of them should be held effectively to account. We have been discussing a number of ways in which the Bill will help to bring this about. I also appreciate the concerns of the noble Lord that we should take stock at some point and review whether the new system of rules of conduct has delivered an improvement in behaviour among bank staff—the kind of improvement that we are all agreed we want to see. I am not sure, however, that we need legislation to provide for that.
In the first place, the regulators themselves will keep their rules under review in the normal way. There will be no difference in that respect between rules of conduct for bank staff and any other rules that they make. They will similarly review their policy statements about taking action for misconduct under Section 66, and keep their policies and practices under review too. I expect also that the Treasury Committee in the other place, and possibly also the Economic Affairs Committee in your Lordships’ House, will want to keep such matters under review. Nothing, of course, stops the Treasury from commissioning reviews of these and other matters, if it thinks it appropriate. All these reviews can range as widely or as narrowly as is appropriate. They can cover the full range of matters in FiSMA or other relevant legislation—and any other matter as well.
I comment briefly on the point that the noble Lord made about the work of Sir Richard Lambert. We are putting great faith in Sir Richard Lambert to produce worthwhile movement. Having worked with him on other things in the past, I have considerable confidence in him to do that. However, we will have to see how that unfolds. It requires the banking industry to accept the need to take measures that it has not in the past. Sometimes that has been difficult for it. On the amendment, we do not need a mandate for such a specific review in the Bill itself.
Lord McFall of Alcluith
My Lords, given the form of the regulators in the past, the Minister’s words that the regulators will keep the review under review in the normal way are not inspiring. However, I beg leave to withdraw the amendment.
Lord Newby
Lord Newby
(a) meets condition A or B, and(b) is not an insurer.(2) Condition A is that the institution has permission under Part 4A to carry on the regulated activity of accepting deposits.
“(2A) Condition B is that—
(a) the institution is an investment firm,(b) it has permission under Part 4A to carry on the regulated activity of dealing in investments as principal, and(c) when carried on by it, that activity is a PRA-regulated activity.”
Lord Newby
“( ) For subsection (9) substitute—
“(9) “The authorised person concerned”, in relation to an approved person, means the person on whose application approval was given.””
Lord Newby
Lord Newby
Lord Newby
My Lords, we now move to a group of government amendments which pertain to the scope of the offence relating to a decision that results in bank failure. This offence was introduced through amendments to the Bill in response to a recommendation by the PCBS. As tabled in advance of the debates in Committee, and building on the FiSMA definition of “bank”, the offence would have applied to retail banks and building societies. This meant that all deposit takers except credit unions were covered.
As discussed in earlier debates on the scope of the senior managers regime, the Committee debate on 15 October has prompted the Government to reconsider this position. In the light of the persuasive arguments put forward in that debate, we are amending these clauses so that the offence may be committed not only by senior managers of a bank, but by senior managers of relevant authorised persons. “Relevant authorised person” is defined by government Amendment 106 to include banks and those investment firms that are regulated by the PRA as well as the FCA. These are known as systemic investment firms, because their large size means they have a significant impact on the wider financial sector. Smaller investment firms will continue not to be covered by the offence. This is because, like credit unions, they do not represent a significant risk to taxpayer funds, or to financial stability, and their failure is very unlikely to lead to serious harm to customers.
The Government shared this definition with the members of the former PCBS and are hopeful that the scope now captures those firms that the PCBS had in mind. I hope that these amendments fully meet the House’s concerns on the matter.
The other amendments in this group make consequential amendments to Clauses 27 to 28 which are necessary to give effect to this change, and improve the drafting of the existing provisions. There was also some debate in Committee over whether the cross-heading as tabled properly represented the offence. In the light of this, I have asked the House printers to amend the heading so it now reads, “Offence relating to a decision causing a financial institution to fail”. I trust that this addresses the concerns raised. I beg to move.
Lord Lawson of Blaby
I make one point of clarification on what my noble friend said. I apologise for my cold. It is absolutely necessary that the definition of “bank” should be extended in the way that the noble Lord has said. I am very pleased with that. He gave us a reason that these investment banks, or these investment institutions, might be a potential liability for the taxpayer. I hope he will withdraw that. It is very important that there is no taxpayer liability there. The reason we wanted it expanded is that we were concerned about banking standards, which was what this commission was all about: banking standards and culture. That is why it is necessary that there should be this regime for these banks, not because there might be a taxpayer risk or bailout.
NHS: Accident and Emergency Units
(10 years, 12 months ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Baroness McDonagh
To ask Her Majesty’s Government what plans they have for the future of NHS accident and emergency units.
Baroness McDonagh (Lab)
It might help the House if I explain why I have asked for this debate. I live near St Helier and St George’s Hospitals. The A&E at St Helier Hospital, which had 80,000 visits last year, may be closed. It is a regular district hospital. St George’s is not a regular hospital, but a regional and national trauma centre, specialising in strokes and coronary care, with very high unit costs. If St Helier were to shut, we all know locally that the people of that area would go to the A&E in St George’s—costing more, blocking beds and destabilising the hospital. That is because hospitals make money on their elective procedures and tend to lose money on emergency care. If you change that ratio, you soon put the hospital into the red. The London Borough of Merton commissioned some independent research and found the same thing. The researchers said, “We questioned CCG board members quite closely regarding their understanding of the baseline financial activity and quality position in Merton. We did not find a good understanding of the current resource position, nor how these resources were being used, and how such use would be compared to other parts of London and England as a whole”. I do not blame them for that, as they probably cannot get hold of the information in the rest of London or England. They go on to say, “Without a thorough assessment of these issues, there is a high risk of taking the wrong or even counterproductive action. For example, if financial problems are caused by high unit costs at St George’s, it makes no sense to close St Helier”.
I took my local knowledge, together with my understanding of what is happening to the NHS nationally, particularly around A&E, and put two Questions down. One Question asked how many A&E departments had been closed by the Government since they came into office in 2010. The answer came back, “We don’t know”. I asked how many A&E closures were currently under consultation. The answer came back, “We don’t know”.
Perhaps I could explain tonight to the noble Earl, Lord Howe, and to the Government, why it is important that they know how many A&Es they have, where those units are and how many are closing. The clue is in the title: National Health Service. The Government are responsible for the oversight, costs, management and planning of the health service. To do that, you need to know where your A&Es are. When A&Es close, maternity units normally follow. The Government are responsible for seeing that there are enough beds for mums to have their babies. They also tell us, because they have the figures, that the population is due to increase to 70 million—so shutting maternity units is probably not a good idea. You also need to know where the A&Es are because, when you shut an A&E, other clinical services close with them. If you shut St Helier A&E, you will also shut the regional renal unit. According to the evidence, you also reduce ITU beds and medical beds; hospitals cannot then meet their elective targets.
The Government also need to know, because—I do not know if this is shocking—they are responsible for disaster and emergency recovery planning, and generally it is a good idea to know where the A&Es are. They are also responsible for sending out the latest advice and, again, you cannot do that if you do not know where the A&Es are. Lastly, the closures of the four A&Es that have already happened have led to unintended consequences, and you need that information for forward public policy-making. We are getting worse results, it is costing more and the care is worse. All in all, it is a lose-lose situation. Closures are not working, largely because they have been built on six terrible government reforms, which are resulting in systemic failure in the NHS. No money announced today or two-tier A&Es will make a difference to that.
The first of the reforms that have led to the problems that we now face is the Government collapsing all targets. Then there is the terrible reform of giving GPs the NHS budget, which took from front-line services, and cost the Government, £3 billion. The Government have also overseen the closure of one-quarter of all walk-in centres, and Monitor says the future for the rest is dicey. They have also overseen cuts in the adult social care bill of £1.8 billion and cuts to aids and adaptations, so that we are seeing record numbers of elderly people go into hospitals through A&Es, who cannot then get out because the aids and adaptations have not been made. The fifth and sixth reforms were shutting NHS Direct and introducing the terrible 111 service. Doctors and nurses are leaving in their droves, and the Government have spent an extra £120 million on emergency medical locums compared to before. All these reforms have led to a threefold increase in attendance at A&Es, and now more than one in four people who go to A&Es are being admitted. If the ministerial health team were doctors, they would be struck off.
When I look into this, I cannot decide whether it is incompetence or ideology that is driving these changes. I fear that it is a dangerous cocktail of both. For me, it is perfectly legitimate in a democracy to be against a national health service, but you need to be honest about that, and it is important to have a debate. I will start that debate by answering my own questions. Four A&Es have been closed since 2010 and a further 15 face closure, which means one-third of all A&Es in the M25 area will close. Last week, NHS England announced that a further 60 A&Es out of 197 will close. Tomorrow, the A&E is closing at Trafford General Hospital, where Aneurin Bevan announced the birth of the NHS.
What am I asking the Minister for Health? I am asking him to call a moratorium on all A&E closures, to listen to the public, to commission independent research on what is happening and, above all, to find out where these A&Es are and to visit them.
Lord Patel (CB)
My Lords, in my three minutes, I will make some brief comments that will lead up to some questions for the Minister. In my view, the pressures on A&E departments are but one component of wider pressures in the NHS. There is a disconnect between A&E and other departments in hospitals, such as diagnostic and in-patient services, which, in contrast to A&E, are both geared to a five-day, nine-to-five working schedule. Added to that of course is the fragmented nature of patient services in the community, which leads to bedblocking and further pressures on A&E. We will have to address the problems of A&E, and the Keogh report goes some way to doing that, but the problems in A&E will not be solved by focusing on just one aspect of the service. The whole system needs to be co-ordinated and to work seamlessly.
Figures show that the main pressures on A&E come from people with long-term conditions. This in turn leads to pressures on in-patient services. This is due in part to poor access to primary and community care. What is needed, as has been discussed on many occasions, is better management of patients with long-term conditions so that they do not end up needing emergency care.
There are other issues. The issue of workforce problems in A&E further compounds the problem. I understand that there is a serious problem with recruitment of trainees, particularly specialist trainees, in A&E. There are also, of course, the vagaries of the tariff, which is set more in favour of elective work than emergency work. I note that the Keogh report tries to address that, or at least intends to explore it. I know that recently the Government have allowed more funds to help with A&E pressures but I am not sure what these funds are to be used for. I hope that the Minister will comment on that. It would be helpful if he could comment on whether the Government have a long-term strategy to cope with the increasing number of patients with long-term conditions, and on what plans the Government have for Health Education England to address the issue of workforce planning, which would help with A&E.
Lord Selsdon (Con)
My Lords, I thank the noble Baroness for introducing this debate. I declare an interest as a director of the construction company that built St George’s. We had quite a lot of trouble with it.
I will use as my text the wonderful brief produced by the Library. I declare an interest as having been on the Information Committee. I want to draw attention to the need to separate the main A&E centres from the patient. I take the point of the noble Lord, Lord Patel, that we should look to people who have a long-term condition, and generally are aware that they have a long-term condition. We should also look at the intermediate situation of what can be done at the place of an incident.
I have used 111 three times. When I first used it, I was quite surprised that I was dealing with foreign doctors who had relatively little knowledge but terribly pleased with the enthusiasm of these people who had only been in the business for a short period of time. There was a tendency to refer someone to A&E immediately rather than to look at what care might be given closer to the place of the incident or to a person’s home. In my day we looked to the district nurse, who seems to have disappeared from real life, or the retired doctor whom we knew down the road or the pharmacist. Our pharmacists in the United Kingdom are among the best in the world. They are extremely well trained and a very good point of contact.
When calling 111, you usually receive an answer to a telephone call quite quickly, and you receive a bit of guidance and advice, but the irrevocable next step is to be taken to A&E. One or perhaps two ambulances may then arrive.
I have often worked abroad and have been privileged to benefit from A&Es in other places. I once suffered from an extremely bad upset stomach in Cairo, which ended in rebuilding the sewers, where the A&E man arrived on a moped with only one working cylinder and a flat tyre and cured me within a couple of hours. He was the doctor to the Egyptian swimming team. Egyptian doctors are really quite good and he explained to me that every one of them was trained to deal with situations on the spot.
When I was in Italy, not so long ago, there was no doctor available when someone was ill so a hotel rang the transport department. The transport department has doctors on motorbikes on call for car accidents. They turned up and sorted everything out. This seems to happen in many places. I live in France part of the time, and there we do not call the health service when there is a problem, we call the fire brigade. They like exercises and they send a small fire engine—if the patient is a woman, there will be a woman with them—and they get patients to hospitals more quickly than ambulances.
There must be further thought on this. I ask your Lordships to read the Library’s report, as that is what I would have said if I were competent to do so.
Lord McKenzie of Luton (Lab)
My Lords, I am grateful to my noble friend Lady McDonagh for initiating this, albeit brief, debate. I plan to use my three minutes to focus on one point. Before I do so, I will say that it is hard to look aside from the mounting problems of A&E departments, spoken to powerfully by my noble friend and evidenced by the number of patients waiting longer than four hours, the numbers waiting on trolleys, the increase of bed days lost because of delayed discharges and staffing problems. A&E departments undoubtedly are struggling to cope. All of this is exacerbated, as identified by the Health Select Committee, by the inadequacy of information about the nature of the demand placed on the service.
There has been hardly any focus in the wider debate on accident prevention in the first place. Prevention would be investing to save: to save on pain and suffering, even death; to prevent days lost at school or work; and to save costs to the NHS, A&E and the welfare system. The current chaos compels us to be radical. At least one-third of the nation’s A&E attendances are the result of accidental injuries. There are millions of injuries every year that are 100% preventable, according to the Office for National Statistics. These injuries are rising as a significant proportion of the overall pressure on A&E because we have stopped investing in the tried and tested antidote. We should not be negligent about the safety of our citizens, our duty to our health professionals and the very future of our National Health Service.
The country’s longest-standing safety charity, the Royal Society for the Prevention of Accidents, of which I am delighted to say that I am now president and in respect of which I declare my interest, has already shown what can be done. In Liverpool, for example, it ran a home safety scheme, working with disadvantaged families with children under five. Equipment such as stair gates, fireguards and blind-cord shorteners were fitted in the homes of those most at risk. Parents were given practical advice to help them keep their children safe. This is not rocket science. The result was that A&E admissions for zero to five year-olds plummeted by about 50% over two years—against the trend, as home accidents have been rising steadily over recent decades.
There is no doubt that increased funding for accident prevention initiatives and a task force to co-ordinate national action could lead to a major reduction in the number of deaths and injuries and the call on A&E departments. The answer is not just more resources or different approaches to treatment, but an alternative that is staring us full in the face. Accidents are the main cause of preventable early death for most of our lives, costing the state £20 billion to £30 billion each year. Given all this, is it not time that we rediscovered that prevention is always better than cure?
Baroness Manzoor (LD)
My Lords, the first choice of most people who think that they need urgent medical attention is to go to their local hospital’s accident and emergency department. I understand that, as A&E departments are trusted by the public as a place of expertise and knowledge. However, as we know, our hospitals and A&E departments are under significant pressure to treat all those who come through their doors. On top of this, the Royal College of Surgeons states that A&E departments are understaffed by around 10% and that in some trusts, such as Barking, Havering and Redbridge University Hospitals NHS Trust, the figure is as much as 43%. The understaffing of A&E departments is a serious issue.
Following the disgraceful events at Mid-Staffordshire hospitals, the Government have given their total commitment to putting patient care first and ensuring that patient safety should always be paramount. However, it is clear that running A&E departments that are under-resourced and poorly staffed poses a high risk to patient care and patient safety. This issue needs urgent attention by the Government and the NHS health board and I look forward to the Minister’s response on the plans that the Government have to rectify this and the timescales involved.
I too have read Sir Bruce Keogh’s review of urgent and emergency care services in England and I agree with the report’s proposals that there must be a “fundamental shift” in the provision of urgent care. I agree with much of the report, which is reasonable. But what we need now is strong leadership to deliver.
I have also read the July 2013 survey findings from the NHS Confederation, which found that its members thought three main solutions could lead to fewer pressures on A&E departments. The first was more money for primary and community care. To this, I would add more extended primary care out-of-hours services provided by GPs. These could be sited in hospitals or perhaps close to A&E departments. This would enable GPs to work in much greater collaboration with hospital A&E staff and could provide the patient with much needed seamless care.
Secondly, winter pressure money for hospitals should be allocated sooner. I would further argue that this money should be part of hospitals’ general allocation so that they can plan service delivery for all their services in a more effective, planned and co-ordinated way. Thirdly, there should be a public-facing campaign about all the alternatives to emergency departments, but these alternatives must provide a good quality of care and service if they are to have the trust of the public.
The Government are moving in the right direction by allocating specific funds, but it is not just about turning the tanker, it is about making our hospitals and GP services fit for the 21st century.
Baroness Masham of Ilton (CB)
My Lords, there is confusion at the moment about where people go when they need treatment at weekends and at night. There is considerable difference between urban and rural health. I thank the noble Baroness, Lady McDonagh, for initiating this very topical debate.
Rural health has changed so much from the days of the family doctor, when he or she knew their patients. Now the doctor is dependent on the computer. My surgery in rural North Yorkshire opens at 9 am, is closed each day from 12.30 pm to 2 pm, has a historical half-day on a Thursday, shuts each day at 6 pm and is shut over the weekend. The out-of-hours service at Ripon is 10 miles away and does not have anyone to operate the X-ray so it has to be the hospitals, which are 26 and 16 miles away. There are no alternatives to the A&E departments. This is not good for elderly, frail people who need attention.
In rural areas there are serious farming injuries and all the usual conditions, but also such conditions as leptospirosis—Weil’s disease—which can be a killer. I agree that serious conditions should go to the correct hospital, however far away, and I must say that the air ambulance is invaluable and supported by the rural communities. Will having two types of emergency department—one an emergency centre and the other a major emergency centre—not cause more confusion? To which centre should a parent take a child with suspected meningitis B, which can kill within 24 hours?
More integrated care in the community is essential. With all the long-term rare conditions and conditions such as diabetes and liver disease, a specialist nurse is vital and can be a lifeline. One of the problems in the community is not being able to have a drip for antibiotics, and not being able to get antibiotics without a doctor means that ill people have to go to hospital. I am sure that if everyone learnt first aid and it was taught in schools, colleges, prisons and the community, lives would be saved.
Up-to-date information about what is available and where to go for treatment in rural areas would be helpful and would reduce confusion. I end by asking the Minister: with the shortage of emergency doctors working in A&E departments, what is being done to recruit and retain them? They need support so they do not get overburdened and disillusioned. They are essential.
Lord Dubs (Lab)
My Lords, I congratulate my noble friend Lady McDonagh on having initiated a debate that enables us to draw attention to the serious crisis in A&E, which is evidenced by people waiting long hours on trolleys or in ambulances, the consequence of social care cuts, the fact that walk-in centres are being reduced and that NHS Direct has been closed down, all of which aggravate the problem.
I will focus my remarks on north-west London, which has been hit harder than most parts of the country. It is going to lose four of its nine A&E services and two of its major hospitals; for example, at Charing Cross Hospital 500 acute beds are going to disappear and will be replaced by up to 50 rehab beds. It means that the service at Charing Cross will be manned by GPs. There will not be a proper A&E service. There will not be a blue-light service at Charing Cross Hospital and people will have to travel much further. We are losing an excellent hospital for the sake of these cuts.
Above all, it means that the intensive care unit at Charing Cross will be closed; the stroke clinic, which I understand is probably the best in the UK, will go; and there will be no emergency surgery. It means that all the current beds and most of the site will go, mostly likely to be sold for development, and we shall lose an excellent hospital. It means that Charing Cross will become a second-tier site and there will be a knock-on effect at Hammersmith Hospital, which is also going to be hit very hard.
Services in north-west London will be decimated and patients will have to travel much further to go to A&E. In the heavy traffic in London, that is not a small thing. It is not a matter of an extra two or three minutes; it could be an extra long period before an emergency can be dealt with. What we will have locally is some very limited services indeed and we shall lose some of the skills and expertise that we have had.
At Charing Cross there will be GP cover; they will be able to treat simple fractures and will have some beds on site that can admit patients, mainly the frail elderly, for short periods of rehab or assessment. But there will be no emergency service at Charing Cross and nearby Hammersmith will have only an urgent care centre, which will not guarantee to walk-in patients that they will be seen by a GP, and there will certainly be no blue-light service.
We are losing a lot of our services in north-west London and I fear that the standards of the National Health Service will deteriorate. It is not necessary to do this and I very much regret that it is happening.
Lord Kakkar (CB)
My Lords, I join noble Lords in thanking the noble Baroness, Lady McDonagh, for having secured this important debate. I declare my interest as professor of surgery at University College London and chairman-elect of UCLPartners Academic Health Science Partnership.
No consideration of the future plans for accident and emergency departments can take place without recognising the important factors that are driving demand in A&E. The most important of these is the growing number of frail elderly patients with multiple comorbidities, as my noble friend Lord Patel has already mentioned. The population aged over 85 has grown at more than three and a half times the rate of the rest of the population in the past 10 years. It is striking that 9% of those aged over 75 have experienced an emergency admission through accident and emergency in the past year. This demonstrates that there is considerable demand and that this considerable demand will grow.
We know that the way that we plan and deliver services for those who are frail, elderly and have multiple comorbidities is not providing the kind of service, the degree of confidence and the relief of anxiety that these patients require. We also recognise that those who are cared for in nursing homes and care homes, who find themselves in an acute situation, will be attended to by excellent paramedics and the ambulance service, but the default position will always be to take these individuals to hospital and very frequently for these individuals to be admitted and then to spend long periods of time in hospital. This is wrong.
With regard to the plans of NHS England, can the Minister tell us what advice is now being provided to local commissioning groups in terms of the commissioning of more holistic and integrated services that recognise the needs of the frail elderly in the community and can better understand how those needs are met, and how the services are delivered in an integrated fashion with local hospitals, while avoiding admission through accident and emergency?
What discussion has taken place about addressing the important problems of workforce development, to help us ensure that we have a medical and paramedical workforce developed for the needs of these large numbers of frail elderly patients with multiple comorbidities? What position has Health Education England taken, and how is this central advice being delivered to local education and training boards to ensure that an appropriate workforce is delivered, able to deliver multidisciplinary care to reduce the demand on accident and emergency services and manage patients rather better in the community?
Finally, may I ask the Minister how much progress has been made on the development of locally sensitive information technology projects that allow a connection between information held on frail elderly patients with multiple comorbidities in different care environments, be it in social care, in primary clinical care in the community or in hospital care? Such information could be shared effectively to reduce the burden on accident and emergency departments.
Lord Kennedy of Southwark (Lab)
My Lords, I am most grateful to my noble friend Lady McDonagh for securing this debate on the future of NHS accident and emergency units. At the start I declare an interest: I chair, on an entirely voluntary basis, a small committee at Lewisham hospital. It is impossible in just three minutes to get across the scale of the problems and the anxiety and concern of local communities about the A&E crisis that is unfolding before us as the winter sets in.
What did the Government do as soon as they came into office? They had a top-down reorganisation of the NHS, after pledging not to do that, which only made matters worse. What is clear is that this is the Government’s problem. It has happened on their watch, with poor implementation of their already flawed policies, and the cuts they have made to the NHS, to social services and other budgets. There has also been the running down of NHS Direct and the ramshackle way in which the NHS 111 service has been introduced.
I hope the Minister will be able to tell the House how the Department of Health and the NHS are going to respond to the challenges they face, and how they propose to do that with thousands and thousands fewer staff than we had only a few years ago. I fear that things could be even worse than last winter, and we will be back with rising numbers of patients waiting on trolleys at A&E.
We have already had an A&E summer crisis, with more than 1 million people waiting more than four hours to be seen, all on the Minister’s watch. The problem is all of this Government’s own making, and they are not going to get away with trying to wriggle out of it. The Minister and the rest of his team would have us believe that it is everyone else’s problem—it is the doctors’ fault, and the fault of the nurses, the GPs, the porters, the radiographers, the support staff, the patients, or even the weather. It is too cold, or it is too warm, or it is the wrong time of the year. But it is this Government’s problem; it is down to mismanagement by this Conservative and Lib Dem coalition.
If the Minister is going to tell us the problem is caused by too many people going to A&E when they should go somewhere else, can he tell the House why the Government cut Labour’s extended opening hours for doctors’ surgeries and why they are closing NHS walk-in centres up and down the country? Can he confirm how many walk-in centres have closed since the Government came into office? Why did they close NHS Direct, and why did they introduce NHS 111?
My noble friend Lady McDonagh has got it right. We have a dangerous mix of incompetence and ideology. They want to get rid of the NHS, but they realise how unpopular that would be, so instead they pare down to the bone, to the minimum that they can get away with.
Baroness Finlay of Llandaff (CB)
My Lords, I should declare, in this important debate, that my daughter is an A&E consultant in London. The current crisis is multi-factorial, at the one place in the system that is open 24 hours—open all hours, in fact. As the National Audit Office report, Emergency Admissions to Hospital, says:
“A&E departments are facing increasing pressure and there is evidence that at times of increased pressure there is a greater tendency to admit patients. Urgent access to primary care is variable and has been linked to higher A&E attendances … the severity of patients in major A&E departments is worsening, with higher proportions of patients arriving via ambulance and a sharp increase in the percentage of patients attending A&E … who are then admitted".
The College of Emergency Medicine also highlights insufficient workforce capacity, with 383 of 699 specialist registrar posts in emergency medicine unfilled. That equates to a capacity of 1 million patient contacts a year. There is also an exit block from A&E departments through delayed hospital discharges, estimated at 830,000 last year, which reduce bed capacity. This is compounded by inadequate ongoing community social support for those sent home. The £500 million in extra funding over two years has been targeted on those with the worst A&E performance last winter, and an extra £150 million was announced. Can the Minister confirm that this money will go directly to provide A&E services and its distribution will not inadvertently penalise departments that radically changed practices in their struggle to perform?
The staffing crisis jeopardises care. Consultant numbers need to rise from the current average of seven to a minimum of 10 per A&E to allow consultant cover 365 days a year from 8 am to midnight, with higher numbers of consultants in larger trauma centres. Today’s registrars are tomorrow's consultants, and this has to be a consultant-led service, because rapid diagnosis is absolutely essential for the complex trauma and urgent cases that are in the high-risk categories. These are not simple cases coming through the door; they present completely unselected problems.
The relentless pressure of work has driven more than 50 A&E consultants to emigrate this year—a tenfold rise. The College of Emergency Medicine survey of more than 1,000 consultants found that overall, 62% report that their current job plans are unsustainable, while 94% of respondents regularly work in excess of their planned activities.
The Keogh review is a longer-term attempt to solve the crisis. But it is silent on the workforce issues. Can the Minister assure me that these are being urgently considered? What is planned to develop primary care and better co-ordinated community care for a seven-day service? How quickly will the needed IT support be introduced, and how will the system of two-tier A&Es be implemented—over what timescale—to ensure that geographically remote regions are serviced without greatly increasing journey times to hospital and so risking higher patient mortality? This is not a simple problem.
Lord Hunt of Kings Heath (Lab)
My Lords, I first declare an interest as chair of a foundation trust, president of GS1 and consultant and trainer with Cumberlege Connections.
I too am grateful to my noble friend for raising such an important issue. The case she put for her local hospital, St Helier, was put with great force. The issues she raises are symptomatic of a whole range of issues around emergency care. They are well known, and they are symptomatic of a near collapse of the system in many parts of the country. My noble friends have already referred to the inexplicable closure of walk-in centres, and I ask the Minister why NHS England has pressurised clinical commissioning groups to close those centres. That has exacerbated poor access in primary care, and people are often left with no choice but to turn to A&E, with hospitals becoming very full as a result.
As my noble friend Lord Dubs said, the discharge of patients is becoming ever harder because the severe cutbacks in social services have impacted on councils’ ability to provide community support. The result of this cumulative failure is that more and more old people are left without the care and support needed to let them stay at home.
I want to reinforce a question asked by the noble Lord, Lord Kakkar. What are clinical commissioning groups doing about this? They are, as it were, the treasure of the Government—the people who are supposed to be able to sort the situation out. I see no sign whatever of their getting to grips with the issues. I echo the noble Baroness, Lady Manzoor, in asking; why on earth were they given the money to spend in relation to A&E? Why not give it to the hospitals to spend where it would have an impact on the system?
At a time when the NHS should be focusing all its energies on getting the system to work properly, as my noble friend Lord Kennedy says, the Government have forced it to spend the past three years implementing a costly and completely unnecessary structural change. Remarkably, during that time, rather than increasing staff we have seen a loss of more than 6,600 nurses.
There is a pressing need to integrate health and social care, provide whole person care and prevent avoidable admissions to hospital. That would also embrace the comments of my noble friend Lord McKenzie about accident prevention. Urgent emergency care has a similar need of change. Of course, the recent review by Sir Bruce Keogh argues for a “fundamental shift” in the provision of urgent care and for introducing two types of hospital emergency department with current working titles of emergency centres and major emergency centres. I am not opposed to reform of emergency care, but it is essential, before there is a stampede of closures of current A&E departments, that decisions are based on robust clinical evidence. Any signs of closure for financial reasons must be resisted. I agree with my noble friends Lord Dubs and Lady McDonagh about the domino effect of A&E closures on the services in those hospitals.
I finish by reminding the Minister that what happened in the case of Lewisham hospital was quite disgraceful. A good hospital suddenly found itself having its A&E proposed for closure to shore up problems in neighbouring hospitals. It is shameful that the Government forced through an amendment in the Care Bill to make this kind of thing much easier to force through in future. The Government’s disastrous reforms and failure to manage the system are putting the NHS under ever more pressure. It is time that they got a grip.
The Parliamentary Under-Secretary of State, Department of Health (Earl Howe) (Con)
My Lords, I join other noble Lords in thanking the noble Baroness, Lady McDonagh, for raising this important issue, in which I know that she has a significant interest. I thank other noble Lords who have contributed to this very interesting debate.
I would like to respond initially by explaining the Government’s policy with regard to service change in general, before moving on to the provision of care in A&E specifically. I find it difficult to say much about the noble Baroness’s speech beyond observing that there is such a gulf separating us in our respective understanding of the facts and what is actually happening in the NHS that I shall have to write to her—and I shall do so.
The Government are absolutely clear that the design of front-line health services, including accident and emergency units, is a matter for the local NHS. It is the policy of this Government that services should be tailored to meet the needs of the local population. Reconfiguration is about modernising the delivery of care and facilities to improve patient outcomes, develop services closer to home and, most importantly, to save lives. Therefore, all service changes should be led by clinicians, and be in the best interests of patients, not driven from the top down. That is why we are putting patients, carers and local communities at the heart of the NHS, shifting decision-making as close as possible to individual patients, by devolving power to professionals and providers, and liberating them from top-down control.
Lord Hunt of Kings Heath
My Lords, if that is so, why has NHS England put so much pressure on clinical commissioning groups to close walk-in centres? It is simply not happening that clinicians are deciding. The fact is that NHS England is carrying on a micro- management of what is happening; it is simply not playing out in the way that the noble Earl describes.
Baroness McDonagh
I have another example. If what the Minister said were true, how did the Secretary of State for Health try to shut Lewisham general when all the clinicians called for it not to be shut?
Earl Howe
I shall say more on Lewisham in a moment. This is a time-limited debate, and I hope that I may be allowed to conclude my speech.
The principles that I have just enunciated are further enshrined in the four reconfiguration tests first set down to the NHS in 2010, which all local reconfiguration plans should demonstrate. These are support from GP commissioners, strengthened public and patient engagements, clarity on the clinical evidence base, and support for patient choice.
Our reforms allow strategic decisions to be taken at the appropriate level. We are enabling clinical commissioners to make the changes that will deliver real improvements in health outcomes. That is the purpose of reconfiguration. Furthermore, local commissioners proposing significant service change should engage with NHS England throughout the process to ensure that any changes are well managed strategically and, crucially, that they will meet the four tests that I have just referred to.
Given the scale of change across the health system, it is important that local NHS organisations are now supported when redesigning their health services. We are working with our national partners, NHS England, the Trust Development Authority and Monitor, on the continuing design of the interfaces, roles and responsibilities of organisations in the new system. For example, stroke care in London, which has been centralised into eight hyper-acute stroke units, now provides 24 hours a day, seven days a week acute stroke care to patients regardless of where they live. Stroke mortality is now 20% lower in London than in the rest of the UK, and survivors, with lower levels of long-term disability, are experiencing a better quality of life. That is why we must allow the local NHS to continually challenge the status quo and look for the best way of serving its patients.
I turn specifically to accident and emergency departments and points raised by a number of noble Lords. The NHS is seeing more than 1 million additional patients in A&E compared to three years ago and, despite this additional workload, it is generally coping well. I can say to the noble Lord, Lord Kennedy, that we are meeting our four-hour A&E standard and have done since the end of April. The latest figures show that around 96% of patients were admitted, transferred or discharged within four hours of arrival. There are now 500 more A&E doctors in the NHS than there were under the previous Government. Trusts expect to hire 4,000 more nurses, due to the Francis effect, as a result of the public inquiry that the party opposite decided not to pursue.
I have heard many noble Lords describe the current situation as a crisis. I do not share that perception. The NHS is performing well under pressure. Dealing with an extra 1 million patients in A&E does, however, mean that we must look at the underlying causes. Providing urgent and emergency care for people is not just about A&E. It is about how the NHS works as a whole and how it works with other areas such as social care, and how it faces up to the challenge of an ageing population of more people with long-term conditions. Therefore, the Government are taking action to respond to the immediate winter pressures and, looking longer term, we will tackle the unsustainable increasing demand on the system.
NHS England, Monitor and the Trust Development Authority, working with ADASS, have been working together on the A&E improvement and winter planning since May. Staff across the service have worked extremely hard to prepare this year and are committed to making sure that their plans are robust and that patients will receive the services they should expect and deserve. This process was started earlier and is more comprehensive than in previous years. We are determined to do everything we can for the NHS to continue providing high-quality care to patients throughout the winter, which is why we are backing the system with additional funds in the short term to help local areas prepare for and manage additional pressure during the winter.
We have allocated £250 million of funding to NHS England to help cope with winter pressures, with another £250 million for 2014-15. There will also be an extra £150 million from within the NHS England existing budget this year to ensure that everywhere receives a fair share of the funding.
It is, however, clear that the current situation is unsustainable in the long term. That is why we asked Sir Bruce Keogh to lead a review of urgent and emergency care with the first phase published on 13 November, which was also roundly welcomed by the system, including, as noble Lords will be aware, by the NHS Confederation and the Royal College of Surgeons. There will be a further update in spring 2014.
The review is aimed at delivering system-wide change, not just in A&E but across all health and care services in England by concentrating specialist expertise where appropriate to ensure that patients with the most serious illnesses and injuries get the best possible care and ensuring that other services, such as primary and community care, are more responsive and delivered locally. This will mean that people will understand how to access the most appropriate treatment in the right place as close to home as possible.
The noble Baroness, Lady McDonagh, the noble Lord, Lord Patel, and others referred to NHS 111. The introduction of the NHS 111 service is part of the wider revisions to the urgent care system to deliver a 24/7 urgent care service that ensures people receive the best care from the best person in the right place at the right time. This is not only government policy; it was a policy fully signed up to by the previous Government and initiated by them. Although NHS 111 has had a difficult start, we have backed the service with a £15 million fund to support it over the winter. NHS 111 now deals with more than half a million calls a month, and 97% of them are answered in under a minute. The first phase of the urgent and emergency care review sets out a significant expansion and enhancement of the NHS 111 service so that patients know to use the 111 number first time, every time, for the right advice or treatment.
NHS Direct, which was referred to by the noble Baroness, Lady McDonagh, and the noble Lord, Lord Patel, will continue to provide 111 services to patients until alternative arrangements can be made by commissioners. The transfer of NHS Direct’s 111 services is progressing well.
Together with NHS England, we are putting together a strategy focusing on the people who are the heaviest users of the NHS, vulnerable older people and those with multiple long-term conditions. Here I am addressing particularly the points raised by the noble Lords, Lord Patel and Lord Kakkar, and my noble friend Lord Selsdon. The vulnerable older people’s plan will focus on improving out-of-hospital care services centred on the role of general practice in leading proactive, person-centred care within a broader team and is due to be published later this year. A key element of the plan is the provision of joined-up care for vulnerable older people, spanning GPs, social services, and A&E departments themselves, which is overseen by an accountable GP. The aim of proactive care management is to help keep people healthy and independent longer.
A number of noble Lords referred to the workforce challenge. Health Education England is working with stakeholders on a number of innovations to help alleviate the workforce problems in emergency medicine. Through the Emergency Medicine Workforce Implementation Group, Health Education England will work to develop alternative training routes for emergency medicine and a range of mid-level non-doctor clinician posts. They will work with NHS England on potential workforce and training requirements.
I would like to address the point made by the noble Lord, Lord Kennedy, about Lewisham. Lewisham’s A&E is not closing. The TSA proposals were a response, as he is well aware, to a very difficult, long-standing challenge facing south London. The new Lewisham and Greenwich NHS Trust must now work with its commissioners and community to deliver a clinically and financially sustainable future. As regards north- west London, which the noble Lord, Lord Dubs, referred to, the Secretary of State has endorsed the recommendations of the Independent Review Panel, and it is now for CCGs in north-west London, working with NHS England, to take this forward. The decisions here were supported by all the commissioners in the area and all the medical directors in the trusts and all but one of the relevant local authorities.
My noble friend Lady Manzoor spoke about public awareness and engagement. I agreed with a lot of what she said. Through our reforms we have strengthened local partnership arrangements through health and well-being boards. These will provide a forum where commissioners of services, local authorities and providers can discuss the future shape of health services. As I have said, local cases for clinical change should be driven from a local level. We know that these reconfigurations work best when a partnership approach underlies them.
The NHS is one of the greatest institutions in the world. Ensuring that it is sustainable and that it serves the best interests of patients sometimes means taking tough decisions, including on the provision of urgent and emergency care. However—and this is the thought which I leave with your Lordships—those decisions are made only when the local NHS, working with local people and local authorities, is convinced that what it proposes is absolutely in the best interests of its patients.
Financial Services (Banking Reform) Bill
(10 years, 12 months ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Lord Brennan
“(i) takes or agrees to the taking of any decision or the carrying on of any activity by or on behalf of B as to the business of a group bank, or”
Lord Brennan (Lab)
My Lords, in moving this amendment I am gratified to see so few people in the Chamber. I drafted two amendments in this area of the Bill and found to my astonishment that the Public Bill Office had converted them into 10. The excess is not due to lowly endeavour. Their quantity does not overcome their simplicity, which is designed to improve the drafting of this section; the section creates a major new criminal offence in respect of banking.
I draw the attention of the House to the following facts. First, because it is a criminal offence in nearly all circumstances it would have had full attention from both Houses. Secondly, however, in this Bill’s history, this offence was not in the original Bill before the other House. It is a criminal offence of a major kind that will have serious attention only from this House, because, thirdly, if it goes back to the Commons in a shuttle process it is hardly likely to receive the appropriate attention that it would otherwise merit. That is an important question.
As the House agreed when this first came up in debate, one of the main purposes of the draft offence was to phrase it to create a major deterrent just by its wording. Of course people who transgress can be punished, but one would devise this kind of offence in order to deter people from thinking of committing it. Therefore, its wording is extremely important—more than in most circumstances. Many criminal offences are the result of spontaneous behaviour. This offence is directed at what you might call systematic misconduct.
With those points in mind, I turn to the amendments. First, Amendment 84 is not pedantry. In the Bill’s present wording on decisions with which the amendment deals,
“as to the way in which the business of a group … is … carried on”,
the use of “way” in this phrase is in legal terms extremely loose. When it is substituted by the word “activity”, as in,
“carrying on of any activity”,
it is more precise. The word “activity” is defined as behaviour or actions of a particular kind, whereas “way” is much more nebulous. This amendment is a drafting one designed for precision. If one did not want to accept it, one would want to be persuaded why “way” is more accurate and more easily understood by a jury than,
“carrying on of any activity”.
That amendment is straightforward. Amendments 88, 91, 93 and 99 carry on its usage in other parts of the clause. Amendment 105 makes clear the words “decision” and “activity”, although the singular includes the plural. Amendment 84 and consequential amendments stand apart from what I shall add. It is a simple and sensible amendment.
On Amendment 95, when you are dealing with corporate activity and the decisions or activity of a group of individuals that lead to a major event such as the failure of a bank, all that imports a mixture of events and circumstance. Therefore, with that background, one must be very careful in a legal context about using just the word “cause”. You face the inevitable argument from defendants: “I may have done something wrong, but it wasn’t the real cause”. Most statutes that deal with this kind of issue use words like the ones in this amendment or in the amendment in the name of the noble Lord, Lord Phillips, “cause”, or “contribute significantly to”. That wording prevents defendants inviting juries and judges to enter into philosophical discussions about the extent of causation by virtue of the acts that were committed. That is extremely important; when it comes to a trial we deal with juries, and we want language that will enable them to come to common-sense conclusions. I suggest to the House that this is a commonsense amendment; the amendment in the name of the noble Lord, Lord Phillips, is to the same effect but with slightly different wording. Therefore, that also stands apart.
The next issue is recklessness. The noble Lord, Lord Deighton, on opening at Second Reading, said that this created an offence of “reckless misconduct”. The terms of the offence do not use the word “reckless” as we identified it on the previous occasion. That is extremely important, because at Clause 80(6) in the same Bill the intended statute creates an offence of recklessness. It actually uses the word “recklessly” to describe a certain action. It can be guaranteed that lawyers will argue that if a statute uses the word in one clause but not in another, then where it was not used it was not intended. How could Parliament describe two offences as having the same effect, using the word “reckless” in one but not in the other? That point therefore requires us to consider whether the wording covers recklessness to an adequate extent.
In the helpful but indeterminate discussion that I had with Treasury and Home Office lawyers, it crossed my mind that the case which they mentioned—a case called Cunningham—is not the current Supreme Court authority on the word “reckless” in this kind of offence. The appropriate authority to look at is R v G in 2004. The wording is simple. The decision says that a person acts recklessly with respect to a result if he is aware of a risk that it will occur—that is straightforward enough—and it is, in the circumstances known to him,
“unreasonable to take the risk”.
The intention of that case was to produce a definitive meaning of the word “reckless” for general criminal law. Therefore, let us test that standard set by the Supreme Court against the present wording, to determine whether it meets the current judicial test and whether it should match that test or if there is justification for a different test. This offence differs from R v G in three ways.
The first is the use of the phrase,
“far below what could reasonably be expected”,
rather than, “is unreasonable”. It makes a difference. This means that the jury will be told—in a case where a judge will have to determine whether there is an offence of this kind—whether “far below” only creates criminal liability for the most egregious acts or omissions—disastrously bad mistakes which jump off the page. That is what “far below” imports. This, to many, would strike one as an extraordinarily lenient way of approaching people who ruin a bank—that they should only be liable if they have been guilty of the most stupid and egregious mistake. That difference, having regard to the risk, is not justified. In this amendment, therefore, “far below” is deleted so as to be replaced by the words, “is unreasonable”.
The second point, by way of a difference to the case of R v G, is that the risk to be guarded against by the people involved is the failure of a bank. Therefore, to favour such conduct with a narrow test—the most egregious conduct—appears to be unwarranted in social justice terms. Why should this test be narrow? If, as I understand it, the offence is intended, despite my suggestion to the contrary that it does not in Committee, to involve wilful blindness—people deliberately avoiding looking at the risk— how is a judge or a jury going to assess somebody who is wilfully blind so as to be totally unreasonable, compared to somebody who is wilfully blind in the most egregious of circumstance? It is a complete paradox of terminology. You are either blind to the risk or you are not. The concept of extensive, as opposed to minimal, wilful blindness is absurd. It is an invidious distinction and will produce serious confusion. The fact that it is used in corporate manslaughter terms is not to the point. As I indicated in Committee, a corporate manslaughter event is usually an explosion, a building collapse, or a crane falling over: the circumstances cry out as indicating the “far below” standard compared to ordinary industrial safety standards. It is not the same circumstance; it is not an appropriate analogy.
The third difference that I suggest to the House is unwarranted is the test. If you look at the offence outlined in Clause 27(1)(c), the test is whether the conduct fell “far below” or was unreasonable, having regard to,
“what could reasonably be expected of a person in S’s position”.
In this context, the unreasonableness of conduct should be tested against the standards of people in that position: the unreasonableness, not gross unreasonableness. There is already a test that can be used and the “far below” point simply does not add to that. What could reasonably be expected of a person in his position is enough.
The House has been patient in listening to this. The fact is that in a few minutes I have summarised what will take days in court hearings about what this all means. What we want to avoid is the occurrence of court hearings. We do not want terminology that will provoke legal argument. The supposed improvements by these amendments that I have advanced at this stage have been debated before. If the Government are not sure of their ground regarding what judges and juries will do, they really ought to take independent opinion from Treasury counsel, not internal lawyers who have no real experience of criminal litigation. I commend these amendments to the House.
The Deputy Speaker (Lord Faulkner of Worcester) (Lab)
I must advise the House that if Amendment 84 is agreed to, I shall be unable to call Amendments 85 to 87 for reasons of pre-emption.
Lord Phillips of Sudbury (LD)
My Lords, my name is on the 18 amendments in this group and I am the sole signatory on eight of them. I endorse entirely what the noble Lord, Lord Brennan, said. He speaks from great experience, which is of great help to the House.
One of the scandals—I think one can fairly use that word—of the past five years in terms of financial failings has been the extreme paucity of prosecutions for some of the greatest criminal failings, to use a neutral word, in the history of our or any country. It is rather staggering to think that over the past five years you can count on the fingers of your two hands the number of City malefactors who have been prosecuted, when during that time probably 20,000 or 30,000 people have been prosecuted for shoplifting at an average of £25 a time.
I tabled these amendments not in any spirit of vindictiveness—one can also say that, I am sure, of the noble Lord, Lord Brennan, and the other signatories—but to try to give real teeth to a very important clause, Clause 27, which is designed and put forward on the basis that it will be a significant deterrent to conduct arising in the future which is comparable to the conduct that has occurred in the past five or six years. The wording of Clause 27(1) in particular seems to those of us who have tabled these amendments to be so narrow—to cite the word used by the noble Lord, Lord Brennan—that the prospects of getting a conviction before a jury, or, indeed, starting to prosecute at all, will be remote. To give a simple, direct example of that point, Clause 27(1)(b) makes plain that a conviction can be secured only if the implementation of a single decision—“the decision”—causes,
“the failure of the group bank”.
When, except in the rarest of circumstances, did a single decision cause the failure of a bank? Life is much more complicated. Very often a series of decisions is involved and even then you cannot say that the decision or decisions cause the failure but rather that they,
“contribute directly and significantly to”,
the failure of a group bank, as I have put it in my amendment.
We have tabled these amendments to give practical effect to Clause 27 and other clauses. They are important clauses and we must not shackle them with such a narrow set of requirements that they will not serve their purpose. We should never forget that British criminal law is rightly strictly construed, and construed against the prosecution. If you think of that and you think of the wording in the clause, you will realise that it is not fit for purpose. I hope that if my noble friend the Minister does not accept the wording of these amendments—they could be drafted differently—he will at least undertake to come back at Third Reading with wording that the Government find acceptable and which will serve the purpose that we seek to serve in putting these amendments forward.
Lord Eatwell (Lab)
My Lords, having listened to my noble friend Lord Brennan and the noble Lord, Lord Phillips, I found this discussion quite disturbing. The creation of a criminal offence is one aspect of the Bill that pushes forward the regulatory regime in the UK and creates an environment more suited to the somewhat cavalier nature of finance in a global marketplace—in particular by identifying those activities that have inflicted enormous harm upon our fellow citizens. What I heard was that, as drafted, the probability of securing a conviction or even a prosecution, as the noble Lord, Lord Phillips, put it, is vanishingly small. Unless the terminology is clarified in a way laid out so clearly by my noble friend, this part of the Bill will simply bring that aspect of regulation into disrepute because it will be worthless. That is why I regard the remarks that I have heard from the two distinguished lawyers who have just spoken to be very disturbing. It is incumbent upon the Government not simply to produce a pat answer here this evening but again to produce a carefully written assessment of the case for an appropriate criminal regime and its implementation in order that the whole House has an opportunity to assess this important aspect prior to Third Reading.
Lord Newby (LD)
My Lords, these amendments essentially aim to make three changes to the criminal offence: first, to allow defendants to be prosecuted under the offence when a number of decisions taken together cause the bank to fail; secondly, to enable the offence to be made out when the decision or decisions in question were a significant contributory factor to the failure of the bank, rather than its sole cause; and, thirdly, to include within the definition of bank failure the systematic failure of the bank to prevent liability with regards to broader criminal offences.
On the first two issues, while I understand noble Lords’ concerns, I assure them that these amendments are not necessary to deliver the effects they intend. First, I assure noble Lords that, as a matter of law, under Section 6 of the Interpretation Act 1978 words in the singular include the plural unless express provision is made otherwise. The term “decision” includes “decisions”, plural. Therefore, where appropriate, it will be possible to prosecute on the basis of the implementation of a number of decisions. The Interpretation Act 1978 ensures that it is not necessary to repeat the defined terms or make express provision for the singular to include the plural in every single statute. The case for abandoning that practice seems rather minimal in this instance.
Moreover, in practice we generally expect a prosecution of the offence to focus on one individual decision in order to maximise the ability of the prosecution to make its case effectively when asking the jury to consider what are likely to be very complex events. This would enable the prosecution to focus on the causal relationship between the implementation of one decision and the failure of the bank, where that relationship seems to be most clear. In these cases, any other relevant decisions would be taken into account by the jury as the circumstances in which the key decision was taken, when the jury was deciding whether the defendant’s behaviour fell far below that which reasonably could be expected of him or her. For example, a decision to take on a risky acquisition may be more or less reasonable depending on earlier decisions to strengthen or weaken the bank’s capital position.
These amendments also include references to agreeing to the carrying on of activities by a firm. This would add nothing to the offence as currently drafted, since the reference to agreeing to the firm carrying on certain activities assumes that those activities in some way require authorisation and this must involve taking a decision, or agreeing to the taking of a decision, by or on behalf of the firm, and is therefore already included in the offence.
Moving on to Amendments 94, 95, 100 and 102, under general principles of criminal law the test for an action having “caused” an event to occur is that, had that action not been taken, the event would not have occurred. Therefore, in this specific offence the test is that, if the decision or decisions in question had not been implemented, the bank would not have failed. The implementation of the decision need not be the sole or even the main cause of the bank’s failure. In practice, because of the evidential standard that applies to criminal cases, we expect that cases will be prosecuted only where it is very clear that the implementation of the decision or decisions in question was a significant contributing factor to the failure of the bank.
In addition to these general points, the Government oppose some aspects of the amendments in principle. As well as including reference to “activity”, Amendment 97 would lower the bar of the reasonableness test for when the offence would be committed. As set out in Committee, the Government do not think this is appropriate. Referring to conduct which is far below that which would be expected has precedents in the Law Commission proposal for a statutory offence of killing by gross carelessness and in legislation creating the offence of corporate manslaughter. We have used this particular phrase knowing that it works and can be effectively interpreted by the courts. There is no precedent in UK criminal law for criminalising behaviour that is merely unreasonable. To do so would amount to an indiscriminate diffusion of criminal liability, in a way that made it hard for individuals to know with sufficient certainty when they might be committing an offence.
Amendment 118 would expand the definition of institutional failure that would trigger the offence to include occasions where there was a systematic failure of the bank to comply with a range of laws imposing criminal liability in connection with the conduct of financial services business. A similar amendment was raised in Committee, focused specifically on compliance with the Fraud Act 2006, the Proceeds of Crime Act 2002 or the Money Laundering Regulations 2007. The Government’s position on this remains unchanged—this offence has been introduced to plug a gap in existing legislation where there are no criminal powers available to sanction senior managers who have recklessly caused their banks to fail. By definition, criminal liability can arise where offences already exist that individuals can be convicted for and appropriately punished, depending on the seriousness of the breach. In certain cases, they can also be charged with consenting to or conniving in such activities. It is difficult to see how this amendment strengthens the offence.
The noble Lord, Lord Brennan, raised the question of the definition of “way”. The expression includes both the activities in the business and how those activities are carried out. This makes the offence broader. The noble Lord also suggested, if I understood him right, that in some cases the real risk is that people did not know what risk they were taking or wilfully turned a blind eye. While it might appear attractive to include incompetence by senior managers in the offence, doing so could introduce unwelcome and potentially damaging uncertainty into the sector. Further, to comply with the European Convention on Human Rights, the offence must be sufficiently certain to enable individuals to know when they are at risk of committing the offence. However, this does not mean that it is possible for a senior manager to simply close their eyes to the risk the bank is taking. In some cases a court may decide that it can be inferred that a particular person had knowledge of a risk. In the case of a director, ignorance of a risk to the bank’s existence may, in some cases, be to admit to breaches of the duties under the Companies Act 2006. Accordingly, there are cases in which an argument that a defendant had no knowledge of a particular risk would carry very little credibility and could even expose the defendant to criticism for breach of duty.
We take this offence extremely seriously as a key part of the new infrastructure that we are putting in place and we believe that it meets the test we have set out. On that basis, I hope that the noble Lord will withdraw his amendment.
Lord Phillips of Sudbury
My Lords, first, is my noble friend quite certain that the Interpretation Act 1978 does not itself operate subject to the context of the language which is being interpreted? If that is so, I believe that there will be real ambiguity about this clause because, as I say, the law is construed strictly in favour of the accused. Secondly, does he accept that in a clause like this, to rely on the Interpretation Act rather than put in some plain words that make it clear, is unhelpful to people who must refer to this piece of legislation in the future?
Lord Newby
I am not sure that I do, my Lords, but I wonder if I might write to the noble Lord to clarify our thinking and, it is hoped, persuade him that we have got it right.
Lord Brennan
My Lords, listening to the exposition of the Minister leads an experienced lawyer to think that those were the kinds of arguments that would make for an entertaining tutorial at university and deprive the participants of any career at the criminal Bar, because they simply would not know what they were talking about in terms of what a judge and jury would expect by way of argument. I am sorry to put it so bluntly, but it really is a clash with the Interpretation Act that would lead to ribald laughter in most criminal chambers. I am being serious about this. It is the kind of argument that you would expect to get from a bright lawyer with no criminal law experience. The Government must face up to this. I do not understand why they cannot take advice from a competent independent Treasury counsel on the scope of the offence in order to make sure that they can prosecute, or at least hope to prosecute. Creating such an offence in-house is, I think, highly suspect.
I will go through this point by point. First, why should not the statute say decision and/or decisions—one of the two? Secondly, why, as the noble Lord has suggested, do we have to get ourselves into the circumstance of having to identify the key decision? It may be extremely difficult to do that because it may be a refined banking judgment where a series of acts or decisions which led to failure may be cumulative and not the result of the key decision. Thirdly, how the word “cause” in the criminal law can be construed to be “significantly contributed to” is not, I think, something that figures in the criminal law books.
I turn next to corporate manslaughter. The argument has to be met. The fact that you get the same words in another statute is of no importance until you consider the context in which the words are being used. Far below that, in the industrial safety context, is the matter of common sense. In terms of banking behaviour, it is an extremely complex exercise to expect a jury to carry out, and an unnecessary one. The answer given in response to the amendments did not include any explanation of why this statute is taking itself down a different route from R v G. Wilful blindness is a specific criminal law phrase designed to embrace the people who deliberately close their eyes to something. It does not embrace innocent incompetence. The very word wilful imports the culpability of it.
My last point, in agreement with my noble friend Lord Eatwell, who is known as an academic, is that the legislature would be shooting itself in the foot if it created a criminal offence which the public came to treat as having no effect, bordering on the ridiculous. That would be a major political mistake. Those on the government Bench who take such matters into account should pay more attention to that than to the legal advice they are getting. I beg leave to withdraw the amendment.
Lord Deighton
Lord Deighton
Lord Deighton
Lord Deighton
“(2) “Financial institution” means a UK institution which—
(a) meets condition A or B, and(b) is not an insurer or a credit union.(2A) Condition A is that it has permission under Part 4A of FSMA 2000 to carry on the regulated activity of accepting deposits.
(2B) Condition B is that—
(a) it is for the purposes of FSMA 2000 an investment firm (see section 424A of that Act),(b) it has permission under Part 4A of that Act to carry on the regulated activity of dealing in investments as principal, and(c) when carried on by it, that activity is a PRA-regulated activity.”
“(5) Subsections (2A), (2B) and (4)(b) are to be read in accordance with sections 22 and 22A of FSMA 2000, taken with Schedule 2 to that Act and any order under section 22.”
(6A) A “senior management function” is a function designated as such—”
Lord Deighton
Lord Sharkey
“Part 4ARegulation of High Cost CreditRegulation of high-cost credit agreements
(1) The FCA shall, within 6 months of the passing of this Act, include among the regulations governing high-cost, short-term credit agreements provisions to—
(a) restrict such loans to one outstanding loan per customer at any given time;(b) provide for a 24-hour cooling off period between loans in which no new loan may be entered into less than 24 hours after the settlement in full of a previous loan;(c) establish at the lender’s cost a real time database of loans outstanding to be used in the enforcement of paragraphs (a) and (b);(d) restrict the amount of any loan to a maximum face value of £300, exclusive of permissible fees; (e) restrict any transaction fees and charges of any kind to a maximum of 10% of the face value of the loan plus a £3 verification fee;(f) restrict the term of any loan to between 7 and 31 days;(g) allow the borrower to extend the loan term for an additional 60 days beyond the due date without any additional charges of any kind;(h) require borrowers who avail themselves of the extension in paragraph (g) to undergo credit counselling with a designated professional counsellor or organisation and to abide by the plan established to retire the debt.(2) For the purposes of this section—
“high-cost credit agreement” means a regulated credit agreement as defined by section 137C of the Financial Services and Markets Act 2000 (as inserted by the Financial Services Act 2012) that provides for—
(a) the payment by the borrower of charges of a description from time to time specified by the FCA; or(b) the payment by the borrower over the duration of the agreement of charges that, taken with the charges paid under one or more other agreements which are treated by the FCA’s rules as being connected with it, exceed, or are capable of exceeding, an amount specified by the FCA;“charges” means charges payable, by way of interest or otherwise, in connection with the provision of credit under the regulated credit agreement, whether or not the agreement itself makes provision for them and whether or not the person to whom they are payable is a party to the regulated credit agreement or an authorised person; “authorised person” has the same meaning as in the Financial Services and Markets Act 2000.”
Lord Sharkey (LD)
My Lords, this amendment has been somewhat overtaken by events. As little as four weeks ago, the Government were claiming in this Chamber that there was insufficient evidence for a cap on the cost of payday loans. They said:
“The Government do not believe that current evidence provides sufficient justification to support a cap on the cost of credit”.—[Official Report, 23/10/13; col. 1109.]
On Sunday, the Chancellor underwent a kind of Damascene conversion. He is now convinced that there is sufficient evidence for a cap. That is very good news. Surely it would be unkind to point out that there was no more evidence available to him on Sunday night than there was four weeks ago.
After the Chancellor’s announcement that there would be a mandatory cap, there was another late intervention. At nine o’clock last night, like all of us, I was e-mailed a letter from the noble Lord, Lord Deighton. Without elaboration, it says that,
“the balance of evidence has tipped in favour of a cap”.
He says that the Government,
“will give the FCA a clear duty in legislation to use the powers we have given it to implement a cap”.
He continues:
“The FCA must ensure that it designs a cap that works in UK consumers’ interests and fits the UK market”;
but he goes on to say that the FCA will draw upon,
“the analysis and findings of the Competition Commission, whose investigation of the payday lending market is currently underway”.
The investigation is indeed under way, but it has a statutory reporting date of 26 June 2015. That is far too late. It means that any cap is unlikely to be in place before the end of 2016. That would mean millions of the most financially troubled people continuing to pay millions of pounds to PDL companies entirely unnecessarily. The Chancellor, in his interview on the “Today” programme on Monday morning, said clearly that installing a cap could happen in parallel with the Competition Commission investigation. I spoke to the noble Lord, Lord Deighton, about this issue earlier today. At the close of our conversation, he committed the Government to have the cap fully implemented by the end of January 2015. This seems to me to be reasonable and to allow the time necessary to put all the systems in place. I would be grateful if the Minister would explicitly confirm to the House the commitment made to me by the noble Lord, Lord Deighton.
The main difficulty this evening, of course, is the lack of any concrete proposals from the Government. We cannot know exactly what the Government will propose. This is a fundamental problem because the devil is very much in the detail when it comes to the regulation of payday loans. We can only make a little progress tonight, but it would help to hear the Minister confirm to the House that they will by legislation oblige the FCA to impose a cap on the total costs associated with any payday loan.
It would help to hear the Minister say that the FCA will be instructed to look again at the restrictions on rollovers. The FCA has said that it is minded to restrict rollovers to two. This is completely wrong. Some 28% of all borrowers have one or more rollovers, and a full 50% of payday lending revenue comes from rolled-over loans. Rollovers should be banned. We should do here what they have been doing in Florida for the last 11 years. In Florida, no loan may be taken out until any previous loan has been settled in full; and no new loan may be taken out within 24 hours of the settlement of a previous loan.
Will the Minister confirm that he will instruct the FCA to consider this system? In Florida there is a real-time lending database in operation. This database prevents rollovers. It also prevents borrowers having multiple simultaneous loans. Will the Minister confirm that we will have a similar real-time database here in the UK? Will he confirm that the FCA will be instructed to consider banning multiple simultaneous loans?
There are another couple of features of the Florida regulatory system which should be closely examined on the basis that we should use them here unless there is overwhelming evidence to the contrary. First, in Florida, any loan may be extended by 60 days without any additional charge at all. That is certainly not true here, but it should be true here. Secondly, any borrower in Florida who extends a loan by 60 days is required to undergo approved credit counselling and to abide by the plan agreed to retire the debt. This helps stop the spiral of increasing debt and provides a way out. We should have this here in the UK too.
The fact is that the Florida regulatory system is a model for payday loan regulation. Perhaps this is what the Chancellor suddenly realised on Sunday night. I ask the Government to ask the FCA to consider all aspects of the Florida regime for adoption here in the UK. At its simplest, in Florida, if you borrow £300 for 30 days you pay back £333. Here, if you borrow £300 for 30 days from Wonga, you pay back £397. That is three times as much—a wholly unjustifiable transfer of cash from the poor to the rich.
In closing, I simply ask the Minister to confirm that when we come to the capping amendment at Third Reading, we can operate under the less restrictive Committee-stage rules, as I think is entirely appropriate given the late stage at which the amendment is being introduced. I beg to move.
Lord Selsdon (Con)
My Lords, I support the noble Lord, Lord Sharkey, but I speak from a slightly different point of view. After so many years in your Lordships’ House, from time to time certain problems are raised with me when people have nowhere else to go. I want to talk about the link between the payday loan and credit and other things, particularly unemployment.
Take the situation at the moment of the young unemployed, or with some sort of weighting allowance in some form or other, who want to buy a mobile telephone or an iPad or something like this. They go along to any one of the suppliers, which then offers them a package that means they do not need to pay £500 up front but can pay it later. They sign up to something that they do not quite understand and then find that they cannot meet the necessary payments. They may have various allowances but, before they know it, the pressure builds up. So what starts as a £500 transaction can multiply into £1,000 fairly quickly. They cannot afford to pay the bill, so they go to a payday loan company—I will not mention their names—which, without the necessary research, offers them facilities at an exorbitant rate of interest. What starts with the wish to buy an iPhone or something of that sort for £500, when they have not got the money up front, can turn into nearly £5,000.
Lord Watson of Invergowrie (Lab)
My Lords, the noble Lord, Lord Selsdon, makes an interesting and important point about those people who are in the situation where they see this as a last resort for receiving credit. If any noble Lords were watching “Newsnight” yesterday evening, they would have seen a disturbing feature concerning Wonga; the noble Lord, Lord Selsdon, did not want to name companies, but this company was named in the programme. It turned out that people who had had loans from Wonga, and had then gone to try to get a mortgage, had been told by their financial adviser, or by the mortgage company, that they were not going to get a mortgage simply because they had had a loan. I am sure that would apply to any payday loan company.
It seems perfectly wrong that somebody who takes out that kind of loan and pays it back within the defined period at no additional cost and without extending it or anything—in other words, someone who has done nothing wrong or outwith the agreement—is then penalised. It seems that this stain on their record remains for six years. It seems fundamental that any payday loan company ought to be saying on its website, or telling people over the telephone, “Yes, we are happy to give you this money, but we have to tell you that some mortgage companies and some lenders will not lend to you for a period of six years simply because you have taken this loan”. This seems to be a nefarious practice, and it also seems quite wrong that those companies are not obliged to state unequivocally and perfectly clearly that this could be the case.
Lord Eatwell
My Lords, we of course look forward with interest to the amendments that the Government will put down at Third Reading. However, I was somewhat disturbed by newspaper reports suggesting that the Government are going to ask the FCA to formulate a policy on the level of the cap. That would be entirely inappropriate. It is for the Government to formulate and to define the objectives of the policy and for the FCA to then implement it. The FCA may, on the basis of research, be charged with setting the level of the cap in relation to principles defined by the Government, but it is up to the Government to specify those principles, specify the objectives and, indeed, design the policy. We do not want to hear a cop-out, where the Government declare, to general acclaim, that they are going to cap payday loans and then hand the whole design of the policy over to an organisation which is a regulator and not designed, in and of itself, for the formulation of policy.
I hope that the Minister can give us some reassurance that when these amendments are brought forward at Third Reading, they will contain clear objectives, principles and processes that will define the approach and policy that the Government are prepared to implement with respect to payday loans and that the responsibility that is then handed to the FCA will be one of implementation, not of policy design.
Lord McFall of Alcluith (Lab)
My Lords, Amendment 178 concerns continuous payment authorities. This is an issue that I raised during the passage of the Financial Services Act 2012. Continuous payment authorities are a recurring payment mechanism involving a debit or credit card where the debtor gives his or her card to the company and they contact the bank. Unlike direct debits or standing orders, this allows a firm to take regular payments from a customer’s bank account without having to seek express authority for each payment. When I made this point to the Minister, the noble Lord Lord Newby said that,
“abuse of the CPA is one of the most concerning practices of payday lenders”.—[Official Report, 28/11/12, col. 235.]
Consumer groups, the Law Society and the OFT have expressed ongoing concerns about this issue. The real issue is that the debtor—the customer—is not in full charge of their affairs. The continuous payment authorities do not offer the same guarantee as direct debits or standing orders. In effect, they give the company authority about how much is taken from an individual’s account and when. This is hugely important to those who take out payday loans, whose financial position is tenuous. Unlike direct debits and standing orders, there is no written communication between the individual and the bank. This situation has led to the banks reviewing up to 30,000 complaints from customers since 2009. According to the Financial Conduct Authority, quite a number of those will be eligible for compensation. That authority has said that many of the banks or providers are not cancelling recurring payments to payday loan firms.
Last December, the OFT warned that businesses should not lock customers into CPA traps because people did not know what they were signing up to. The OFT opened formal investigations last November into several payday lenders over aggressive debt collection practices. Their progress report focused on concerns regarding unfair or improper practices:
“Using the CPA in a manner which is unreasonable or disproportionate or excessive in failing to have proper regard to the possibility that a debtor is in financial difficulties”.
This includes,
“seeking payment before income or other funds may reasonably be expected to reach the account”.
The Financial Ombudsman Service was seeing 50 new cases a month at the end of last year. My information is that that number has increased since.
Such blatantly unfair treatment of consumers should not be restricted to a matter of guidance. The new clause that I am proposing ensures that debtors are informed about their rights and that only the debtor may cancel or vary a CPA in communication with the bank. Furthermore, the debtor’s bank is obliged to comply with the debtor’s instructions, as they do with direct debits and standing orders. I suggest to the Minister that in these austere times we ought to legislate to protect such debtors and to ensure a level playing field between the lender and the debtor.
Lord Newby
My Lords, I am grateful to the noble Lords, Lord Sharkey and Lord McFall, for raising this very important issue again. The Government wholeheartedly agree that consumers must be protected when they borrow from payday lenders and use other high-cost forms of credit. Payday lenders are causing unacceptable consumer harm and the Government are committed to putting that right.
As noble Lords will know, the Government have taken decisive action to protect borrowers by fundamentally reforming the regulatory system governing these lenders. This House strongly supported the Government’s proposals to transfer the regulation of consumer credit to the FCA during the passage of the Financial Services Bill last year.
The Government have ensured that the FCA has robust powers to protect customers of high-cost lenders. It will thoroughly assess every lender’s fitness to continue to trade. It will put in place much higher standards that firms will have to meet, and those requirements will, for the first time, be binding on firms. It will proactively monitor the market, focusing on the areas most likely to cause consumer harm. The FCA has a broad enforcement toolkit to punish breaches of the rules: there is no limit on the fines it can levy and, crucially, it can force lenders to provide redress to consumers.
The FCA takes up its new regulatory responsibilities in this area on 1 April next year. But it has already demonstrated that it is serious about cracking down on high-cost lenders. Its draft rules, published on 3 October, restrict some of the practices that cause most consumer detriment, and have won widespread support. But we are convinced that further action will be needed to ensure that this market functions in a way that is in consumers’ interests. As noble Lords will be aware, the Government have announced that they will bring forward an amendment to this Bill at Third Reading to require the FCA to use its powers to cap the cost of payday loans.
I will not pre-empt our discussion at Third Reading but I would just like to make a few key points on the need for a cap on the costs of credit. The Government have always kept the case for a cap under review as the market has evolved. With growing evidence, including from other countries, in support of a cap, we believe that now is the right time to give the FCA a clear parliamentary mandate to take action under the powers we have given it to implement a cap on total costs.
The FCA has an important job to do: it must ensure that it designs a cap that works in UK consumers’ best interests and fits the UK market. To do that, it needs to consider the evidence thoroughly, including drawing on the valuable work being undertaken by the Competition Commission to investigate the fundamental problems in the payday market. As the noble Lord, Lord Sharkey, has already pointed out, we do not intend to wait until the Competition Commission has finished its work and have committed to implementing the cap in January 2015.
The Government’s commitment this week sends a strong message to lenders: “Do not wait for the authorities to act, raise your game and start charging and treating your customers fairly now”. We will have a full debate on the government amendments at Third Reading—
Lord Watson of Invergowrie
I thank the Minister for giving way. He made the point about treating customers fairly. I understand that he is making a broader point but I noticed that he was nodding a few minutes ago when I spoke about the potential damage to somebody trying to get a mortgage, having taken out a payday loan. Does he agree that some way should be found of ensuring that specific information is given to those taking out a payday loan so that they do not affect their ability to handle other aspects of their financial affairs?
Lord Newby
I was going to come on to this point but I will do so now. I did not see “Newsnight” but I read about the report in today’s papers. It seems demonstrably unfair. I have two sons in their 20s. I have no idea whether they take out payday loans but I know that at some point in the next six years one or both of them might think of getting a mortgage—if they keep working hard. It does seem demonstrably unfair that someone taking out 50 quid for a payday loan today could be automatically denied a mortgage in six years’ time. If the noble Lord will permit me, I propose to draw that to the attention of the FCA.
There are two elements to this. First, there is the point that the noble Lord made about what might be on the website to point this out. There is also another issue, which is whether it is reasonable for people offering mortgages automatically to deny them to someone who may have taken out a small payday loan and paid it off rapidly. I do not know, for example, whether that rule applies to somebody who has taken out a loan under the traditional method of door-to-door payday-type loans that we had in this country for many decades. I shall draw that to the attention of the FCA.
I was just beginning to say that we will have a full debate on Third Reading, and I can commit to operating, as the noble Lord, Lord Sharkey suggested, on Committee stage rules. Having sat through many debates in your Lordships’ House, I do not think that, even if I said that we were resistant to noble Lords’ proposals, that would make a huge difference to the behaviour of noble Lords. In any event, I am happy to give that assurance now.
Turning to the amendments before us, starting with that tabled by the noble Lord, Lord McFall, the Government share his deep concern about the potential for consumers to be misled by lenders. It is essential that consumers are well informed of the risks before entering into an agreement. However, I believe the noble Lord’s concerns will largely be addressed by the FCA’s proposed rules, or already exist in legislation.
Regulations made under the Consumer Credit Act 1974 in accordance with the consumer credit directive currently require that creditors provide adequate information to enable the consumer to assess whether a proposed credit agreement is suitable to their needs and financial situation. Requirements on lenders to be clear to consumers are also set out in the OFT’s Irresponsible Lending guidance. These requirements will be transposed into binding FCA rules. The noble Lord was worried about guidance; this is being transposed from guidance into rules.
The FCA has also proposed a tough package of measures to restrict how payday lenders can access money from their customers’ bank accounts via the continuous payment authority mechanism on their debit and credit cards. These include limiting the use of CPAs to two attempts, and banning part payment. The FCA is also proposing to turn the guidance around the use of CPAs from the outgoing regulator, the OFT, into binding FCA rules. Several of the provisions set out in the noble Lord’s amendment are therefore directly covered by these proposed rules, including a requirement for lenders to give the debtor a statement of their rights in relation to the CPA, and the ability of a borrower to cancel a CPA at any time.
The Government believe that the provisions set out by the noble Lord and not reflected in FCA rules will not, in practice, serve to improve consumer protections. Requiring lenders to provide additional information to consumers on their legal rights presents a real risk of information overload and confusion for consumers. As the noble Lord said in Committee, no one wants to be swamped by hundreds of pages of dense legal text. It is also important to balance awareness of legal rights with promoting awareness of the Financial Ombudsman Service, the free service to help consumers resolve disputes. Taking a case to court can be too expensive for consumers.
Lord McFall of Alcluith
The issue here is a level playing field for continuous payment authorities, and direct debits and standing orders. There has to be a loud and clear message from the Financial Conduct Authority to banks, which have 30,000 complaints against them at the moment, and to companies, that we cannot tolerate an imbalance between the power and authority of a lender and the debtor, who can be in ignorance about what is happening to their account. If the Minister can assure me that he will send that message to the FCA, which in turn will send out the message that it needs a level playing field, at least that would be a step forward.
Lord Newby
Absolutely, I am very happy to do that. I hope that the rules would send that message very clearly, but I am very happy to reinforce it.
I go back to the terms of the amendments. I am concerned that some of the provisions could make it more difficult for a consumer to cancel an agreement—for example, requiring borrowers to sign for cancellation of a CPA. I am confident that the FCA’s proposals will give consumers control with respect to CPAs and in managing their repayments. I strongly support the noble Lord in seeking to protect consumers using the high-cost credit market and ensuring that they know their rights. However, I believe the objectives of transparency and protections for consumers are already provided for by the new regulatory regime; the FCA has already set out the action that it proposes to take in this area.
I turn to the amendment proposed by the noble Lord, Lord Sharkey. His proposal would require the FCA to implement a number of rules from the Florida model of payday regulation, including a requirement for a cap on credit. I can give the noble Lord at least some of the assurances that he seeks in terms of the FCA considering the Florida approach to regulating payday lenders very closely, as it decides how to design a cap on the total cost of payday loans for the UK market and make sure that it works effectively here. It will consider rollovers and look, for example, at the experience of Florida with a real-time database.
While I completely support the noble Lord’s desire to learn lessons from other countries’ experience, I have some doubts as to whether it is as straightforward as he thinks to simply import almost an entire regulatory framework from another jurisdiction. The UK has a very different market from other countries, and it is right that the rules governing regulation of payday loans in the UK reflect our own unique national characteristics. The FCA will be charged with doing that, building on the international evidence and examination of the UK market, and drawing on the Competition Commission’s analysis among other things. Therefore, while I share the noble Lord’s commitment to ensuring the UK consumers are protected when they borrow from high-cost lenders, I hope that he will agree that the best way to achieve that is through development of evidence-based rules that are tailored to protect UK consumers. We have a clear action plan to deliver this objective.
The noble Lord, Lord Eatwell, raised the question of the content of the amendments and the relationship between the Government, in setting policy in this area, and the FCA—where the Government stop and the FCA begins. I heard very clearly what he said. The exact nature of the amendment that we will debate at Third Reading is currently being formulated, and I shall make sure that his point is very much in the minds not only of Ministers but of officials as they set about that task.
With those assurances about the amendment that we will introduce, I hope that the noble Lord will feel able to withdraw his amendment.
Lord Sharkey
I was struck by the point made by the noble Lord, Lord Eatwell, that the Government must at some point surely say how the FCA is to arrive at a rate or an amount for a cap and by what criteria the cap should be determined. I am sure that they will want to revisit that whole notion again at Third Reading.
As to Florida, I am encouraged by what the Minister says. I make the overriding point that the Florida system has been operating for 11 years; it is simple, it is easy to understand and it works. What we have here now does not work, is not simple and is not easy to understand—and it costs three times as much as Florida. That is a powerful reason for looking carefully at Florida and assuming that there is something that we can really learn here, no matter the differences between the two jurisdictions. However, I am very grateful for the Government’s decision to cap the total cost of payday loans, and I look forward to a further discussion of the issues at Third Reading under Committee stage rules. In the mean time, I beg leave to withdraw the amendment.
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