House of Commons (25) - Commons Chamber (13) / Westminster Hall (6) / Petitions (4) / Written Statements (2)
House of Lords (12) - Lords Chamber (12)
(10 years, 9 months ago)
Lords Chamber(10 years, 9 months ago)
Lords ChamberMy Lords, we do not expect discussions on the current Secretary-General’s replacement until the start of 2016. No candidates have emerged yet and, as such, we believe that it is too early to speculate on a successor to Ban Ki-Moon. However, we would want to see a proven leader who is fully committed to the values of the UN, with sufficient political authority and expertise as well as the ability to lead and manage such a large and complex organisation.
In our highly interdependent but highly unstable bipolarised world, is it not true that the UN has a potentially more significant role than ever and that the appointment of the Secretary-General is therefore an absolutely crucial international appointment? Should not the criteria for that appointment have maximum possible international agreement and be transparent—irrespective, of course, of gender? Does the Minister agree that the days when we can cobble together some sort of compromise behind closed doors in the Security Council or the P5 are over and that credibility depends on as much transparency and international agreement as possible?
I thank the noble Lord for his question. I pay tribute to the work that he has consistently done with the UN Association going back many years and for being persistent in relation to this question. It is important for us to keep focusing on how we can improve these international appointments and the elections that take place for them. We continue to focus on the fact that we want the best candidate for the job, but the candidate must also command the greatest possible support from the international community as well as that of the P5. We must conduct the process in a way which does not form divisions within the international community to ensure that the office bearer, once elected, has the greatest amount of support rather than undermining them through the process.
My Lords, given that by 2016 it will be nearly 70 years since the establishment of the United Nations, does my noble friend agree that it would be helpful if we could see a woman at the helm after all this time? On criteria, does she accept the general view that the two terms a Secretary-General gets may not be adequate given the desire for regional representation? Could we possibly contemplate from the United Kingdom the Canadian proposal for a longer single term—similar to that recently proposed for the House of Lords, incidentally?
Of course, I would be delighted to see a woman in the position of UN Secretary-General. Indeed, this House has produced some fantastic international appointments in the past—we have only to look at the noble Baroness, Lady Ashton, to see what amazing work she is doing on the international scene. However, I come back to what I said at the outset: it is important to have a transparent system and to make sure that we get the best possible candidate for the job, who may well be a woman. It is important also that we maintain consensus during the process, because UN reform is a difficult enough subject without the Secretary-General having to do the job when he does not command the support of the General Assembly.
My Lords, can the noble Baroness tell the House that the Government will do their best to prevent what is called regional pre-emption—that is, the presumption being established ahead of time that a particular region will provide the next Secretary-General? That, of course, narrows the candidate list enormously. If the Government were to push hard against that with other influential members, that would count. Will she also consider the possibility that, on this occasion, we might try to broker a gentlemen’s agreement between the five permanent members that none of them will exercise a veto at the next election?
The process that the noble Lord mentions involving the concept of a regional rotation has of course happened in practice, but the UK has never endorsed the idea of a formal rotation. We believe that every region should have the opportunity to put forward a candidate—no region should be denied that. The noble Lord will be aware of the speculation as to which region that will be next time round. Going back to the issue of consensus, it is important that the discussions between the P5 take place in accordance with protocol in a way that builds consensus so that we do not end up with public splits which could damage the process.
Does my noble friend further agree that real reform of the United Nations cannot be done without the Security Council being modernised in a much more fundamental way to reduce the traditional excessive dominance of the United States and some of her close allies?
We of course agree that the United Nations Security Council has to be reformed. Many proposals have been put forward for both its operation and its membership. I think that it needs to go further than that. As the Minister with responsibility for the UN, I have been pushing for a United Nations that is much more responsive and competitive, and that in a difficult economic climate gives us better value for money, improves its performance management and makes better use of IT. Much could be done to reform the UN.
Does the noble Baroness agree that our credibility on openness would be much greater if we did not tacitly collude in the IMF for Europe and the World Bank for the United States?
I think that the noble Lord’s question may go beyond the remit of this Question, but I am quite prepared to read it in Hansard, consider it and write to him formally.
(10 years, 9 months ago)
Lords Chamber
To ask Her Majesty’s Government what discussions they have had with NHS England regarding proposals to change the funding allocation formula to Clinical Commissioning Groups.
My Lords, I beg leave to ask the Question standing in my name on the Order Paper and refer noble Lords to my health interests in the register.
My Lords, the Government have been discussing health funding, including progress on the fundamental review of allocations, at regular accountability meetings with NHS England. This NHS England-led review began in December 2012. The independent Advisory Committee on Resource Allocation, ACRA, is providing advice on changes to the formula. NHS England will consider ACRA’s recommendations. Initial views should be available to inform 2014-15 allocations.
My Lords, my understanding of the formula is that it would move resources from areas where people have worse health outcomes to areas where they have better health outcomes. The noble Earl has said that he and his ministerial colleagues are in discussion with NHS England. Can he confirm that this is a decision for NHS England? If that is so, what is the nature of the discussion that has taken place between Ministers and NHS England? Is it being left to NHS England to decide?
My Lords, very definitely yes. It is precisely to avoid any perception of political interference that we made NHS England responsible for the allocation of resources to clinical commissioning groups. However, we were very specific in the mandate, as the noble Lord will recall, that the principle on which NHS England has to operate is equal access for equal need, with particular attention being paid to health inequalities while not destabilising the NHS. Those are the things we discuss in our regular meetings with NHS England but the actual nature of the formula that it will decide in its board meeting next month is entirely up to it.
My Lords, we know that the single most significant factor associated with poor health outcomes is deprivation, particularly for diseases such as chronic lung diseases, cardiovascular diseases and cancers—and, even more importantly, for chronic diseases in children. Would it not be wrong therefore if the tariff did not include the deprivation in the population when setting it for the community?
My Lords, the CCG target formula recommended by ACRA this time a year ago was rejected by NHS England for the very reasons that the noble Lord cites: because it did not include an adjustment for deprivation and health inequalities. At a recent Health Select Committee hearing, Paul Baumann, the chief finance officer of NHS England, indicated that the proposed new formula would have an adjustment for a health economy’s unmet need—in other words, an adjustment for deprivation where low life expectancy suggests that people are not accessing health services.
My Lords, can my noble friend the Minister clarify that responsibility for the development of primary care is to be shared between CCGs and NHS England area teams, particularly as CCGs now control two-thirds of the NHS budget?
My Lords, at present primary care is commissioned by NHS England and has three broad ingredients: primary medical care, primary pharmaceutical services and primary dental services. However, we are looking at ways of making the whole process of primary care commissioning more creative. That could well involve a joint process by NHS England and clinical commissioning groups.
In light of what the Minister said before, are we being assured therefore that age and gender will not be given priority over gross health inequalities and needs in areas of social deprivation, such as in the north of England? If that is not the case, surely the principles on which the National Health Service was created are being undermined.
My Lords, age is and has always been, in the formula, the primary driver of an individual’s need for health services. The very young and elderly, whose populations are not evenly distributed throughout the country, tend to make more use of health services than the rest of the population. Having said that, the formula contains elements relating to unavoidable differences in the costs of providing services due to location alone—that is, the market forces factor—and a number of other measures of adjustment. As I say, we are assured by NHS England that deprivation will feature in the formula that is published for next year.
My Lords, is the noble Earl aware that in Yorkshire, many of the hospitals which are PFI are very seriously in debt? Is there not a rumour that the poorer north will have its money taken to the richer south?
My Lords, does the Minister accept that in the north-east of England huge concern has been expressed about the initial proposals? This has been widely and repeatedly trailed in the press in the north-east. While I welcome what the Minister said about tackling health inequalities, can he give us an assurance that the most vulnerable communities and the most vulnerable people will not lose out as a result of this consultation?
There are two elements to consider here. One is the target allocation, which is what NHS England is currently working on, and the other is the actual allocation—the money given to individual areas. The task for NHS England will be to decide how quickly or slowly to move from current allocations to the target. The key will be not to destabilise any NHS area in that process.
I do not think the noble Earl answered my noble friend Lord Hunt’s Question about the discussions that have taken place between the Government and NHS England on this topic. Will he tell us what steer the Government have given on these matters?
We give no steer. As I said to the noble Lord, Lord Hunt, the principles on which NHS England should operate are clearly of concern to Ministers—namely, equal access for equal need, the need to take account of health inequalities in an area, and not destabilising the NHS. We also believe that NHS England should be transparent in whatever it does. Those are legitimate concerns for Ministers, but we do not seek to steer NHS England in any particular direction.
Will the Minister reassure me that child and adolescent mental health services will be given sufficient weight in these discussions?
My Lords, ACRA has recommended that CCG mental health services allocations should be set using the same overall approach as that for other hospital and community health services. That means that a large part of the allocation is linked to the diagnoses reported for people registered with each GP. That makes the formula very sensitive to need. It has the potential to improve the way we allocate resources for mental health services, in particular.
My Lords, will the noble Earl arrange for NHS England to meet interested parliamentarians before it takes its decision at the meeting next month?
(10 years, 9 months ago)
Lords Chamber
To ask Her Majesty’s Government what steps they are taking to enable small and medium-sized enterprises to meet the requirements of the European Union Regulation on the Registration, Evaluation, Authorisation and Restriction of Chemicals.
My Lords, we recognise the concerns, particularly of small businesses, about burdens arising from the EU regulation on the registration, evaluation, authorisation and restriction of chemicals. We welcome the recommendations for better guidance for small businesses in the recent report of the Prime Minister’s business task force. These closely reflect the work that we have been doing to bring together those interested, including the Commission and UK industry, to develop guidance that is more focused and relevant to SMEs.
I thank the Minister for that reply. I know that he is very knowledgeable and has a lot of expertise in this matter so perhaps I may ask him to spell out in a little more detail, in relation to SMEs, whether they will they be given financial assistance; whether they will be allowed to use these substances until alternatives are brought forward; how this will be licensed; and whether they will have the right of appeal.
My Lords, it would take me quite a while to answer all those questions properly. However, in the context of the financial question he asked, there are two aspects to this—the first is about fair cost-sharing, and the second about fee levels. Businesses tell us that a major concern is the lack of transparent and fair cost -sharing when companies are pooling data on the same substance. As a result, that was the top recommendation for helping SMEs in the review report. There is a commitment across the board to sort that out, and we are playing a major role in it. As regards fee levels—that is, for fees payable to the European Chemicals Agency—the revised fee levels were voted through by the UK and other member states and came into force in March. They mean that the smallest companies are now eligible for fee discounts of up to 95%, which can mean a one-off registration fee of as little as €64.
My Lords, is this not another example of the perverse effects of EU overregulation? Thousands of products that have been with us and fully approved for many decades by our own safety regulation authorities are now to be banned; and that, in many instances, will put out of work small businesses which cannot afford the very high costs of trying to prove that something that is safe, is safe. Is this really the sort of democratic situation we want to be in—where our own Ministers can do nothing to put this matter right except mumble about trying to ease the pain in some way or another? The actual effect will be devastating on small businesses. It is a gross pity that we cannot control these affairs ourselves.
My Lords, it might be helpful if I quote the words of the Chemical Industry Association to the business task force. It said that,
“we see REACH as a positive development and support its principles. It has made many businesses outside our sector realise that they do in fact use chemicals every day and that they also have to comply with controls. For us, this is an important step towards achieving safe chemical management and we support the scope and objectives of the legislation as a consequence. However”—
in line with what my noble friend says, it goes on to say that—
“interpreting the legislation is proving extremely complex”.
Reducing those burdens is the focus of our attention here and in Europe.
My Lords, I think that the whole House is concerned about the future of manufacturing in the United Kingdom, and we are keen to see a strong manufacturing base. My noble friend Lord Hoyle has touched on a very complicated industry on which the Minister has given positive answers. Therefore, could the Minister advise—
No? Can he tell me then—can he tell the House—how applications from companies in the United Kingdom to use banned substances while alternatives are being developed will be judged? What will be the cost of such applications to the companies themselves? Is the Minister happy with that?
My Lords, I touched on the matter of cost earlier, but the noble Lord will appreciate that this is definitively a complex area, regardless of how we regulate it. Chemicals are a complicated business and they need careful attention. However, I am now going to go into some technical language.
Adding a substance to annexe 14 is a multi-stage process involving several factors. The ECHA has recently finished conducting a public consultation on its draft recommendation. It will then consider the opinion of the member state committee in its final recommendation to the European Commission. It is important to stress that this is a recommendation. The ECHA does not have the power to ban a chemical. It is the European Commission, in conjunction with member states and the European Parliament, which decides whether to take a recommendation forward to add a chemical to annexe 14. I emphasise that if a substance is added to the annexe, it does not constitute a ban. Instead, it is the trigger for industry to make the case for continued authorised use of a chemical.
My Lords, is my noble friend’s quote from the trade association not a classic example of how big business loves regulation which destroys small business and removes its competition? What has happened to the Government’s initiative to stop the continuing gold-plating of legislation from Europe? Is it simply to say that nothing can be done because we cannot change European regulations?
As my noble friend asks about gold- plating, perhaps I may say that REACH is a directly acting regulation so there is little scope for gold-plating. However, the UK approach is in fact the opposite of that; for example, our approach to enforcement is to help companies get back into compliance. My noble friend might like to know that the Environment Agency has developed helpful tools for that process. It uses its expertise to look for illegal use of restricted chemicals, and it can then focus on suspected wrongdoing with little or no burden on compliant companies.
My Lords, there are significant consequences for small and medium-sized enterprises of incomplete registration. Can the Minister please tell us how many businesses have already been informed by the European Chemicals Agency that their registration is incomplete, and what action has he taken to ensure that businesses complete all of the agency’s registration requirements in time to avoid those significant consequences?
In terms of specific numbers, no, I cannot. However, I will write to the noble Lord on his question.
My Lords, I will ask the question that I tried to ask. Would not the best tool be the use of plain English which everyone can understand, whether they are in small business, medium business or any other sort of business?
My noble friend, as always, speaks so much sense. I am discovering, as Defra’s science Minister, that the world of chemicals does not easily lend itself to simple language. However, I will do my best for my noble friend.
(10 years, 9 months ago)
Lords Chamber
To ask Her Majesty’s Government what steps they will take to enforce minimum wage legislation in the care sector, in the light of publication by Her Majesty’s Revenue and Customs of figures disclosing non-compliance with the legislation.
My Lords, employers found not to pay minimum wage must pay arrears plus a penalty, and may be prosecuted. From 1 October 2013, all those who break minimum wage law will be named, as an additional deterrent alongside existing financial penalties. Non-compliant employers identified during this evaluation in the care sector will meet the new criteria for naming if investigated from 1 October this year. HMRC continues to investigate every worker complaint from the care sector.
My Lords, the announcement of naming and shaming and perhaps heavier financial penalties is welcome. However, given that the HMRC investigation showed that 48% of care sector employers surveyed were paying staff below the minimum wage and that only a tiny number of prosecutions had been brought, what further steps will the Government take to enforce the law. and what additional resources will they make available for this purpose?
My Lords, in addition to the naming and shaming, the noble Lord will have heard the Prime Minister announce today that the maximum fine payable under the law will be increased fourfold. However, the work that is done with key stakeholders is a very important element of ensuring that the law is enforced and indeed understood. The Government work very closely in this sector with the UK Home Care Association and the trade union enforcement group, of which UNISON is the principal member.
My Lords, is the Minister aware—I have mentioned this to the House before—that self-employed carers are often paid as little as £3 per hour, and that there is no control whatever over the self-employed? People who work officially for care sources are paid the minimum wage per hour but get nothing for the travel time between jobs. It could be that for every hour they work as a carer there is another unpaid hour, which surely makes a nonsense of saying that they are getting that amount per hour. What does the Minister believe can be done to improve the situation, because the care service is very important?
My Lords, if people are paid the minimum wage for hours when they are working and not being paid for travelling time between periods of work, that brings down the average amount paid per time at work to below the minimum wage. Therefore, employers are acting illegally. One of the principal findings in the study, which is the subject of this Question, is that the travelling time of people working in domiciliary care is one of the main reasons for people being paid below the minimum wage. HMRC operates under a contract from BIS to manage this process. The system has remained essentially unaltered since the minimum wage was introduced some 15 years ago, and the resources made available to it have been protected during the period of this Parliament.
My Lords, does the Minister agree that the biggest single problem regarding deprivation and poor health is, in fact, low pay? Will the Minister therefore show support not just for the minimum wage but for a living wage?
I agree with the noble Lord; the Government encourage employers to pay the living wage. However, another thing we are doing is that my colleague Vince Cable has asked the Low Pay Commission to see what scope there is for increasing the minimum wage beyond the rate of inflation without having a significant negative impact on jobs.
My Lords, how many actual prosecutions have there been of those who failed to comply with this legislation?
My Lords, in the period since 2006 there have been nine prosecutions. The policy on prosecutions was set by the previous Government and is based on the concept of selective and exemplary cases. That is why the number of prosecutions is relatively low, whereas the amounts of arrears collected and the number of employers who have received penalties are significantly greater. The number of employers who received a penalty in the past financial year is 708.
My Lords, the Minister mentioned stakeholders. I believe the Government are committed to seeing service users and patients as the most important stakeholders in service provision. Since care workers often have the first and the closest contact with such service users, does the Minister believe that the way we value and support such workers is of the utmost importance? Does he further believe that the current problems with local authority budgets are bound to have an effect on both the number and the quality of care workers?
My Lords, I certainly pay tribute to the work done by care workers. Obviously, local budgets are constrained. However, to the extent that local authorities are commissioning care, they have an obligation to ensure that their commissioning is done in such a way that the people providing it are not in breach of the conditions on low pay. One of the key points in this area is the provision by HMRC of a free pay and work rights helpline for people who feel that they may be suffering because they are not getting the minimum wage as a result of things such as the travelling time problem that we discussed earlier. The helpline is heavily used, but everybody who rings it will have their case looked into.
Does not this report indicate the determination of the Government to insist on compliance with the minimum wage legislation? Within what timetable does the Secretary of State for Business expect his investigation on linking minimum wages to the living wage to come to fruition?
My Lords, the Secretary of State at BIS—Vince Cable—very recently asked the Low Pay Unit to look into this matter with considerable urgency, although I do not think that he has put an absolute date on it. However, the Government take this issue extremely seriously. We hope very much that we can make quicker progress than we have in the past in raising the level of the minimum wage.
(10 years, 9 months ago)
Lords Chamber(10 years, 9 months ago)
Lords ChamberMy Lords, I reassure the House that I do not seek to oppose the passing of the Bill although it is worth remarking that we are only three years off the 50th anniversary of the timely decision by Barbara Castle during the Hull North by-election to agree to the building of the bridge.
I take the opportunity of the Chairman of Committees being at the Dispatch Box to ask him about the arrangements for obtaining copies of Scotland’s Future, the document published yesterday by the Scottish Government. My understanding is that because it is a Scottish government document the arrangements are that there is one copy in the Library of this House and one copy in the Library of the Commons. I understand why the Scottish Government might not want your Lordships to consider all the pages of the full document, but to expect noble Lords to download it will cause great concern and overtime among our rather lowly and inadequate printers. Will the Minister arrange for noble Lords to receive copies when they wish to have one?
My Lords, further to the matter raised by my noble friend Lord Hunt, this is a very serious matter. The Scottish Government are proceeding as if this so-called White Paper is of no concern to the people of the rest of the United Kingdom—indeed, of no concern to this Parliament—yet constitutional matters are still reserved to this Parliament. Thanks to the noble Lord, Lord Forsyth, next Thursday we are going to have a debate of only an hour to discuss an astonishing unilateral declaration by the Scottish Government of the date of independence, assuming that this matter is going to go through without any difficulty. Much more is needed than this and I am glad that, as well as the Chairman of Committees, the Leader of the House, the Chief Whip and the Deputy Leader of the House, who is very knowledgeable on these matters, are in their places.
I suggest that, as well as what my noble friend has suggested, every Member of this House should be provided with a copy of this document. It is relevant to us and we should be considering it. Further, there should be a Statement in this House and in the other House of the implications of this document for the rest of the United Kingdom and, as well as the one-hour debate that the noble Lord, Lord Forsyth, has secured, there ought to be a full day’s debate in government time so that we can discuss the implications. If not, we are going to sleep-walk into the break-up of the United Kingdom. If that is what other noble Members want, it is certainly not what I want and I hope that we will do something about it.
I could just say yes, but let me say a little more. The future of the United Kingdom is clearly a constitutional matter. The constitution, under the Scotland Act 1998, is a reserved matter, so the publication and the contents of the guide are clearly a matter of legitimate interest to all Members of this House but technically, because it is a Scottish government publication, the noble Lord is right: it is not deposited in the Printed Paper Office and the Scottish Government have not made paper copies of the guide available to the PPO. However, photocopies of the abstract of the guide have been in the PPO since yesterday. The PPO will print, on demand, copies of the full 670-page guide for those Members who need one. Members who would like a copy of the full guide should accordingly ask for one from the PPO. However, in the interests of economy, to say nothing of saving quite a few trees, copies of the full guide will also be available for consultation in the Library.
(10 years, 9 months ago)
Lords Chamber
That Lord Horam be appointed a member of the Select Committee, in place of Baroness Gardner of Parkes, resigned.
(10 years, 9 months ago)
Lords Chamber
That the draft regulations laid before the House on 23 October be approved.
Relevant document: 12th Report from the Joint Committee on Statutory Instruments, considered in Grand Committee on 26 November.
(10 years, 9 months ago)
Lords ChamberMy Lords, the Government are committed to bringing payment systems under formal economic regulation to address deeply rooted failures in the UK’s payments market. In Committee, the Government tabled amendments to establish the new Payment Systems Regulator. The Government are now introducing a small number of further provisions and making amendments to some of the clauses previously tabled to ensure that the regulator is able to perform its functions effectively and that the right procedures apply to powers contained in the Bill.
First, these amendments will introduce provisions modelled on measures in the Financial Services and Markets Act 2000 which prohibit the regulator and those working for or on behalf of it from disclosing confidential information without the consent of the information owner. The prohibition will be enforced by a new criminal offence. However, further provisions will permit confidential information to be disclosed to certain prescribed persons in specific circumstances, including the provision to the regulator of certain information held by the Bank of England. This will be an important element of the Payment Systems Regulator’s regulatory regime. Without a prohibition on the disclosure of confidential information, people may be dissuaded from providing to the regulator important information which would assist it in the discharge of its regulatory functions.
The Government are bringing forward a number of other amendments which mirror provisions that already exist for the FCA under the Financial Services and Markets Act. The FCA will be able to collect levies for the purpose of maintaining adequate reserves for the regulator, which will help it to meet any contingencies. Another amendment will require that the regulator uses a sum equal to its enforcement costs for the benefit of its regulated population by reducing their levy the following year. A further amendment will ensure that the FCA does not have to produce a cost-benefit analysis when drawing up fee-levying rules to govern the collection of fees to meet the costs of the Payment Systems Regulator.
The other amendments tabled today will ensure that the right procedural requirements apply in respect of certain powers in the regulator clauses. The regulator will have a power to direct participants to take or not take specified action, and amendments are tabled to expand the concept of a “general” direction that applies to more than one person. The consequence will be that more directions fall within the category to which consultation requirements apply. Another amendment will require the Treasury to publish its decisions to designate payment systems to bring them within the regulator’s scope. The amendments also make some technical drafting changes to assist the reader of the legislation, as well as some consequential amendments to other legislation to include references to the regulator—for example, to ensure that the Freedom of Information Act applies to information held by it.
Overall, this set of provisions will contribute to the creation of a robust and well functioning regulatory regime for payment systems that can deliver on the Government’s objectives. I commend these government amendments to the House.
There is also an amendment in this group in the name of the noble Baroness, Lady Noakes. In Committee, the Government tabled amendments which included a provision for the regulator to order banks to give indirect access to payment systems to other financial institutions. The noble Baroness has tabled amendments to this power with a view to addressing a concern that ordering a bank to provide another institution with indirect access to a payment system would expose the access-providing bank to additional operational and compliance risks. I should like to reassure the House that the amendments tabled by the noble Baroness are not required to address the concerns that have motivated them.
This power was designed to serve as a necessary back-stop in case banks with direct access to payment systems reacted to being brought within the regulator’s scope by ceasing to provide indirect access. This would have left smaller players with no access to the vital systems. The Government envisage that the regulator will be likely to exercise this power only in such a situation. It would be used to safeguard the position of the smaller banks reliant on the larger banks for continued access to the systems and to prevent the detrimental consequences for competition in UK retail banking if such access were denied.
The Government are confident that the regulator will not exercise this power in any way that results in banks having to take on undue operational or compliance risks. The power can be exercised only if an institution applies to the regulator to exercise it. The regulator would, in practice, inform the bank which it was proposed be ordered to grant the access and would consider the circumstances of the applicant. It would be open to the bank that was subject to any order to make representations to the regulator about the applicant or any other matter concerning the application. The regulator would consider any such representations in making its decisions. It would not exercise the power if it thought to do so would expose the bank, the subject of the order, to additional risks which it would not be reasonable for it to bear. The Government would expect the regulator to provide in industry guidance more detail on the circumstances and manner in which it would consider using its powers. In the light of that, I would ask the noble Baroness to withdraw her amendment.
At this point, I shall deal with the amendments tabled by the noble Lord, Lord Brennan, to certain of the provisions of the proposed regulatory system for payment systems. I should like to reassure the noble Lord that his amendments are not necessary to achieve the end of a proportionate and balanced regulatory system, which I am sure we share. The noble Lord has proposed some additional safeguards to the Treasury’s power to designate payment systems so that they fall within the regulator’s scope. I should like to reassure the noble Lord that the power would be exercised by the Treasury only after proper consideration and where it is genuinely satisfied that the available evidence indicates the designation criteria are met, and that the exercise of its discretion to designate is necessary and proportionate in the circumstances. It is not necessary to make this an express requirement in the Bill. No such provision was included in the precedent power, contained in Section 185 of the Banking Act 2009, under which the Treasury recognises systems for Bank of England oversight. I should also like to reassure the noble Lord that the additional matters that he has proposed should be considered by the Treasury when deciding to designate a system would in any event be considered, and that it is not necessary to state them in the Bill.
Under the procedural provisions, the Treasury must notify operators of payment systems that it proposes to designate and consider any representations made, so we do not believe it is necessary to write into the legislation that the operators must be consulted as that is, in practice, what the Treasury would do. The drafting of this provision matches that contained in the precedent—Section 186 of the Banking Act 2009. In relation to the regulator’s competition objective, it is important to maintain flexibility as to the matters to which the regulator may, rather than must, have regard when considering the effectiveness of competition, particularly given the fast-moving, high-tech nature of the payments industry. The Government do not think that it would be right to accept the noble Lord’s proposal to change this discretion to a duty. The regulator should be free to consider the factors which it considers relevant at any given time to its assessment of the effectiveness of competition. The Government also do not think it is necessary to add to the list of factors the two proposed by the noble Lord. The consistency of treatment of payment systems operators and the impact of any past or proposed regulatory intervention are matters to which the regulator will generally be obliged to have regard as a matter of good administration. For the same reason, the Government believe that the amendments tabled by the noble Lord to the regulatory principles to which the regulator is to have regard are unnecessary. The regulator, as a public authority, would need to act fairly and consistently, and not take action if not necessary or not justified on the basis of the evidence available.
In relation to the regulator’s innovation objective, the Government believe that the noble Lord’s suggestion to supplement it with the objective of promoting the creation and sustaining of a regulatory environment that is conducive to innovation is unnecessary. It is implicit that the regulator will consider how its system of regulation can best support innovation, and it will exercise its regulatory powers only where it thinks that will serve to promote innovation.
On the regulator’s power to order a disposal of an interest in an operator of a payment system and its power to vary certain agreements relating to payment systems, the Government disagree with the noble Lord’s proposal that these powers should be exercisable only where the Competition and Markets Authority has decided that the interest held in the operator of the system has resulted, or is likely to result, in a substantial lessening of competition. This is a power that the Government want the regulator to be able to exercise independently, given the specific knowledge and expertise it is hoped the regulator will acquire in relation to the markets in payment systems and the services provided by them. However, it is important that the interests of all concerned are adequately protected, so the use of this power, and the power to vary agreements concerning payment systems, will be subject to appeal to the Competition and Markets Authority, which could, on the application of the appellant, suspend the effect of the regulator’s decision pending the determination of the appeal. It would be open to the CMA to quash the regulator’s decision and substitute its own for that of the regulator.
In summary, the Government believe that the legislation as drafted provides a balanced and fair regulatory system. In light of that, I would ask the noble Lord not to move his amendments.
My Lords, as the Minister has said, I have Amendment 138 in this group. He has explained the amendment and the answer to it so well that I did not need to bring my speaking note with me. I thank him for the comments he has made, which have fully answered the points that lay behind my tabling of the amendment. He asked me to withdraw the amendment but as I have not moved it I cannot withdraw it. However, I confirm that I shall not be moving it when we reach the appropriate time on the Marshalled List.
My Lords, I congratulate the Minister on his patience and courtesy in always being the Minister to answer my criticisms of the Bill. The patience and courtesy with which he meets my generosity in this regard fairly ought to be shared at some stage by the noble Lord, Lord Deighton.
The purpose of the amendments is to raise with the House and the Government two broad questions: first, on the need to avoid regulatory overload; and, secondly, on the need to ensure the adoption of robust regulatory principles in dealing with different sectors of the banking world. The amendments are directed at card payment systems, not the interbank arrangements to do with BACS, CHAPS, the clearance of cheques and so on, which have caused a great deal of difficulty.
First, on regulatory overload, this system, described in more than 60 sections, will be under the overall control of the Financial Conduct Authority, albeit the payment system regulatory structure will have its own chairman and board. It is a matter of real concern to note how much the FCA is being given to do in so many different regulatory contexts. This is a concern, first, as to manpower; secondly, as to skill and competence; and, therefore, thirdly, as to effectiveness.
Yesterday afternoon, in one of our debates, it was pointed out to me that the banking sector, or the financial sector, will pay for these regulatory costs. That is to state the obvious. The reality is, I assume, that the regulatory system hereby created will not be permanently in debt and bailed out annually by the financial services sector. Rather, it sets a budget a year ahead and the financial system pays it at the end of the second year in arrears. That gives the regulators two years of a relatively fixed budget. So, in determining how much responsibility to give to the regulators, including the Payment Systems Regulator, particular regard should be had to their capacity to carry out the job effectively.
It is therefore very important for the regulatory principle that the FCA and the PSR should not be given jobs they feel they have to do when present circumstances do not require them to do them.
My Lords, I support what the noble Lord, Lord Brennan, had to say about the card payment system. Having looked at it in some detail, it strikes me that it is a classic situation of, “If it ain’t bust, don’t fix it”. There are so many other priorities that I urge the Government to think again about this one.
My Lords, I think the burden of the case of the noble Lord, Lord Brennan, is that the Government are acting disproportionately in seeking to regulate something that is working very well and, in doing so, if they are not careful, they will cause major problems to a system that is currently without major problems. I hope I can reassure him that the principles that he set out at the end of his speech are ones that the Government share. There is no sense in which this regulator is being established with a remit to deal in the heavy-handed way that he fears. Given that we want to cover all payment systems, it would have been remiss to have excluded credit card payment systems. There is, however, no sudden plan to start a new, hugely intensive regime.
The noble Lord made the perfectly valid point that the regulator is slightly unusual in that it not only is a classic regulator but has a function to promote innovation as well. He raised a perfectly valid concern about the staff and whether we will be able to find people with the relevant expertise. We believe that there are people who have the relevant expertise and that it is an extremely interesting area in which innovation can be developed. The FCA will therefore be successful in finding staff who have the expertise and can do the job satisfactorily.
As I say, I am content that we are acting proportionately. We are not going to disrupt a system that is working well and we will be able to find people with the relevant expertise to manage it.
My Lords, the purpose of this amendment is to restrict the early termination of contracts by suppliers of staff to infrastructure companies in respect of which a FMI administration order has been made.
Part 6 of the Bill establishes a special administration regime, to be known as FMI administration, which will be capable of applying to what are known as infrastructure companies. These infrastructure companies are the operators of payment and settlement systems and designated service providers to those operators. Clause 104 is a continuity of supply provision, which restricts the ability of suppliers to terminate the provision of certain listed supplies to an infrastructure company once the company has entered FMI administration. The supplies that are currently within the scope of the restriction are: computer hardware or software; financial data; infrastructure permitting electronic communication services; data processing and access to secure data networks.
This amendment would add the provision of staff to this list of supplies. Agency staff are critical to the functioning of payment and settlement systems, and several payment systems are staffed entirely by agency staff. The early termination of a contract for the supply of staff could result in the discontinuation of the provision of critical services by the payment or settlement system. This amendment will ensure that staff will continue to be supplied during the period of FMI administration.
The FMI administrator would pay for the provision of staff throughout the period of the administration. If during the period of the administration the supplier goes unpaid for 28 days or more, the supplier will be entitled to terminate the supply. I beg to move.
My Lords, when this amendment was moved in Committee on 15 October there were 10 of us here at 10.20 pm. On that occasion my noble friend Lord Newby, summing up the debate, said that the amendment was superfluous, might have problems with EU law; and was,
“not proportionate or objectively justified”.—[Official Report, 15/10/13; col. 528.]
I shall endeavour to briefly answer those objections this afternoon.
Talking of superfluity, nothing in the Bill touches on the issue of gaming and gaming trades of all sorts. I will give a few statistics in a minute to show just how huge gaming now is in the City of London. Then we have the issue of the EU. If I may say so, it is slightly premature for the Government to anticipate the outcome of any recommendations that the review I am suggesting might come out with. That is a long way down the line: two and a half years is the time given for the review and heaven knows what that outcome might be, least of all whether it would be in any way in breach of EU law, which is in any event changing.
Lastly, perhaps the most important ground for rejection was the thought that this proposal to set up a review to look at the effects of gaming on the wider culture—social, ethical and cultural as well as economic and commercial—would be unnecessary and objectively unjustified. If one considers that these gaming trades now amount to many trillions—some estimate quadrillions; I had never heard that word before—it seems bizarre to say that this modest proposal is disproportionate.
The background to all this is the legislation brought in in 1986 in anticipation of the big bang. The Financial Services Act 1986 contained provisions that for the first time ever said that the gaming laws of the land would not apply to these City gaming contracts. Since then there has been a staggering explosion of such contracts. They are simply massive across the world, not just here. Derivatives, which are the most common form of gaming contracts or trades but not the only one, are largely below the radar, although steps are being taken to make them more transparent and measurable. The Bank for International Settlements has calculated this year that the value of derivatives alone—the over-the-counter derivatives, as they are called—is $693 trillion. Others reckon that if you add in the other form of gaming contracts, that goes up to a figure of $1.2 quadrillion in terms of face value, which may work out in real terms at some $20 trillion, or 30% of global gross national product—or gross international product, I should say.
Let us look briefly at the collapse of the world financial centres, particularly Wall Street and London. Lehman Brothers, had 1.2 million derivative contracts on its books when it collapsed in 2008, of which the face value was $39 trillion—that is one bank. It is calculated that 80% of the income of Lehman Brothers before it collapsed was from such gaming trades. Bear Sterns’ proportion of income from gaming was even higher than 80%. The statistics show capital debts of $384 billion against a capital of $11.8 billion; that is, 30 times more. If you look at the collapses of AIG, MF Global, Merrill Lynch, Northern Rock, Countrywide, Wachovia and so on, you will find in all cases that derivative gaming was absolutely central, usually key, to them. I just throw that back at my noble friend when he says that a review of all that, in terms of its cultural outfall, is not objectively justified.
Banks of course are still doing it today and it is creeping up, and I have no doubt that it will go on and on with its potentially malevolent effects just as heretofore. Huge profits are made from these types of contract, but on the other side of the coin they are matched by huge losses, which was the principal spur to this devastating collapse, a collapse which, do not let us ever forget, was stemmed internationally only by Governments moving in with massive sums of money—what was it here, $800 trillion? Not trillion, million—or am I wrong?
Yes.
I want to see, and I think that this may commend itself to the House, a cool look at just what the consequences are beyond the merely financial—you can scarcely use “merely” in terms of the numbers concerned. In Committee, I tried to remember a quote from John Maynard Keynes in 1936, when this type of trade was trivial when compared with today. He stated in his great book, The General Theory of Employment, Interest and Money:
“When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done”.
How pre-eminently true that is. The noble Lord, Lord Turner of Ecchinswell, made the bold but timeless statement when he was head of the FSA that a great deal—I am not sure that he did not say the majority—of what the City now does is socially useless, because, sadly, only a tiny proportion of these gaming trades has any commercial purpose whatever. They are pure gambling. It is not that they are buying forward raw supplies for some manufacturer to even out the ebb and flow of world prices in whatever commodity or mineral it is—nothing to do with it; it is pure, unalloyed gambling.
My Lords, I am trying to follow my noble friend’s argument. Precisely what contract is he describing as a gaming contract?
I will do my best to explain. Let us consider Merrill Lynch. It cornered, it is estimated, 50% to 80% of the world’s copper in a series of purchases last year, I think it was. That was pure gaming. It was not to satisfy any of its customer needs; it saw potentially vast gains in moving into the world copper market and simply buying it up. Can you imagine: 50% to 80% of all the world’s copper was purchased? That was pure gaming. In fact, I think that it went wrong and was part of the collapse, but I would not lay my life on that.
These are extremely difficult issues. The cultural and ethical aspects are deep. The vast majority of people engaged in such trading are decent, good people. They are not all crooks, but the system in which they are trapped is one which, first, was at the root of the disastrous financial and banking collapse from which we are still suffering—and there is a long way yet to go. Also, we should be interested in the wider outfall. The noble Lord, Lord Lawson, coined a rather vivid phrase last night about the cultural contamination that can go on when one part of a system loses all contact with any ethical underpinning.
Let us consider what is happening in our nation at large, and the extent to which gaming is now spreading rapidly. This week, I heard of one medium-sized town that has more than 70 betting shops. In my town, they have spread like a disease. I am the first to accept that it will be a difficult set of issues to address, but taking a cool, calm look at the wider effects of what is going on in the City of London must surely be for the public benefit.
My noble friend may argue that we have review overload and that the City must be allowed to settle down and not have any further big inquiries. We have had all sorts of them, have we not? That would be a profound mistake, because, often, the more difficult the inquiry, the more important the potential outcome. This proposal has no pre-judgment. Some of my remarks in opening the debate on the amendment, and some of my assumptions, may, in the light of a deep, extended inquiry that looks at all aspects of these difficult matters, be proved wrong. As I emphasise, it would be an open-eyed inquiry.
I refer to the Kay inquiry, which was published in July 2012. Many noble Lords will remember it. John Kay undertook an interesting and important inquiry. He stated that,
“trust and confidence are not generally created by trading between anonymous agents attempting to make short term gains at each other’s expense. Trust and confidence, or their absence, are the product of the prevailing culture”.
I want a better hold on what the prevailing culture is and what part in it is played by the City of London, which is central to our economic future and our thriving.
I hope that there will be support for this proposal. Even if the Government do not like some of the detail, I hope that they will take the nub of it away and, conceivably, come back at Third Reading with their own amendment. Such a review will speak to the prevailing values of Britain today and to the spirit of our times. In a profoundly and dangerously materialistic society, surely nothing could be more material to us all than to seek to get beneath these complex and technical facts and issues, in order to understand the wider underlying effects. I beg to move.
My Lords, I confess I was a little puzzled by the introduction to the amendment of the noble Lord, Lord Phillips. He portrayed it as being so broad as to cover virtually all derivatives trading, whereas I had presumed that he was focusing on those derivative trades that are classified as gambling—in other words, financial spread betting. The crucial issue with respect to financial spread betting is that it is free from capital gains tax and stamp duty, and that traders are typically free from income tax. This is a really extraordinary form of tax avoidance within the financial services industry. If that was what the noble Lord really sought to focus on, a review of such forms of transaction would be very useful, particularly in light of the fact that the Australian Government have now declared that those forms of contracts are not exempt from tax. Indeed, they are subject to both income tax and capital gains tax under Australian tax law. What is remarkable is that the number of these contracts being traded in Australia has dropped dramatically.
If the noble Lord, Lord Phillips, hopes to reduce the scope of what he referred to, especially in quoting Keynes, as the financial casino, it would perhaps be valuable if there were a review—I would encourage the Government to think about having one—of the designation of particular derivative contracts as gambling, which has had these unfortunate consequences, including a significant loss of revenue to the Treasury.
My Lords, I add my support to what the noble Lord, Lord Eatwell, said in specifying these particular contracts, not only for their tax avoidance capacity but because participation in them within the trading community leads to obvious conflicts of interest between their main work during the day, for their employer, and any potential gains or losses they have through the spread betting operations which they are capable of undertaking. In other words, it is very much a cultural problem and it is specifically to do with contracts that are considered to come under the purview of the gaming Acts. That is how I understood this amendment to apply, rather than more generally. From my point of view, I am not certain that it needs to be in the Bill, but it would certainly be useful if the Government were to say that the scope and impact of this should be looked at.
My Lords, the purpose of the amendment is to require the Treasury to undertake a review of the consequences of exempting certain gaming contracts from the rule that used to provide that no gaming contract or wager could be enforced in a court of law. Such a review would consider the national, commercial and economic effects, in addition to the social, cultural and ethical effects, proposed in the equivalent amendment in Committee. I understand my noble friend’s desire to know more about the consequences of what appears to have been an extensive gambling culture in the City of London, which flourished in the derivative markets that expanded significantly following the gaming contracts rule change but was not limited to those markets.
The financial crisis exposed serious problems in derivative markets—particularly, as the most reverend Primate pointed out during our last debate on the equivalent amendment, in OTC activities. Clearly, the proliferation of such activities and the lack of adequate regulation showed up a need for change.
Following extensive international regulatory debate, a set of significant international reforms was agreed by the G20 to address these concerns. It may be helpful if I provide noble Lords with a short update on what they are. They include measures to ensure transparency by requiring all OTC derivatives transactions to be reported to trade repositories, and the requirement for all standardised derivatives to be centrally cleared and, where appropriate, traded on electronic platforms. These reforms are now being implemented in the UK and should go some way towards limiting the risks associated with these instruments.
So far as the wider effects of gaming in the City are concerned, the PCBS undertook an extensive and wide-ranging examination of the professional standards and culture of the UK banking sector. Its final report made a number of findings on the existing standards and culture in the banking sector, and recommendations as to what might be done to improve the position. We are seeking to give effect to those recommendations in this Bill. As the noble Lord will be aware, we will have a debate on the broader cultural aspects of the PCBS’s report next week.
In the circumstances, I am not sure that a formal Treasury review, as proposed by the noble Lord, is the best way forward. In Committee, I suggested to him that a more appropriate way forward to address his concerns might be for him and, possibly, other Members of your Lordships’ House to work with a think tank that specialises in financial services to undertake such a review. The precedent I had in mind was the review of the banking sector undertaken in the previous Parliament. The Future of Banking Commission was chaired by David Davis MP and included not only my colleague Vince Cable but the noble Lord, Lord McFall. That report had a major impact at the time in influencing the consideration of how we should be looking at the banking sector. The advantage of such a structure over a formal Treasury structure is that it enables a wide range of individuals, including serving politicians, to sit on it. That is much more likely to happen if it is done under the aegis of that sort of think tank than if it is initiated by the Treasury. As a result, when the report came out, it commanded a broad degree of public respect.
I take the point made by the noble Lord, Lord Eatwell, and the most reverend Primate the Archbishop of Canterbury about the specific consequences of potential tax avoidance or evasion by people involved in this sector. I undertake to discuss that with my colleagues in the Treasury in the context of measures that might be brought forward in a future finance Bill. I agree that at first sight it appears to be a loophole that we should have a look at. As noble Lords know, the Government have devoted considerable resource and attention to these issues. I am sure my colleagues in the Treasury will be happy to have a look at the issue.
With those suggestions, I hope my noble friend will feel able to withdraw his amendment.
I thank the Minister for what he said. I am particularly pleased to hear him say that he will take up the two practical points made by the noble Lord, Lord Eatwell, which are entirely germane to the review that I was thinking of. That will be an important step forward. I am obviously disappointed that the Government will not go further, but I do not think that I can take the matter any further today.
In opening, I should have said how grateful I was to two professors at the University of Essex, on whom I relied substantially for a lot of the statistics: Professor Sikka and Professor Markose. With that, I beg leave to withdraw the amendment.
My Lords, as noble Lords will see on the Marshalled List, Amendment 165 would insert a new clause entitled “Duty of care”. Over the past several months, we have seen a variety of scandals which have, let us say, polluted the relationship between banks and their customers, particularly those holding household accounts or those which are small or medium-sized enterprises. We have had the PPI scandal, the scandal over the mis-selling of interest rate swaps and now newspaper headlines cover the accusations which come from within the Government that RBS has been winding up small firms and seizing their assets to its own advantage. Just yesterday, the Governor of the Bank of England, Mr Carney, referring to RBS, said that this behaviour is a fundamental violation of the integrity of the banking relationship.
The amendment is addressed directly towards the banking relationship. It is in the best interests of the banking industry and, indeed, of the UK economy as a whole, that that relationship is repaired and that trust is restored between the ordinary customer and his or her bank. The amendment is carefully drawn. It proposes first that, with respect to core services, a ring-fenced body will have a fiduciary duty towards its customers. Not being a lawyer, I went to the law library in my college to check that I knew exactly what “a fiduciary duty” actually meant. I quote from a law textbook, which says:
“A fiduciary relationship encompasses the idea of faith and confidence and is generally established only when the confidence given by one person is actually accepted by the other person. Mere respect for another individual’s judgment or general trust in his or her character is ordinarily insufficient for the creation of a fiduciary relationship. The duties of a fiduciary include … reasonable care of the assets within custody. All of the fiduciary’s actions are performed for the advantage of the beneficiary”.
The law textbook which I consulted also went on to describe the way in which the courts have interpreted this relationship, embracing,
“legal relationships such as those between attorney and client, Broker and principal, principal and agent”.
It is striking that the Securities and Exchange Commission in the United States has now passed a regulation which imposes a fiduciary responsibility on those regulated by the SEC.
The fiduciary duty to which I refer in the amendment is with respect to “core services”. I remind the House what that means. The core services are the facilities for the accepting of deposits or other payments into an account which is provided in the course of the core activity of accepting deposits, facilities for withdrawing money or making payments from such an account, and overdraft facilities. It is that relationship of depositing your money in the bank which then says that the bank has your best interests at heart in looking after your money. That is the case of the fiduciary responsibility.
The amendment goes on to say that, with respect to other financial services provided by a ring-fenced organisation, there should be a “duty of care”. I returned to the law textbook, just to make sure that I knew the difference between fiduciary responsibilities and “duty of care”. I was told that a duty of care is a,
“legal obligation which is imposed on an individual requiring adherence to a standard of reasonable care while performing any acts that could foreseeably harm others. It is the first element that must be established to proceed with an action in negligence”.
It goes on to discuss the case law and common law associated with the notion of duty of care.
Before the noble Lord sits down, why does he not propose extending his fiduciary liability to all banks rather than just the ring-fenced entities?
That is because I think the distinction between commercial banking and investment banking is relevant in this case. One would expect investment bankers to behave honestly and in an appropriate manner in their business transactions. I would not expect an investment banker necessarily to display a duty of care and certainly not a fiduciary responsibility whereas I really would expect a commercial banker to exercise those responsibilities in all circumstances when dealing with families and small businesses.
Before the noble Lord sits down again, I ask for a brief clarification. Ring-fenced banks may well have dealings with local authorities and pension funds, but I think that under the terms of the Financial Services Act 2012 and the FSA rules these are not legally customers; they are eligible counterparties. Did the noble Lord mean to exclude local authorities and pension funds from the protections he sets out in his amendment?
I am very grateful to the noble Lord for his comments. I had overlooked that point. Once the House has accepted this amendment, we can move on, perhaps at Third Reading, to add the elements that the noble Lord suggests.
My Lords, before the noble Lord sits down again, I offer another friendly thought—I hope. I have it in mind because the Netherlands has reintroduced a bankers’ oath analogous to an oath for physicians. As part of that move, we should note that the relationship with the persons who are here designated as customers should, indeed, properly be that of a client. This is a professional service and the fiduciary duties are in place precisely because this is a relationship not to a customer from whom one might make money but to a client to whom one owes a service.
I am grateful to the noble Baroness. I am sure that her suggestion and, indeed, the example of the Netherlands might well be followed here.
My Lords, I have a reputation for introducing sidetrack issues which distract the House. However, I have just listened very intently to the noble Lord, Lord Eatwell, and I think that I disagree with most of what he said. I would like to cite a case history and then invite him to say how what he said would relate to it.
I was very concerned to read in recent weeks about the Royal Bank of Scotland being accused of deliberately pulling down companies. I believe that I have been involved in one of those cases as the person brought in from outside to engineer the kind of scenario that that bank has been accused of engineering. I shall explain what occurred and then ask the noble Lord, Lord Eatwell, how this relates to his perceptions of a duty of care and fiduciary responsibility.
Once upon a time in a muddy field in the Herefordshire area, a man who had come back from the war bought a caravan in which he lived with his wife. He hit upon the idea of a much more efficient process for aerating water for soft drinks and decided to go into production. He went from very small beginnings, with nothing more than his Army gratuity from the war, but by 1986 he was making £19 million a year profit and doing very nicely indeed. However, at that point his wife found him sleeping with his secretary and thought that that was pretty poor loyalty for nearly 40 years of dedicated support, so divorce proceedings were instigated but by this time they had a son. The son brought an action to prohibit his parents divorcing and dividing his asset between them. I believe that it is the only such action that has ever been brought.
He won his case so they had a settlement whereby the wife went to live in Monte Carlo, the husband stayed with the company and the son owned the company. However, the son now decided that his father had really not done very well with the company, although he had got it to £19 million a year, and that he could do a great deal better. So he went to Lloyds Bank. The company had nil borrowings at that time, not a penny. This is where I disagree with the noble Lord’s analysis, because it is not a question of what you do with the deposits—there is no cash being used from a bank at all here. He said, “Give me £75 million of borrowings and I will create a much bigger and better company out of this, in which we can all have a vast amount of earnings”. Lloyds Bank looked at his plan and his options and said yes. I challenge the noble Lord, Lord Eatwell, on this. The first breach in fiduciary responsibility was that the bank said yes. It was not a question of what happened with the deposit, but a question of an ill advised loan, because the company was quite adequate as it was.
Lloyds gave him the £75 million and he went out and bought the plushest factory and upgraded every bit of engineering he could to put into it. Finally, after two years he re-opened and immediately found that he was losing £600,000 a month, at which point Lloyds sent for me. I found that the company was not losing £600,000 a month. It was losing more than £1.5 million a month and at that level we would be way out. All that the bank wanted was to get its money back. One might say that it did not deserve to get it back—in some respects I would agree with that—but we got it back in the end because we were able to break the business up into its various components. The splendid factory could be sold to Mitsubishi for quite a lot of money, the business streams could be sold for another £30 million or £40 million, and then we discovered that the company had the most valuable crop of freshwater springs in the Lake District of any British company. We sold it for tens of millions of pounds and got the bank out 100%, whereupon the son decided that he wanted to sue the bank for failure of fiduciary responsibility for lending him the £75 million in the first place. He said that the bank had engineered to bring the company down so that it could strip it out, take all his money and ruin his family and descendants for all time.
This is the reality behind what noble Lords are hearing about the Royal Bank of Scotland at the present time. Banks are pressured into making bad decisions to lend and they then take appropriate defensive action on behalf of their shareholders and depositors. That is discharging their fiduciary responsibility, but they have been put under pressure by other market forces to invest in businesses which really do not know what they are doing and when the time comes to dismantle, dismember and unbundle them, we get the sort of consequence we have had here. This individual failed in his action against the bank for having stolen his company, as he put it. He is now very ill, I am sorry to say, and is unlikely to last long in this world. His family is ruined completely—it has lost everything. Is that a fiduciary responsibility? Yes. The bank should have looked much more closely at the options that were available to the business at the time and should have looked to see what expertise was going to be brought in, and it did not. As to whether there is a duty of care, that is a very simple and separate issue running alongside. I think that there is and that that is where the concentration should be.
I should point out to the noble Lord that the case he has described would come, under the terms of my amendment, under duty of care, not fiduciary responsibility.
My Lords, as a lawyer I have always believed that I have a contract with my bank, inasmuch as it is making an offer capable of acceptance and I have accepted it, in the case of provision of deposit and current account services, which I believe are the areas which my noble friend Lord Eatwell is proposing to cover. I do, however, support the amendment. It never does any harm to repeat these things. By analogy with part of the criminal law, it has been illegal since 1861 to beat one’s wife, but it took the Domestic Violence and Matrimonial Proceedings Act 1976 to remind the general public and the police of their duties in the matter.
The real problem lies with how to enforce any of this. Through all these debates I have found myself wondering where our lawyers are. Why have we not been suing banks? In many cases there is a perfectly clear case of action against a bank. The answer, of course, is that they are many times bigger than us and have more resources than any individual. If the purpose of the amendment is to encourage, or indeed force, the regulators to take the action on our behalf, which we are not about to do because of the risk of very severe financial consequences, it will be well received by everyone. In any case, I support the amendment.
My Lords, I simply add that there is surely a strong duty of care to the depositors, whose money a bank is lending. The bank has a balancing role of looking after the interests of its depositors and looking after the interests of its loan customers. I also echo the point made by the noble Baroness, Lady Cohen. The “treat your customer fairly” principle has been applied across the financial services sector and I think that, in the main, the investment management industry has put it into practice well. However, it is a nightmare to police. If the individuals are not going to be motivated to act properly, then the law, or whatever is in the regulations, will not necessarily lead to that. We can say that we will pass a law and everything will be wonderful but the question is: will people behave correctly?
My Lords, I am sorry that when we discussed this amendment on a previous occasion, the Government failed to convince the noble Lord, Lord Eatwell, that his amendment was not necessary. I hope that I will have more success this time because I believe that the amendment is neither necessary nor helpful.
We all share the objective of driving up standards in banking and improving the treatment of customers. That is why the Chancellor set up the Parliamentary Commission on Banking Standards and why we have accepted the vast majority of its recommendations. However, we remain unconvinced that the noble Lord’s amendment will add anything meaningful to these reforms.
The regulator’s FSA Principles for Business already includes what is virtually a fiduciary duty. Principle 10 states:
“A firm must arrange adequate protection for clients’ assets when it is responsible for them”.
As other noble Lords have mentioned, these high-level principles also already include the principle that:
“A firm must pay due regard to the interests of its customers and treat them fairly”.
I am not sure how the noble Lord’s amendment would improve standards or help bank customers; nor do I think that he has explained what the new duties on firms really mean. When he spoke in Committee, he said:
“This will increase consumer protection and help to restore confidence of the retail customer in banks. It will raise standards of conduct because banks will know they are responsible for acting according to these duties”. —[Official Report, 23/10/13; col. 1092.]
But my question is: how will it do that? How will it, as he hopes, stop the kind of scandals that we have had in the past? I think that that is an extremely difficult question for the noble Lord to answer in that neither “fiduciary duty” nor “duty of care” in this context describes a specific, precise obligation. As I have explained before, regulators’ rules provide very specific obligations.
I should add that the Official Opposition in the other place seemed to understand this difficulty. When an identical amendment was considered in Committee there, the opposition spokesperson, Cathy Jamieson MP, acknowledged the risk of unintended consequences or lack of clarity. She emphasised that the purpose of the amendment was to ensure that,
“customers are looked after and that banks are clear about their responsibilities and remember the part of the contractual relationship with customers that is about looking after their money”.—[Official Report, Commons, Financial Services (Banking Reform) Bill Committee, 16/4/13; col. 247.]
Of course, that is what we all want. That is why the Government introduced the regulatory reforms and new properly focused regulators. The FCA, in particular, will focus on protecting consumers and maintaining market integrity.
This Bill will take the process further by strengthening the regime of individual accountability and standards for those who work in firms, in line with the recommendations of the Parliamentary Commission on Banking Standards. These rules will be specific. They will be precise. They will set out the responsibilities of banking staff and senior persons to their customers. Moreover, they will be enforceable by the regulator. If they are broken, those people will be punished and could be subject to fines or public censure.
If we were to have the general duty of care or fiduciary duty as set out in the amendment, how would that be enforced? In law a fiduciary duty is enforced by the person to whom the duty is owed taking action in the courts. Does the noble Lord really believe that those people, some of the most vulnerable at the sharp end of bank practices, are likely to pursue their bank through the courts? Instead, the Government’s reforms have established a regulator with real teeth, of whom the banks will genuinely be scared—indeed, I think they are. Bolstered by a clear and binding set of banking standards rules, which specify codes of conduct and personal responsibility through the senior persons regime, this will mean a real change for consumers. The noble Lord referred to the SEC introducing a fiduciary duty in the United States. The proposed fiduciary duty in US securities law is not comparable. The proposal, on which incidentally the SEC itself has not yet taken any clear position, extends only to covering activities that involve giving advice. In any case, in the UK, when a firm provides advice to a customer, a duty of care already exists under the general law. In that respect, the US is simply looking to catch up.
To sum up, attempting to add duties of care or fiduciary duties of the kind proposed in this amendment would add nothing to the existing protections for customers. It is unnecessary and would not add any clarity to existing requirements. I hope, therefore, that the noble Lord will withdraw the amendment.
My Lords, I regret that the Government seem to have learnt nothing since Committee stage. We have heard the repetition of high-level principles of the regulator protecting customers. What has actually happened? There have been successive scandals when customers were not protected by the regulators and successive scandals in which treating customers fairly was simply a joke.
The noble Lord also referred to a number of specific provisions. That is the great weakness of the regulatory structure. We have simply specified conditions. As we all know, that which is not specified is permitted. The whole point of having a fiduciary responsibility and duty of care in the terms that I set out when I moved the amendment is to create a general responsibility that will be enforceable in law by individuals and, indeed, by collective actions. Therefore, it seems to me that simply saying, “We have made things better by making them more specific and providing regulators with teeth”, is not the same as providing protection for the individual, which is exactly what the amendment would do. Given that the notions of fiduciary duty and duty of care are successful in other professions, why—the Government failed to answer this question—can they not be successful in the banking profession? That question was not answered. This is so important that I wish to test the opinion of the House.
My Lords, in Committee, the Government proposed that the FCA should be given competition powers, to be exercisable concurrently with the Competition and Markets Authority, to make sure that the FCA has the right tools to get the job done. The amendment that we tabled to achieve this set out the scope of the FCA’s concurrent competition powers as applying to “financial sector activities”, defined as relating to,
“the provision of financial services”.
The amendment also included a delegated power that would allow the definition of “financial services activities” to be changed in future. It was felt that allowing this definition to be amended by order helped to future-proof the legislation by providing the flexibility to adjust the scope of the FCA’s competition powers should this be warranted—for example, because some new activity that arose in the future did not qualify as the provision of financial services.
However, concerns over this were raised by the Delegated Powers and Regulatory Reform Committee, particularly that the power was too wide-reaching and unnecessary, given the breadth of the definition of “financial sector activities”. I am grateful to the committee for its efforts in scrutinising the Bill and the Government’s amendments. In the light of the already very wide definition of “financial sector activities” and the views of the committee, the Government have decided to remove this power, along with procedural provisions concerning its exercise, from the proposed legislation.
The Government have tabled another amendment to ensure that the competition powers conferred on the FCA are capable of being exercised effectively. One of the powers conferred on the FCA is the ability to conduct a market study in the context of markets for the provision of financial services. If the FCA discovers competition-related concerns, it can refer the market for investigation by the Competition and Markets Authority. The amendment we are discussing today serves to ensure that a legal restriction on the FCA disclosing confidential information would not prevent the FCA from sharing with the Competition and Markets Authority confidential information which was relevant to a CMA market investigation. The amendment would also ensure that the provisions concerning treatment of confidential information that apply to other regulators with concurrent competition powers would also apply to the FCA, ensuring consistency. I beg to move.
My Lords, Amendment 172 derives from, and is a response to, an amendment that the Government successfully moved in Committee, which gave the PRA a secondary competition objective directly related to issues of market structure and performance. We have developed in this Bill, and in the previous Financial Services Bill which we also considered in this Session, a twin-peaks approach to financial regulation, with the Financial Conduct Authority looking at conduct of business and the Prudential Regulation Authority looking at issues associated with the prudential behaviour of firms.
Given that the PRA now has a competition objective, we should not allow the twin peaks to isolate consumer representation. The FCA consumer panel has an important role in advising on and responding to FCA proposals with respect to conduct of business but, with the PRA now having a competition objective, the issues which affect consumers directly will involve the competition element of prudential regulation. It is important, and entirely appropriate, that the PRA at least considers and responds to representations made by the FCA’s Consumer Panel—that is all we are asking for—so that decisions which the PRA makes with respect to market structure and performance have an appropriate consumer input. I beg to move.
My Lords, this amendment concerns the important issue of consumer representation at the PRA and requires the PRA to consider and respond to representations from the FCA’s Consumer Panel.
There is much to welcome in the approach suggested. It is important to ensure that there is sufficient regard to consumer concerns at the PRA, especially where there are specific issues of consumer protection that the PRA should take into account. I welcome the recognition that it will not require the creation of a completely new body in order to achieve this. We need, of course, to be mindful of maintaining flexibility on the best way for the PRA to take into account representations from consumers and the need to avoid overly burdensome arrangements.
Following the earlier discussions on this issue, the regulators have considered how best to ensure consumer interests are communicated to the PRA. The regulators have come to the view that there should be arrangements for the FCA Consumer Panel to be able to raise concerns with the PRA, and I believe that it is worth considering putting arrangements on a statutory basis. We will therefore consider coming back at Third Reading with amendments, subject to reflection on the best way to do that without incurring unnecessary costs or burdens for the regulators or the panel. We would be happy to discuss further with noble Lords opposite the most effective approach to doing this. In view of that, I hope that the amendment can be withdrawn.
There I was with my notes saying how inadequate the noble Lord’s answer was going to be. I am delighted that the Government have recognised the power of this argument and I look forward to discussions with them and to the moving of amendments at Third Reading.
My Lords, this amendment stands in my name and in the names of the noble Lords, Lord Turnbull, Lord Lawson and Lord McFall. The issue of leverage ratios may at first sight be less emotionally gripping than some of the other things that we have been discussing over the past few days, but it is central to the recommendations made by the commission. The leverage ratios that banks employ are a vital backstop in ensuring that they hold adequate capital, and ensure the safety and security both of individual banks and the industry as a whole.
A remarkable lecture given by Andy Haldane of the Bank of England sets out the necessity for this amendment. It is called The Dog and the Frisbee and I warmly recommend it, not least for its light humour. Essentially, as the Basel process has gone on through Basel I, Basel II and Basel III, there has been an exponential increase in the complexity of the internal measurements of different categories of loan for the amount of capital that had to be set against them. This opened the way very effectively to banks using different internal measures and to the inability of regulators to audit and examine adequately the ways in which banks were setting aside capital for particular risks.
A leverage ratio, because it is relatively if not absolutely simple, acts as a backstop which sets minimum levels of security and safety. The debate around a similar amendment in Committee was rather confusing. Although, as I have mentioned previously, I was unfortunately not able to be in the House that day owing to other duties, I have looked at the Hansard and concluded that the Government’s position on this recommendation seems unclear. On the one hand, the House was told that the amendment was not needed, as the Financial Policy Committee had the power to set the leverage ratio; on the other, the Minister indicated that responsibility for setting the leverage ratio would be considered once the international levels were implemented through Basel III, which would be some time in 2017 or 2018.
In the light of this, the commission warmly welcomes the clarity of an announcement made yesterday that the Financial Policy Committee will conduct a review into the role of the leverage ratio within the capital framework of UK banks, as this indicates that the Treasury and the Government recognise that they are an important part of the structures that guide the banking system and that it is necessary that we move forward without delay. My commission colleagues and I are grateful to the Government for their willingness to allow the FPC to conduct a thorough and wide- ranging review of its current powers and to make recommendations on further powers it needs. We would welcome a clear statement that the review will not seek to establish whether it is right for the FPC to request this power but that it will have the power and the review will be about how it will exercise it.
We also welcome warmly the accelerated timetable set out in the Government’s announcement. It is right that this power should be available to the FPC as soon as possible and the expectation that the Bank of England will complete its review within 12 months reflects this need. I hope that the Minister can confirm these points. I beg to move.
My Lords, I support the sentiments expressed by the most reverend Primate, in particular in pointing out the considerable confusion in the Government’s position in Committee when they told us, on the one hand, that the FPC had this power already and, on the other hand, that they proposed to give the FPC the power in 2018. We were told both things at once and it was not at all clear that the Government really knew what was happening with respect to the development of the use of the leverage ratio as an important element in the FPC’s toolkit.
However, the matters have been clarified by the correspondence between the Chancellor and the Governor of the Bank of England which was made available to us yesterday. I would like to hear confirmation from the Government that this is a case not of whether a leverage ratio will be available to the FPC, nor of whether the FPC will have that within its macroprudential toolkit, but simply of when this power will be available—I hope that it is sooner rather than later—and perhaps how it might be exercised. However, given that the use of macroprudential tools is already set out in great detail in the previous Financial Services Act, even that may be unnecessary.
My Lords, I support strongly what the most reverend Primate the Archbishop of Canterbury and the noble Lord, Lord Eatwell, have said. I speak in support of them because this is a particularly important issue.
In constructing a safe banking system, a number of things are taken into account, including risk-weighted assets and other matters of that kind, but there is no doubt that the leverage ratio is the single most important element in having a strong and robust banking system. This amendment is not about what number it should be. I mention en passant that the Government say that we must not interfere with what the Vickers committee recommended, yet when the Vickers committee recommended a number which they did not like they disagreed with it. Nevertheless, that is water under the bridge.
The review is quite unnecessary—although it will probably not do any harm—because the issue of the leverage ratio is peculiarly simple. Who will be responsible for setting the leverage ratio, the Treasury or the Financial Policy Committee of the Bank of England? The amendment is important because it would give the Minister the opportunity to make a clear statement. There has been movement since Committee. The Governor of the Bank of England, Mr Carney, gave evidence to the Treasury Committee in another place only yesterday saying that his understanding was that it would be the responsibility of the Financial Policy Committee of the Bank of England. We would like to have that explicitly stated by my noble friend here today.
My Lords, the amendment would require the Government to make an order giving the FPC a power to direct the PRA to set a leverage ratio within six months of Royal Assent. It is absolutely the case that it will be the FPC which exercises these powers. It has never been the intention that the Treasury would have those powers. For those who are not so familiar with the context, I shall have another go at being less confusing about the background, because it is important to understand why the review is necessary to get to that end case and what the current situation is.
There was a lot of concern around the idea that the Chancellor has the power to set a leverage ratio, which I think was in part a result of some confusion about how the law currently stands and works—which in turn is partly because of the various domestic and international reforms running to different timescales. We are in a process of change and a lot is moving around.
I tried last time to clarify the current powers of the regulator and the future powers of the FPC during Committee. I thought that I nearly succeeded, because I think that the noble Lord, Lord Lawson, is on record as saying that he was encouraged to some extent. That was a ringing endorsement compared to how I did on some of the other amendments, so I thought that I had done quite well.
The Government have sought to provide further clarity on this point through the recent exchange of letters with the Governor of the Bank of England. I will return to that. I hope that, with that explanation and a description of the steps that the Government will take to clarify matters further, I can satisfy your Lordships that their concerns about what I agree is a very important issue will be addressed.
First, I shall try to explain the current state of the law. Then I will explain our proposals in that context, because I think that that will give noble Lords the full picture.
Under current law, three bodies are concerned with the leverage ratio: the Treasury, the FPC and the PRA. Of course, the last two are part of the Bank of England group. Of those three, one has the direct power to set a minimum leverage ratio now. That is the PRA. Let me make it absolutely clear: it can do that not just on a firm-specific basis but on a system-wide basis. It can do that now; it has that power. It can set the leverage ratio directly, as it did back in June, or on the basis of a recommendation from the FPC. When I replied to the noble Lord, Lord Turnbull, I talked about the June action of the PRA as the killer fact; it was obviously not as emphatic as I hoped.
Under FiSMA, the FPC has two sorts of powers. First, there is a wide power of recommendation on any issue with regard to financial stability, which it makes to the PRA to exercise under its powers on a “comply or explain” basis. For that to work, the PRA must have powers to apply rules across the whole sector, which, as I have just explained, it does. It is envisaged that that is how most of the FPC’s decisions will be enacted. Secondly, the FPC has a narrow set of macro-prudential tools, which are powers to direct the PRA to act. There are currently two powers of direction. Currently, they are a counter-cyclical capital buffer and sectoral capital requirements. The Government also committed—this was the original situation—to giving the FPC a third direction tool to vary the minimum leverage ratio once the minimum was set in 2017.
For the avoidance of doubt, the Treasury plays no role here. If the PRA wants to set a leverage ratio either under its own initiative or under the recommendation of the FPC, it does not have to ask the Treasury, and the Treasury has no veto. The Treasury is the only body of the three that does not have the power or influence to set the leverage ratio. So the debate is essentially about how and when the Treasury grants the FPC that specific power of direction over the PRA, rather than the PRA retaining some discretion in the matter.
That being established, let me turn to the Government’s recent exchange of letters with the Bank of England. The Government have already committed to give the FPC the power of direction to vary the leverage ratio through time in 2018, subject to a review in 2017, but, given progress internationally—all the transformational change that we just discussed—there is a case for such powers being given earlier, or specified in a different form. To settle this debate, the Chancellor asked the governor, who is the chair of the FPC, to review the matter and make a recommendation to him that he could take to Parliament. The Government believe that that is the right approach to granting the FPC additional powers of direction, for a number of reasons.
First, there is an existing process for the FPC being granted such powers, established under the Financial Services Act, which many in this House and the other place, including the chair of the PCBS, helped to design. These are prescribed by the Treasury by order under Section 9L of the Bank of England Act 1998. Before making an order, the Treasury must consult the FPC and make an order in Parliament. This is subject to the affirmative resolution procedure, so must be approved by each House of Parliament.
To fulfil their duty of proper consultation before bringing a proposal under the Act, the Government believe that it is appropriate and necessary that the Bank furnish them with the relevant information from the planned review of the leverage ratio. As noble Lords can see from the governor’s response to the Chancellor, he is more than happy to go along with that process, given the things that are going on this year. Secondly, as a matter of policy, there are a number of outstanding technical issues that will need to be settled before the Chancellor can bring fully fleshed-out proposals back to Parliament.
I am very grateful to the Minister for such an extremely technical answer and I beg leave to withdraw the amendment.
My Lords, this amendment repeats an amendment tabled in Committee, the aim of which was to delete what the commission thought was an otiose strategic objective for the FCA and thereby increase the prominence and importance of what were previously called its three operational objectives, one of which was the promotion of competition. I thought that the reply from the noble Lord, Lord Newby, was unsatisfactory and I wanted to pursue it a bit further. The noble Lord concluded with the following remarks:
“After taking legal advice, the FCA has subsequently written and confirmed that it is happy with the strategic objective. On that basis, we are happy that the FCA is happy and wish to retain it”.—[Official Report, 15/10/13; col. 508.]
Perhaps I might respectfully comment that the object here is not to make the FCA happy but to make it pursue diligently the competition objective, about which a number of people have reservations. I would like to give the Minister the opportunity to give us some further assurance that the competition objective of the FCA will be pursued with the vigour that I think the Treasury and this House want.
My Lords, I confirm the observation of the noble Lord, Lord Turnbull, that it is of course not our objective simply to make the FCA happy. I will give a slightly longer explanation of why we think that the current situation will work just fine but, to get straight to the point, it is absolutely because we believe that the overriding mission statement is entirely consistent with the vigorous pursuit of the competition objective.
In looking at this from a personal point of view, I am very comfortable with the notion of an overriding mission statement which works in harmony with the operational objectives, can be used to support and enforce them and is very useful when it comes to shades of difference between them. I am very comfortable in this case because the overriding objective of making markets work well is entirely consistent with our mutual objective of ensuring that the FCA is pursing its competition objective with the utmost vigour.
I hope noble Lords have been able to witness that where we have been able to compromise, I have been very keen to compromise, but I am afraid here it is either yes or no, and in this case I ask the noble Lord to withdraw the amendment on the basis of my suggestion that I think it is going to be okay.
My Lords, I have one issue to raise with the Minister. The competitive objective, as I understand it, applies equally to the PRA as to the FCA. As noble Lords may be aware, one of the immediate issues is that the capital requirements for banks of different sizes are dramatically different, such that a small bank’s capital requirement for certain forms of mortgage lending is about 30 times the capital requirement for one of the established clearing banks. The PRA has enthusiastically welcomed changing those arrangements and taking up the challenge to create a more competitive environment, but when I recently asked why the huge difference in capital requirements relating to mortgages had not been addressed, I was told that the PRA could not move until it was able to get agreement from the EU. I am not sure whether that is correct, but it is quite important to know whether meeting the competition objective is not just a question of having our own powers to do it but that EU requirements impinge upon it.
In tabling amendments, there are a number of objectives. The first is to get an amendment accepted, the second is to make a point and the third is to receive an assurance. I think I have achieved the second and third objectives. On that basis, I beg leave to withdraw the amendment.
This amendment is about the future structure of the Regulatory Decisions Committee. This is avowedly a placeholder amendment to allow further discussion. The commission originally proposed that the RDC should be given statutory autonomy within the FCA and that that new regulatory structure should be reviewed by 2018. On further reflection, my commission colleagues and I put forward a rather different proposition, which is that there should be a wider review but there is no reason why it should not start as soon as maybe.
There are a number of reasons why a wider review is justified. The first is obvious. Although we now have two regulators rather than one—the PRA and the FCA—events where enforcement is justified can arise from either of these domains and enforcement action taken by one could help or hinder the work of the other. The enforcement division and the RDC are embedded in the FCA, and it raises the question of whether the RDC should be placed, in a sense, more equidistant between the two.
The second reason for raising this question is that, in banking at least, enforcement decisions could be taking on a greater significance than in the past. Indeed, the past has been characterised by a surprising absence of enforcement, at least in relation to the events of the financial crisis. There have been some major enforcement decisions and some colossal fines around conduct, but virtually none in relation to events leading up to the financial crash. This therefore raises the question as to whether the RDC needs to be upgraded in terms of its chairmanship and membership so that it is capable of handling bigger and more important cases.
The third reason is that, in response to a regulatory infraction or lapse, there is a balance to be struck between using enforcement as an instrument and the supervisory instrument. We should not get into the mode of thinking that enforcement is always the first and best recourse. Supervisors may take the view that a case is better handled by what elsewhere might be called “special measures”, such as seeing that the people who are responsible for the poor behaviour and decisions are moved on, and possibly even sacked; or by getting new people in; or by securing undertakings from management about future conduct. Often, this can produce a quicker and more effective result, whereas recourse to enforcement can cut across this so that instead of a bank immediately getting into a constructive dialogue about what to do next, it begins to dig in and wait for a long, drawn-out litigation.
We therefore need to ensure that, in any particular case, the full range of options has been considered and that the interests of other regulators have been taken into account. In other words, the RDC should only receive a case after that balancing process has taken place. It would be helpful if the RDC was able to question whether all the options and possible responses have been explored.
The fourth reason is that, in many walks of life, there has been a trend which continues to this day of greater separation between those investigating a case, those who decide whether a prosecution should be undertaken and those who reach a verdict. You could go back to the creation of the Crown Prosecution Service more than two decades ago, and you can see this in a number of professional bodies covering medicine, solicitors and accounting. The hot topic of the moment is the Independent Police Complaints Commission. There is a perception that the RDC is not as independent of enforcement as it could be. It is co-located. It is part of the FCA. Would we be able to achieve both actual enhancement of its independence and, certainly, the perception of that independence if it stood in a more independent position?
Finally, the RDC has to ensure that before any accusation is made in a decision notice that enforcement has been properly researched, the accused has been given a proper chance to put their case, and the case has been gone into thoroughly. This is of particular relevance to smaller practitioners who can be severely damaged by accusations and are not able to clear their name until maybe years later. Unlike big firms, such businesses, such as IFAs, can find that they clear their name but there is no business left to go back to.
All this indicates to me that there is more than enough material on which to base a review and no reason to delay that until 2018, which was included in the earlier amendment. Rather than attempt to legislate now in a process that does not allow proper consultation with practitioners, and which would be confined only to banks, I argue that we should have a wider review. I hope that between now and Third Reading we can have further discussions on this idea. I beg to move.
My Lords, I was a member of the original regulatory decisions committee at the Financial Services Authority, which noble Lords may remember was set up after FiSMA ran head first into the human rights legislation because the regulator was in many cases judge and jury. The RDC was set up as a filter, to be an independent assessor of regulatory decisions by the various divisions of the FSA and to stand as a relatively simple procedure prior to the final stage of going to a tribunal if agreement could not be reached between the regulator and the regulated person. In that respect the RDC and the old FSA worked moderately well—but only moderately.
It did not work so well for two reasons. First, there was considerable confusion over its independence. The noble Lord, Lord Turnbull, has, in this amendment, quite rightly emphasised that the RDC should be independent of the various regulatory authorities. The second reason it did not work very well is, unfortunately, contained within the amendment, which states:
“A majority of the members of the Committee must be persons”,
with,
“no professional connection with … financial services”.
I am afraid that that, on the old RDC, caused us a lot of difficulty. Many of the cases which were quite complicated, with respect to financial services, took a long time because people who were very bright and committed but who had had no previous connection with the industry took a long time to get up to speed on the relevant issues that were considered. That condition in the old RDC arose because the FSA was succeeding the self-regulatory organisations. Therefore that was an overreaction to the role of the self-regulatory organisations such as the Securities and Futures Authority, which I also had the honour to serve on. That was abolished at that time and the reaction was, “Let’s have people from outside the industry in this particular role”.
Therefore, the idea of an independent RDC is a good one. That would avoid some of the very great expense of going to tribunal, where there might be disagreements, and it would also have the great advantage, which the noble Lord, Lord Turnbull, pointed out, of balancing the views of various regulators in any particular case. Of course, that was not necessary under the FSA, but it will be necessary under the new structure. This is worthy of very careful thought and consideration. It could be a very useful, positive step within the sequence of enforcement activities by the regulator.
In the spirit of the noble Lord’s approach, which was to move on from the specific amendment, I will not read out my speaking note, as entertaining and well structured as it is. I thank the noble Lord, Lord Eatwell, for his valuable experience here. I feel as the noble Lord does—something in here needs to be sorted out, but at the moment we are not exactly sure quite what the right thing is. However, it is certainly likely to involve a review, as is recommended as part of the amendment. Therefore I am more than happy, in preparation for Report—I am sorry, I mean Third Reading—to see what we can come up with together on a review.
On the basis of that quite generous assurance, I am very happy to withdraw the amendment.
I will try to be brief; I hope that the Government can readily accept this. This amendment concerns the need to have regular meetings between the bank’s supervisors and its auditors. I use the old-fashioned word “supervisors” rather than “regulators” because it gives a more accurate picture. I was very glad that the new Governor of the Bank of England, in his recent speech at some Financial Times junket or other—a very good speech indeed—referred throughout to “banking supervision”, which is a more accurate, old-fashioned term. It is important that there should be this regular dialogue. I will briefly go back a little into the history of this.
When I was Chancellor in the 1980s, I was very concerned to discover that there was no discussion between the auditors and the supervisors of banks—which was the Bank of England at that time, as it is now. I looked into it and discovered that it was because they were prevented from doing so. Under their duty of confidentiality to their client, the auditors were not able to speak to anybody about any concerns they might have had about what was going on in a particular bank. It applied to other clients, but the important thing was that it applied to the banks. Therefore, when I greatly strengthened banking supervision in what became the Banking Act 1987, I included legislation to remove that legal barrier. In introducing that I made it quite clear that I expected as a result that there would be a regular dialogue between the banking supervisors and the bank’s auditors so that each could compare notes about concerns they might have had about a particular bank.
I now regret that that was not in the Bill, but it was a clear expectation, stated from the Dispatch Box. These meetings took place for a number of years. Then, as time went on, fewer and fewer of them took place. In the run-up to the terrible crisis of 2008 it was significant—the Economic Affairs Committee of your Lordships’ House took evidence about this—that the meetings had virtually ceased. They did not happen at all, which was a huge mistake. Therefore the Economic Affairs Committee of your Lordships’ House recommended that there should be a mandatory requirement for those meetings to take place. That is all the more important with banks because with other businesses the auditor can qualify the bank’s accounts if it has a concern which the board of the client does not address. That is a signal that everybody can see. However, no auditor ever qualifies a bank’s accounts, and for a very good reason—because it would lead to a run on the bank. That is all the more reason for this dialogue to happen.
The Economic Affairs Committee of your Lordships’ House recommended this mandatory duty. When the parliamentary banking commission came to look at it again, we, too, recommended that there should be this mandatory duty. The Government have said that they entirely agree that there should be these meetings. They have announced that they have been moving gradually—I hope that they will move a little further—and have said, “Yes, these should take place, specifically at least twice a year”. However, they have so far resisted having that on the statute book. As noble Lords will know, once bitten, twice shy. We have been through this before: although we had all the good intentions, it was not on the statute book, and eventually it did not happen. Therefore, I say to the Minister, the Government have agreed that this should happen, and I cannot see any reason why it should not be in the Bill. Furthermore, from the history I have recounted, I can see a good reason why it would be folly, and dangerous, not to have it in the Bill. I beg to move.
My Lords, as a fellow member of the Parliamentary Commission on Banking Standards, I support the amendment moved by the noble Lord, Lord Lawson. The lack of a relationship with auditors is something that I have noticed since the beginning of the financial crisis. Indeed, at that time regulators told me that, when deciding what regulation banks should be subject to, they sent their less experienced regulators to the smaller banks and their more experienced regulators to the larger ones. By the way, when the regulators go to the larger banks they are sometimes taught by the people working in them because the quality is higher there. So the relationship between the regulators and the auditors is very important.
Martin Wheatley, who is now chairman of the FCA, is on record as saying that the FSA never looked at banks’ business models. In other words, it did not look at the profit and loss element of banks because it felt that it was none of its business. If the FCA is now to adopt the new policy of looking at business models, which tell you everything about a company, then the auditor is going to have a central role to play. I know that the audit profession has been rather taken aback by the criticism of the Treasury Committee and the Parliamentary Commission on Banking Standards, which posed the question, “What is an audit?”. The profession will have to do an awful lot of work on that because it has largely believed that audits cover something that has occurred in the past and not something that will happen in the future. It has not taken high-risk, low-probability strategies or low-risk, high-probability strategies into consideration. Auditors are in the unique position of looking at the business model and so can assist banks in having a forward look at that. They can also help regulators to understand what a business model is about. As the noble Lord, Lord Lawson, said, this measure was not put on the statute book previously and therefore lapsed by default. In the interests of being constructive on this issue and wanting to ensure that we have auditors who keep bank executives on their toes, I agree wholeheartedly with the noble Lord, Lord Lawson, that we need to see this measure written into the Bill.
My Lords, I add the support of these Benches for the commissioners’ amendment. I was particularly struck, as I hope the Government were, by the account related by the noble Lord, Lord Lawson, of what happened when he made these meetings legal but overlooked the need to put them into statute law, with the result that they did not happen. We have an opportunity here to make these meetings take place and be effective. Both the Economic Affairs Committee of your Lordships’ House and the commission stand behind this amendment and the views that have been expressed, and I hope that the Government will as well.
My Lords, we are considering a proposal to mandate the regulators to meet the auditors of all the banks they supervise at least twice a year. Strengthening the quality of engagement between auditors and supervisors is an objective that the Government share. I think that there is absolutely no disagreement between us about how important that is and how it has not always worked well in the past. I listened to the concerns of the noble Lord, Lord Lawson, that voluntary commitments for regulators and auditors to meet regularly could easily fall into abeyance. However, some lessons have been learnt from the financial crisis, and the Government have taken meaningful steps to ensure that the new regulator does not slip into the habit of neglecting engagement with auditors.
FiSMA now includes new Section 339A, which requires the PRA to have arrangements for sharing information and opinions with auditors of PRA-authorised firms, and to publish a code of practice to set out the way in which it will comply with this obligation. This code of practice sets out in detail the principles governing the relationship between the regulators and bank auditors and must be laid before Parliament whenever it is changed. This change to the law has greatly improved the regulators’ engagement with auditors since the crisis, so the Government have taken action here. The Government believe that the action they have taken in this respect is in line with changes to ensure that the regulators now follow a judgment-led approach to supervision that ensures regulators are clear in their purpose and direct resources to the most important cases.
One of the criticisms of the old FSA was that its approach did not focus on the most significant issues and too much resource was taken up by inflexible processes. Operationally, this new legal framework forces regulators to be more diligent and allows them to be held accountable. The essential strength of the new legal framework is that it demands diligence from the regulators through parliamentary review and encourages proportionality by allowing them to specify where they will focus their resources. The result has been that the PRA will meet with firms which have the potential to cause major economic disruption in the case of failure at least three to four times per year. The FCA will meet with the auditors of those firms at least twice a year. This is exactly what we want—prioritised, high-quality engagement where it matters.
The Government therefore remain unconvinced of the value of changing the frequency of this dialogue in statute without some reference to proportionality. Two meetings a year with the auditors of important firms is too little, while the same number for very small firms may be too many. The Government favour the current legal framework with its provisions for diligence and prioritised application of resources. Of course, there may be refinements that can be made in the law to ensure that the requirements on regulators are always express.
For clarification, if my noble friend reads the amendment, he will see that it does not say that the meetings should be held twice a year but that they should be held at least twice a year, so there is flexibility there. I hope that he will take this back and bring forward something better than he has said so far—interesting though that is—at Third Reading, because he has not addressed the critical point of the need to have a statutory requirement for these meetings to take place. He can decide what the right periodicity is; what I am anxious about is that there should be this statutory requirement.
I was just getting to that. The Government believe that there is a superior approach to strengthening the law in this area by clarifying the requirements on regulators to meet auditors enough times to accomplish their objectives. I think we agree that the periodicity should not be the constraint, although perhaps we could deal with that by a requirement to disclose the frequency of meetings with certain types of firm to ensure accountability. Such an approach would, in the view of the Government, be superior and retain proportionality and the judgment-based approach while increasing accountability. If the noble Lord will withdraw his amendment I will be willing to return to it at Third Reading, subject to further consideration of these issues.
Before my noble friend sits down, can we be absolutely clear what he is saying? He is saying that he is going to come forward with an amendment at Third Reading to put this measure on a statutory basis, but leave the frequency point on one side. Is that what he is saying? If not, we should reach a decision on this.
In answer to the useful point of clarification by my noble friend Lord Higgins, will this measure definitely be on the face of the Bill?
Given that undertaking, for which I am extremely grateful, I beg leave to withdraw the amendment.
This is one of the most important matters that we will have to decide, not merely to make the banking system safer but to address the cultural problem. Proprietary trading is, as noble Lords will be aware, trading which a bank does entirely on its own behalf. There is no client at all. It is the furthest from the culture that we expect of banking, which is a culture of prudence and of servicing clients. Here, there is no client and we know from experience that, far from there being a culture of prudence, proprietary trading tends to be of a highly speculative and gambling nature.
It has also, incidentally, been connected with some of the greatest scandals. The LIBOR scandal, for example, was a proprietary trading scandal. Even when there is not a scandal, even when it is perfectly reasonable—I have nothing against speculation as such—in my judgment it is alien to what the banking culture should be. Speculation should be left to the hedge funds. It is a hedge fund activity par excellence and it should not be conducted by banks. That is my view. The view of the commission was slightly different. It was that, while that is probably so, there are practical difficulties and therefore there needs to be a full-scale review a few years hence to see how this is working.
At the moment, of course, there is very little proprietary trading going on in this country. Before the great crash of 2008, the amount of proprietary trading that some banks were doing accounted for more than 30% of their total business; it was as big as that. It has now disappeared, but it will almost certainly come back. Incidentally, when we had this debate in Committee my noble friend Lord Deighton said that there was no need to do anything now because there was no proprietary trading going on. With the greatest respect, he missed the point. We are saying that we should review this a few years hence when there may well be something going on. In fact, there almost certainly will be something going on. We are not legislating just for the here and now, but for the medium term and, so far as we can, for the long term. There will not be another banking Act for a very long time, so it is important that this review is in place.
There is one other thing that the review will be able to do. My good friend Paul Volcker, a very distinguished former chairman of the Federal Reserve in the United States, has been largely responsible for introducing what is known as the Volcker rule in the United States, which attempts to ban proprietary trading. Their system of legislation is so appalling that the rule has got encrusted with myriad barnacles which may make it less effective, but, nevertheless, the clear intention was to ban proprietary trading. He is a very wise observer of the banking scene over many years and he understands full well the practical and cultural problems that derive from banks engaging in proprietary trading.
A review a few years hence will be able to take account not merely of what is happening in the banking world in England at the time but will be able to see how the Volcker rule has worked in practical terms in the United States—and, if it has been defective in any way, we can learn from their experience. Therefore, I urge my noble friend, who made a remark yesterday, almost en passant, about proprietary trading when we were talking about the ring-fence, to go further today and to accept the amendment which we, as a commission, feel is right. He may want to change the wording in some way or other—I suspect that the period we set was a bit too soon; it might be sensible to have it a little further out—but I will leave that to his excellent judgment. The important thing is that the essence of this must be accepted by the Government. I beg to move.
My Lords, I am interested in a side effect of this amendment. I hope that it may result in us taking a proper look at high-frequency trading, which seems to me to be pretty close to theft, organised on behalf of stock exchanges at the expense of the rest of us in mutual funds and pensions. It seems extraordinary that we allow a certain group of investors privileged access to the stream of information coming out of an exchange, and allow them advantages over real investors. Real investors invest in real funds for long-term real return, performing the function of the market in terms of the allocation of capital and giving people an opportunity to invest their money at risk for return in order to enable them to live in retirement and to prosper from giving other people the use of their money. These are important functions of the market and high-frequency trading seems to me to be parasitical on that.
I have heard it argued that it improves, net-net, the terms on which investors are able to trade. That is not what investors tell me. They say it is as if someone is moving ahead of them. Every time they get into the market they can feel the market being moved ahead by the high-frequency traders. I think that that is an aspect of proprietary trading to which we should pay close attention, and I very much hope that this review will allow us to do so.
I support the amendment. Most of what we are legislating to do is prevent banks doing terrible things to customers. Proprietary trading allows banks to do terrible things to themselves. They are no good at controlling it. The real horrors and the things that, more importantly, threaten the financial system are banks getting proprietary trading horribly wrong. There are examples of distinguished banks coming completely unglued in this. Deutsche Bank, UBS and Morgan Stanley all spring to mind. They seem to have a completely uncontrollable Wild West operation—and if the owners of the operation cannot control it, is it not a serious risk to the financial system and something that, as the noble Lord, Lord Lawson, suggested, should not be taking place inside a bank?
I, too, support the amendment. The problem that we have in the City today is that everything is moving so fast, and that traders have the capacity to use computers for all sorts of things. My noble friend Lord Lucas talked about high-frequency trading. I suspect that in three years’ time the new way of operating and making money will be something that none of us has even dreamt of. It is very important that this is reviewed and that there is an opportunity to take a very close look at it in a few years’ time.
My Lords, the PCBS did express concern, very understandably, despite the fact that proprietary trading is not as big a part of the current challenge as it perhaps was and perhaps will be. The concern is—just to show that I have grasped the point—that it will come back and become a major risk in the future. Therefore, the PCBS tabled an amendment that proposed two reviews. The first is a requirement on the regulator to review the steps it has taken to bear down on proprietary trading, and the difficulties it has encountered. The second, following such a review, would be a review commissioned by the Government into the issue, and into the case for changing the law.
I reassure noble Lords that at present we have a robust set of safeguards to deal with risks from proprietary trading. Indeed, as Andrew Bailey made clear in his response to the PCBS, the PRA thinks that it currently has the appropriate powers and tools to address risks from proprietary trading where it endangers the safety and soundness of a firm. The PRA continually monitors and reviews all risks that banks take, including those from proprietary trading, and it uses the capital regime to make these risks safe.
The new conduct regulator, the FCA, has a similarly wide range of tools, including sanctions, to ensure that banks adhere to a high standard of conduct in their business. Finally, ring-fenced banks, which are at the heart of this new legislation, will already be banned from any proprietary trading, further shielding them from any risks to which it might give rise. Therefore, the Government do not believe that there is a case for reviewing a ban on proprietary trading so shortly after these reviews and before ring-fencing has been put in place.
I am grateful that my noble friend said that he would come forward with something at Third Reading. That something will have to be not the possibility of a review but a clear commitment to a review. I think that it is a separate matter from the ring-fence. The ring-fence is about a division of banking; this is a ban. As the noble Baroness, Lady Cohen, said, this is not something that banks should be doing at all. It is a perfectly legitimate hedge fund activity, but there is a fundamental difference. On the basis of what my noble friend said—I hope that I have interpreted it correctly—I beg leave to withdraw the amendment.
I shall speak also to Amendment 183. This is about whether there should be a statutory basis for the existing remuneration code. One can analyse this at three levels. First, does the current code permit the kind of actions that the parliamentary commission recommended, such as longer deferrals where the nature of the risk justifies it, and more extensive clawback? Secondly, will those powers be used more rigorously than they have been in the past, particularly for banks? Thirdly, is giving statutory backing through the Bill necessary in order to ensure the correct answer to the second question?
Since tabling this amendment, we received a letter from the noble Lord, Lord Newby, on Monday, which in my view gives a satisfactory answer to the first question. All that the parliamentary commission sought, with the possible exception of forfeiture of some pension rights, can be imposed under existing powers. With regard to the second question—will those powers be used more rigorously?—the letter from the noble Lord, Lord Newby, says that the regulators,
“have stated that they will revise the … Code following consultation in 2014. The Government will work with regulators to ensure that …the Code [takes] full account of the views of the PCBS and the debates”,
on this Bill. Therefore, it is a matter of judgment for the House. Does it want to accept those assurances or does it feel that further amendments are needed to embed this presumption more fully? I think that the correct way forward is for there to be some further discussion about precisely what the review and the outcome might be. I look forward to hearing what the noble Lord has to say.
My Lords, I am extremely pleased that my letter has at least partially satisfied the noble Lord. He has left me with a remaining question, which is: are we happy to continue to engage with him and his colleagues as we work towards, and consider, the review? I can give him the absolute assurance that we will be very happy to do so. On that basis, I hope that he will feel content to withdraw his amendment.
On the basis of that assurance, I am indeed content to beg leave to withdraw the amendment.
This amendment concerns the concept of special measures. We were again told, as we often have been, that all the powers necessary are there and that, indeed, they are being used. That may well be the case. However, the Minister did not respond to my suggestion that, if this is part of the armoury of the regulators, it would be helpful if they set that out so that there was wider understanding of the special measures regime. I do not think that the regime has an identity in the way that it has in the US, where they talk about memorandums of understanding. Subject to that, I would be happy to put this matter into the box labelled “For further discussions”. I beg to move.
My Lords, I think that this is now having the appearance of a Christmas box, in that the noble Lord is asking the Government to agree to things and we are tending to agree to agree to things.
Given all the powers that the regulators already have, we have been slightly sceptical about whether they need to have, as it were, an Ofsted power of special measures. We do not think that they need more powers but, in order to address the noble Lord’s concern that failings in professional standards and cultures should not be overlooked, we shall be happy to discuss this with him further and to involve the PRA in discussions about how we move towards a firm policy in this area.
My Lords, I am very grateful regarding a number of issues. The Government have said that they are going to move further and will probably —and, in most cases, definitely—bring something forward at Third Reading. That is excellent, but it means that we are going to have a lot of government amendments to consider for Third Reading. I stress what I said yesterday about how important it is that this House has plenty of time to consider the amendments that the Government, to whom I am grateful, will bring forward. They must be tabled at the earliest practicable date and well before the date set for Third Reading otherwise it will be necessary for that date to be postponed.
My Lords, I understand the point being made by the noble Lord. I am not sure at this point, without further discussion, whether we need an amendment at Third Reading. We think that the way forward might be a PRA policy statement, but we can have urgent discussions with the noble Lord on that.
It is indeed a PRA policy statement that I am after. I am trying to establish a regime in which the regulator sees things that are going wrong and gets into dialogue with the company about remedial measures to head off the long-drawn-out agony of enforcement. If it is already doing it, it would be helpful to codify it but I am very happy to work with the Minister on that basis. I beg leave to withdraw the amendment.
My Lords, Amendments 185 to 189, 191 to 194 and 197 to 198 are government amendments on claims management companies and non-government amendments on the consumer’s access to redress from CMCs through the Office for Legal Complaints.
Turning first to the government amendments on CMCs, it is clear that bad practice by certain claims management companies operating in the financial services sector has created poor outcomes for both consumers and businesses. As the scale of potential claims for PPI compensation has become clear, CMCs have become particularly active in this market. Unfortunately, this increase in activity has in some cases been accompanied by an unacceptable fall in standards. CMCs have a legitimate role to play in helping consumers claim compensation. However, a minority have been acting irresponsibly. Some CMCs submitted illegitimate claims which clog up the system. This poor behaviour has led to delays in receiving compensation for consumers who have legitimate claims and has increased costs for defendant financial services firms where claims are unsubstantiated. This issue is most prevalent in, but not limited to, the financial services sector and the PPI claims market in particular. Despite the threat of the suspension or cancellation of authorisation, some CMCs act speculatively which can impose unnecessary costs on defendant businesses and ultimately on consumers.
These amendments enable the Secretary of State to make regulations giving the claims management regulator the power to impose financial penalties on those CMCs guilty of misconduct, which will lead to tighter regulation of the industry and better outcomes for consumers and businesses. They also make a number of consequential amendments, ensuring that the provisions of the Bill on secondary legislation, including the power to make incidental or transitional provision, are extended to apply to the Secretary of State as well as the Treasury; that the commencement power applies to these provisions; and that providers of claims management services are referred to in the Long Title of the Bill.
Bolstering the claims management regulator’s enforcement toolkit by giving it a power to fine those engaged in malpractice provides an additional means to deter speculative activity. Further, a power to fine could serve as a useful alternative penalty in cases where it can be disproportionate to vary, suspend or cancel the authorisation of a CMC despite it not being compliant. Where a CMC’s authorisation is suspended or cancelled, for example, it can no longer act on behalf of its clients and this can lead to further consumer detriment. We can ensure that these CMCs go on to work in the best interests of consumers by making sure that they adhere to the codes of practice and Conduct of Authorised Persons Rules issued by the claims management regulator. These rules require CMCs to conduct themselves with honesty and integrity, including requirements to not make speculative claims, to not use misleading advertising, and to not partake in high-pressure selling. I apologise for that stream of split infinitives.
My Lords, first, I welcome the government amendments within this group. As the Minister said, this is undoubtedly a useful addition to the regulator’s toolkit. However, although I am of course delighted that the spirit of my amendment is acknowledged, we cannot wait any longer for this. The Legal Services Act 2007 envisaged that complaints against claims management firms would be able to go to the legal services ombudsman. That was widely welcomed by Which? and everybody else. We know that in August last year the Government made the formal announcement that complaints by consumers against claims management firms would be able to go to the legal services ombudsman. That was agreed on both sides of the House and was warmly welcomed by us.
However, that was in August last year. Since then we keep hearing, “Don’t worry about it, don’t worry about it”. I have raised this issue in other Bills and there was an exchange of correspondence between me and the noble Lord, Lord McNally, about the importance of getting this done. Nothing happened—the last letter was in November. I should explain briefly to the House that the absolute desire is that these complaints should go to the legal services ombudsman. The Legal Services Act only enables that procedure to take money from barristers and not from claims management firms to pay for the ombudsman. Of course, because the regulator is the MoJ, that is a form of taxation so the only thing stopping this happening is the technicality of how we fund it.
That was accepted by the Government but they did not seem to come up with a vehicle to do this. I offered to do it for them via a Private Member’s Bill. That was prepared with the help of Which?, particularly Mark McLaren who did a lot of work on drafting that Private Member’s Bill, which we then offered as the vehicle to solve this. Nothing happened to that, although it was not declined until 12 November when the Government laid these amendments—which we were not expecting. The amendments are very welcome but do not solve the problem for two reasons: first, they do not allow consumers to get redress; and secondly, they therefore preclude the intelligence that would come from complaints. Frankly, people complain against something only if they have a chance of compensation.
Although the Government say that they will look at this, that is what they have said continuously since August last year. That being the case, we will want to put this to the House, either today or at Third Reading. I had hoped that the Government would say today that they would bring this matter back by Third Reading. Perhaps they could clarify whether that will be at some time in the future—which basically means another couple of years—or whether they are willing to do it by Third Reading.
My Lords, if we can do it at Third Reading, we will. I am advised that there are a number of technical and procedural issues that we have to go through. I hope we can do it at Third Reading. I shall certainly press very hard that we do, and every effort will be made to achieve that.
My Lords, this amendment raises an issue of parliamentary importance well beyond the scope of the Bill. Clause 124 is a Henry VIII clause. Its contents involve the usual provision to make consequential amendments following the enactment of the Bill. My amendment is expressly related to the additional power the clause gives to amend subsequent legislation passed in this House in the same Session as the present Bill.
In restricting the amendment to that particular subsection, it should not be understood that I approve of the use of Henry VIII clauses. They are often the result of a bureaucratic, slipshod approach, whereas years ago statutes in draft form were dealt with with great care. The more such clauses are introduced, the more will be eroded the parliamentary sovereignty that is exercised over primary legislation.
Subsection (b) contains the power to amend future legislation in this Session of Parliament. In Committee, I invited the Government to explain the necessity for this and to note that it was most unusual. In fact, I have been able to identify only one statute where this phraseology has been used—the Financial Services and Markets Act 2000, a Treasury Bill. Please note the difference. You can amend an existing statute under a Henry VIII clause if it is passed, whether it is as a consequence of this Bill or some Bill that has become an Act in the past. However, we are talking about this Bill giving a power for subordinate legislation to amend future legislation. That is an extraordinary power for Parliament to seek to give, no matter how often it is declared that it is only for consequential matters.
It is the one example that I can find and occurred in circumstances which are extremely concerning. The amendment deals with a clause that was introduced in Committee. It was not considered by the Delegated Powers Committee because it came subsequent to that committee’s report, and it was not considered by the Constitution Committee, both of which would normally consider and report on a Henry VIII clause. The Government would then respond to that report and the committee would reply. That process fulfils what the Constitution Committee’s report on the Public Bodies Bill in 2010 said should occur in respect of these clauses—they should be clearly limited, exercisable only for specific purposes and subject to adequate parliamentary scrutiny. That does not mean only on the Floor of the Chamber: it is the committee’s report, the Government’s response and that then informing this Chamber as to whether the Henry VIII power is appropriate. The Government introduced the clause by amendment and, as far as I am aware, they did not bring it to the attention of either of these committees or engage in the exchange that would normally have occurred.
The noble and learned Lord, Lord Judge—who now sits on the Cross Benches—as Lord Chief Justice, described Henry VIII clauses in general as pernicious because they make for sloppy legislation and potential injustice, as well as a lack of parliamentary sovereignty. However, he did not have in mind a Henry VIII clause that allowed amendment of future legislation. Is this academic? No, it is not. Within the present Bill and the Government’s commentary on the Parliamentary Commission on Banking Standard’s report, I identified to the committee three issues which the Government were continuing to consider, each of which would require legislation if they introduced a change in respect of any one of the three. This could occur, presumably, during this Session.
This is important. Is it not rare that a Chamber in a legislature should allow subsidiary legislation to dominate future primary legislation in the sense that it can amend it? That state of affairs—something arising that affects a previous Act—should result in the Government of the day amending the new Act accordingly, as is their statutory duty in introducing legislation to the House.
In Committee, the noble Lord, Lord Newby—surely trying to be helpful, as he always is—said:
“I am very happy for Treasury lawyers to set out in a letter the precedents that these powers exactly replicate”.—[Official Report, 23/10/13; col. 1171.]
Five weeks later, I have received nothing and the Government have not given an explanation. It is not good enough. If the matter comes up again at Third Reading, it will be incumbent on the Government, at the very least, to make sure that any amendment concerning this clause should take place in the Chamber, if possible in the presence of noble Lords from those two committees playing their part. I beg to move.
My Lords, I support my noble friend Lord Brennan in his attempt to remove subsection (2)(b) from Clause 124. As he has clearly told the House, it would enable secondary legislation to amend future Acts prior to the end of the Session—not this Act, but other enactments. This is an extraordinary power which was justified in Committee by using the argument that there are precedents. No precedents have been produced. It is shocking that the promise of a letter made over five weeks ago has not actually been kept on something which raised considerable concern in Committee. I think that the Government need to take this matter very seriously indeed and not palm it off with what seem to be entirely unsubstantiated stories of precedence.
My Lords, I understand the concerns expressed by the noble Lord, Lord Brennan, and I assure him again that there is nothing unusual about the form of the power to make consequential amendments in Clause 124, and in particular, subsection (2)(b) does not extend the power unreasonably. My memory of exactly what I have written to whom, given that I have written to quite a number of people, is slightly hazy. I think I may have referred to this issue in what was a sort of portmanteau letter to the noble Lord, Lord Eatwell. It covered a whole raft of issues that had been raised not only by him but by other noble Lords. If I did not do so, I apologise to the noble Lord, Lord Brennan. However, in what I am about to say, I think that I can deal with the main point that he made.
Removing paragraph (b) would limit the power to make consequential amendments to Acts which are passed before the passing of this Act. That can produce unpredictable results depending on the progress of Bills and the dates on which they happen to reach Royal Assent. For this reason, powers to make consequential amendments to existing legislation often refer to Acts which are passed in the same Session as the Act in question. Noble Lords have asked for examples of this, and I can give them several. Such powers can be found in Section 51 of the Constitutional Reform and Governance Act 2010, Section 237 of the Planning Act 2008, Section 28 of the Welfare Reform Act 2007 and Section 118 of the Financial Services Act 2012—the provision on which Clause 124 was modelled.
The assumption is that Bills of the same Session are likely to have been prepared by reference to the existing law at the beginning of the Session, while the Bills of the next Session would have to take account of the change in the law produced by the Act in question. Where a Bill is amended significantly in its passage through the second House, it is particularly unlikely that Bills passed or made in the same Session will have taken account of all the provisions of the new Bill. That clearly applies in this case, as your Lordships know. The need to implement the recommendations of the Parliamentary Commission on Banking Standards has required very extensive amendments to the Bill in this House, and therefore it will not have been possible for the Bills which are being considered by Parliament in this Session to have taken full account of all the changes in the law which will be made by this Bill. Nor has there been time for the Government to consider all the Bills currently before the House to see if any consequential amendments may be required, or to follow all the amendments being proposed to these Bills. We have not, for example, had the opportunity to review the Pensions Bill, which may have provisions relevant to the subject matter of this Bill, or the Immigration Bill, which has some provisions on banking. We cannot rule out the possibility that it may be necessary for the Government to make consequential amendments to them.
I assure the House that the amendment introducing this power was considered by the Delegated Powers and Regulatory Reform Committee, and that committee has not expressed any concerns in relation to this power. I hope that, in the light of these assurances, the noble Lord will feel able to withdraw his amendment.
Will the Minister clarify, first, his reference to the Delegated Powers and Regulatory Reform Committee? Was its response made in writing, has it been published, and is it available in the Printed Paper Office? Secondly, and much more important, is that as his research appears to have been done, can he clarify whether on any previous occasion this power has actually led to the amendment of another Bill being passed in the same Session, but after the Act which gave rise to the power?
I thank the noble Lord for that question. It is the normal practice of the Delegated Powers and Regulatory Reform Committee to include in one report its views on a number of Bills. I believe that that is what happened in this case and I will definitely write to the noble Lord if it has not.
Would it be possible for the Minister to confirm that because I asked specifically in the Printed Paper Office for all the relevant paperwork about this, and I was not given any report.
I will absolutely confirm that, and I will write to the noble Lord on the second point, which I promise to do speedily.
(10 years, 9 months ago)
Lords ChamberMy Lords, with permission, I shall now repeat a Statement made in another place by my honourable friend the Minister for Employment Relations and Consumer Affairs. The Statement is as follows.
“Mr Speaker, I am pleased to announce that the Government are committing a further £640 million in funding to the post office network for three years, 2015-16 up to 2017-18. This enables the Post Office to complete its network transformation programme and to protect and invest in those branches that provide vital services to their communities but which are not commercially viable in their own right.
In 2010, the Government committed £1.34 billion to maintain a national post office network, modernise branches and safeguard the future of post offices which play a vital role in urban deprived and rural areas. Since then, the post office network has been at its most stable level in over 20 years, in stark contrast to 7,000 closures under the previous Government. This Government remain fully committed to maintaining a network of at least 11,500 post offices, fully compliant with our access criteria, and with a sustainable long-term future. To achieve this, the post office network must meet the changing needs of customers through longer opening hours and more modern premises which are easier and faster to use.
Already more than 1,400 communities have benefited from government investment into their post offices, with a total of 34,000 extra opening hours per week across the network. A further 830 post offices are also signed up to change to the new main or local operating models. In total, this represents nearly one in five of our post offices, and most honourable Members have one or more modernised branches in their constituencies. In fact, over 200 honourable Members, including myself, have personally opened a new-look post office in their area.
The Post Office is drawing on experience from the first year of the network transformation programme to introduce changes that will see the programme completed by 2018. These changes, developed by the Post Office in conjunction with the National Federation of SubPostmasters, were endorsed yesterday by sub-postmasters at a special conference. We will deliver the benefits of longer opening hours and more modern premises to customers at a swifter pace, while making more investment available and providing greater clarity and certainty for sub-postmasters.
The Government do not underestimate the challenges facing the network, the Post Office centrally and, in particular, individual sub-postmasters. In recent years, the retail environment on the high street and more widely has been far from easy for sub-postmasters, and this new investment recognises that reality. The network needs to build on its core strengths of unparalleled national reach and the trust and high regard in which it is rightly held by customers. It must focus on meeting customers’ needs and expectations in a rapidly changing, highly competitive retail market. Ease of access, longer opening hours, shorter queues and modern premises are key to winning new clients and attracting and retaining customers.
With more than 1,400 branches modernised to date, independent research is showing customer satisfaction levels with the new models averaging over 95%. Satisfaction levels among sub-postmasters operating the new models are similarly impressive, at around 80%.
In many locations, new operating models are enabling post offices to be re-established after a significant break in service. At Balnamore in North Antrim, a new local branch opened in August, re-establishing post office services some five years after the closure of the previous branch. The new branch opens seven days a week for a total of 92 hours. At Oxenhope in West Yorkshire, with no post office since June 2011, a new local branch opened in the Co-op now offers post office services from 7 am to 10 pm seven days a week. But it is not just about new post office operating models. The post office network is incredibly diverse, and it is just as important to customers in remote rural areas that their post office stays open, as it is for busy town centre branches to be open for longer.
There are around 3,000 post offices for which the new main or local models are not suitable. These branches predominantly serve small, often remote, communities and may be the last shop in the village. They are hugely valuable to their communities. The updated network transformation programme provides, for the first time in Post Office history, a £20 million investment fund allocated specifically to this part of the network. This fund will enable the improvement and modernisation of these branches to strengthen their long-term sustainability.
The investments being made by the Post Office are already creating a strong platform from which it can compete for new work from government and the private sector. Some customers and sub-postmasters have expressed understandable concerns about continued access to Post Office card accounts beyond 2015, when the current contract is due to expire. The Department for Work and Pensions and the Post Office are in discussion about a long-term successor to the Post Office card account, and I can confirm today that all options under consideration conclude that access to pensions and benefits will continue beyond March 2015 across the whole post office network of at least 11,500 branches.
However, the Post Office is also doing much more for government. Over the past two years, the Post Office has won every single government contract it has bid for. It is winning this work competitively, and winning it because it is such a strong partner for government. And there is even more that the Post Office can do for government in the future. For example, under the existing contract with the Passport Office, the Post Office is discussing the introduction of new in-branch services which would allow the majority of customers to apply for their passports digitally, without the need for any supporting paper forms. The intention is to introduce these services from the middle of 2014.
Recently, the Department for Energy and Climate Change announced that it will work with the Post Office to signpost elderly and vulnerable people to the 500 volunteers being trained by the Big Energy Saving Network to help people find ways to cut their bills. These innovations demonstrate a forward-thinking Post Office, introducing new services, growing new revenue streams and bringing new customers into post office branches. With the additional funding in place, we have the basis for building a thriving and sustainable Post Office.
I believe that in the next few years, we will see the Post Office continuing to grow its business, and its network flourish and potentially expand in due course. Creating a financially sustainable network will be key to delivering a Post Office that can be mutualised. Significant progress has been made by the Post Office and its stakeholders already and this will be boosted by the funding committed by the Government today. The Post Office will shortly publish further details of the steps it is taking to build a mutual future. The £640 million investment that I am announcing today funds the completion of a transformation programme. It establishes the platform for a vibrant, commercially sustainable post office network with a mutual future. I commend this Statement to the House”.
My Lords, I thank the Minister for repeating the Statement. Let me start by paying tribute to our sub-postmasters up and down the country. They are integral to all our local communities and the social fabric of the country. However, the job of a sub-postmaster has become much more difficult in recent years. Research from the National Federation of SubPostmasters shows that incomes are falling and many work very long hours for very little return.
That situation has not been assisted by the Government, who in 2010 announced plans to use post offices as the “front office for government”. The Government have failed to deliver on that pledge. No new major government services have been awarded to post offices since May 2010. Indeed, the National Federation of SubPostmasters has said that the few new services which have been introduced are one-off transactions available only in a small number of post offices and many services do not make the post office any revenues at all. This resulted in the National Federation of SubPostmasters removing its support for the Postal Services Act. The Government promised £466 million of government work, but the post offices are currently gaining only £130 million from government business. That failure has resulted in the post office network being under more pressure than ever before.
On top of this failure is the abject failure of the network transformation programme as planned. Consumer Futures wrote to the BIS Select Committee just last month showing that only 1,100 have converted to the new models, and the Government require 6,000 by 2015. It shows that the programme is not working, and that is why a degree of compulsion has been introduced.
We can firmly say that today's announcement of additional funding of £200 million on top of the £420 million already trailed beyond 2015 is a vote of no confidence in what this Government are doing to the network. In effect, the Government are increasing the compensation for people to leave and offering more money to convert. Of this, £23 million is for completing a retail survey in order to determine who should be compulsorily converted or removed from the network. If they had delivered on their “front office for government” work, as they said they would, then the £200 million would not be required. It is a payment for failure and yet another broken government promise.
It is true that the National Federation of SubPostmasters voted to approve this yesterday, as most operators feel that the traditional post office model under this Government is not working. Sub-postmasters know that they will now have a degree of compulsion, but they will take the package as they are really struggling. That the federation’s members are voting to support this package so wholeheartedly shows that they want to get out. It is the epitome of taking the money and running. Crucially, this money will be used to subsidise exit from the network rather than to go into the network to make it sustainable in the long term.
We welcome the Government’s commitment to the Post Office card account beyond 2015, although I am not sure how absolute that guarantee is. We also welcome the “last shop in the village and community” post office funding, and support the policy that there will be no compulsion. The £20 million will assist in modernisation and help these vital community assets.
By the end of this process £2 billion will have been spent on network transformation and there is concern that we still do not have a model that is sufficiently attractive to current or future operators. It is true that in the past 7,000 offices were closed, but that was a necessary programme to ensure stability of the network. Is the Minister confident that there are sufficient retailers willing to take on the local model?
The Prime Minister said in PMQs in the other place, in answer to a question from the honourable Member for Argyll and Bute, that,
“we have committed that no post office will close in this Parliament”.—[Official Report, Commons, 23/10/2013; col. 296.]
However, if you stay and convert and have your salary subsidised until 2015, the question is: what will happen beyond 2015? I would also welcome answers from the Minister to the following questions. Will the current criteria be used for compulsion or will they be updated? Will this require a new state aid application? Where does all this current activity leave the Government’s plan for mutualisation? Finally, if other outlets are not prepared to take on a post office when a sub-postmaster leaves the network, what will happen?
First, I thank the noble Lord, Lord Young of Norwood Green, for his response and agree with his tribute to the sub-postmasters. As he alluded to, they do a sterling job around the country, often in quite difficult environments, and I pay tribute to them for all the work that they do and all the hours that they put in. I also agree with the noble Lord when he said, I think, that sub-postmasters have had quite a difficult few years. The past two or three years have been pretty tricky for everyone, particularly in the retail sector, and sub-postmasters have been no exception in terms of the post offices that they run.
However, it is not true to say that no new government services have been won. I can provide evidence that many contracts have been won, including some government contracts, and am very happy to furnish him with that information. The past two years, since 2010, have been, in effect, a success story in terms of the number of new government contracts won, which is a great testament to the work that the Post Office has done.
The noble Lord also raised the issue of the new model. The £1.34 billion that was announced back in 2010 was of course designed to see the Post Office through the next few years, up to 2015, with the objective of renovating 6,000 branches. The noble Lord, I think, agreed that more than 2,000 branches—it is in fact 2,250—have pledged to go forward with renovation. Already, 1,400 have been renovated and those post offices have proved their worth in terms of customer satisfaction. He made the point that the money to cover all 6,000 had not been spent, but it is a rolling programme—the extra £640 million is designed to take us further forward, for the period from 2015 to 2018, and to extend the 6,000 to 8,000. It is an extremely good success story and testament to the fact that the money that we spent in 2010 has been used to such good effect in improving the 6,000.
The noble Lord said that more than 7,000 branches were closed by the previous Government, which is true. He said that it was because of the need to create stability, but there was a huge cost to doing it. We are now at the stage where we can say that we have created much more stability for the Post Office. It has never been more stable, and it is certainly more stable than during the previous Government.
Where branches have already been converted, customers are benefiting from much longer opening hours and fewer queues—more than double under the local model and up by 35% in the main branches. We also pledged, back in 2010, that there would be no office closures, a point I will address directly with the noble Lord. We are often challenged on that pledge but I say again, for clarity, that we seek, and have pledged, to keep open 11,500 branches.
The noble Lord raised the issue of state aid. He is quite correct that we need to apply for state aid, as we did for the initial £1.34 billion. We are looking ahead and making sure that we do that in good time. We have every confidence that the state aid application will be accepted. We do not see a problem with it but it is right to clarify that that is indeed the case.
The noble Lord also focused on the issue of mutualisation. I will just add a word of caution here: although seeking mutualisation is a nice long-term aim, there is a long way to go and some settling-down is needed. What is certain is that we are looking ahead, ideally to see how sub-postmasters, and maybe communities, might become more directly involved in investing in the post office network, which we see as vital for the future of this country.
My Lords, in contrast to the gloom and pessimism on the opposition Benches, I welcome the additional funding to speed up and complete the modernisation of the post office network, plus the new funding for the smaller post offices that are not suitable for the principal modernisation programme.
I congratulate the Government on the stability they have achieved and the commitment they have given to the post office network, against a background of a very difficult retail environment and after a decline of one-third in the number of post offices in the previous 13 years. This initiative recognises the importance of a local post office to the social fabric of our communities. It is important now that we work hard to ensure the commercial sustainability of the current network. That will need vital new business.
I have two questions for the Minister. What prospects does my noble friend see for the development of the Post Office current account business given the damage the commercial banks—along with, sadly, the Co-operative Bank in recent weeks—have done to their brand? With the growth of internet shopping, are our modernised post offices equipped with secure storage space and the technology to notify customers when their deliveries arrive?
I thank my noble friend Lord Stoneham for his very strong and broad support for what the Government are doing. He makes the very important point that the post office network, and individual post offices, whether local or main branches, will now be in a much better position to compete and to offer much better, streamlined services for the customer. The whole point is that we want to create a more stable environment so that the customer can come in and have a greater offering of retail opportunities, including the financial options.
The Post Office is making good progress towards meeting its commitment to provide affordable and accessible financial services, including current accounts. In May 2013, as the noble Lord will know, it launched a current account pilot, with a national rollout expected in 2014. Alongside that, the Post Office continues to offer an extensive range of savings, credit card and mortgage products. I have no doubt that this offering will be extended as confidence is brought in again and increases in the network around the UK.
My Lords, I should probably declare an interest as a director of a mail order firm. I know this debate is nothing to do with Royal Mail whatever but the firm that I am director of uses the local sub-postmaster branches somewhat extensively.
More than 20 years ago, I was in the Minister’s position speaking for the Post Office in your Lordships’ House. At the time, I wondered why sub-postmasters, in particular, were not allowed to hold passport forms, so I welcome this half-change that the Government have made in considering allowing the Post Office to digitise the passport application forms for customers. However, of course, in this day and age, many of us think too much in terms of computers. A vast number of people in this country would not dream of either owning a computer or using somebody else’s computer—for example, the post office’s. Therefore I maintain my plea from all that time ago that the post office, sub-postmasters particularly, be allowed to both issue and receive completed paper passport forms. In my view, that is long overdue.
The other thing I would like to say is that of course it is not only for the Government to produce services for the Post Office to offer. For example, you can go into my local post office in a village on the outskirts of Taunton and ask for either dollars or euros. That is not a government service; that is an arrangement with the banks. If I wanted some Argentinean pesos, they would probably take only three days to arrive. There are all sorts of other non-government services that the Post Office should or could be able to provide. I hope that it is thinking along thelines of extra activities that it could offer; for example, booking airline seats. I congratulate theGovernment on a small step in what I regard as the right direction.
I thank my noble friend Lord Skelmersdale for his support for what we are doing. I am glad that he has made it clear that we are not talking about Royal Mail today and that the focus is indeed on the Post Office for once—a very important part of our life in the UK. I am also glad to hear that he frequents his local post office.
I agree entirely that as the post office system looks towards becoming more confident and settling into offering different types of services, the range of services will entirely depend on the remit of the contracts between the independent post office sub-postmasters and the Post Office. But I am sure that most of them will be thinking about how they can best make their post offices pay and offer the best possible range of services to customers. These extra activities could include the opportunity to get online and go on to a computer, and even perhaps introducing some coffee shops into post offices—who knows?
With regard to his point about passports, the situation is going to remain that those who wish to renew passports will be able to do so, primarily at the main post offices. We do not want to create lengthening queues at local post offices when people want simply to buy a bar of chocolate or some stamps. These issues have been well thought out. Bearing in mind that we want to stick to our pledge of having 93% of the population living within a mile of a post office, being able to renew driving licences and passports is very important, and that is all very much part of the future.
(10 years, 9 months ago)
Lords Chamber
To ask Her Majesty’s Government what plans they have for the future of the British Indian Ocean Territory.
My Lords, I will not rehearse the tragic story of the exile of the Chagossians again. Numerous Hansard references can do that. I will just remind your Lordships that it was an acknowledged fundamental injustice—acknowledged not least by the present Government.
As the noble Lord, Lord Luce, said in the most recent parliamentary mention on 17 October:
“This remains a blot on our copybook which we must rectify”.—[Official Report, 17/10/13; col. 695.]
I am very pleased that he will speak tonight, and I look forward to the contributions of my friends the noble Lords, and my noble friends. The noble Lord, Lord Ramsbotham, added that it was,
“contrary to the core values … in the Commonwealth charter”.—[Official Report, 17/10/13; col. 703]
Their views are shared all round this House and very widely in the media, including the Times and ConservativeHome, so all efforts to put all or part of this injustice right will be widely welcomed.
The Minister will be aware that five years ago an all-party parliamentary group, of which I am a member, was established to press for justice. It will have its 40th meeting on 17 December. I congratulate the chair, my honourable friend Jeremy Corbyn, for his unshakeable determination to restore the rights of the Chagossian people, and our indefatigable co-ordinator, David Snoxell, whose advice has been unfailingly constructive. On 17 December we shall have something to celebrate: the latest step in the progress that has been made since the Foreign Secretary’s announcement 11 months ago that he would take stock of the policy on resettlement. I commend the Minister, Mark Simmonds, for the publication on 19 November of the draft terms of reference for a new feasibility study into the resettlement of the Chagos Islands.
The draft terms are thorough, far-reaching, objective and imaginative. It is a very good start to have a wide range of options and a comprehensive analysis of factors, including environmental, social, economic and legal. I am very pleased to see that the legal section explicitly includes human rights. Clearly the Foreign Office is not frightened, like some, of using these words, part of our core native values. Incidentally, Magna Carta, too, has something to say about wrongful exile. This draft, in fact, implicitly acknowledges the violation of the human rights of the Chagossians. The reasoning for the abolition of the rights of return and abode in 2004 has now largely been discredited by this whole new approach, so they should be restored.
I was particularly taken by the possibility that the British Indian Ocean Territory could become a new model for sustainable development. I remind noble Lords that the UK’s latest marine protected area, in the Pitcairn Islands, will seek to employ the people living there to maintain it. That is surely the right model, rather than depopulating it of its rightful inhabitants.
It was very good to see emphasis on possible resettlement on Diego Garcia. I assume that there must have been some prior consultation with the United States, which is also progress and will be supported everywhere. The commitment to wide consultation, especially with the Chagossians, is also to be commended. Can the noble Baroness assure me that Mauritius will also be consulted?
As to costs, I would demur from the assumption in the draft that these fall solely to the UK. I myself established with Commissioner Piebalgs of the European Union—through the offices of my noble friend Lady Ashton, which is not the only good thing she has done recently—that the UK would be eligible for resettlement funds for the Chagos Islanders, and it is not unrealistic to expect contributions from the international community, the American Government or, modestly, the Commonwealth. Let us not give up before asking.
When we come to the timeframe, let us remember that this most welcome progress has not been rapid. The Foreign Secretary’s commitment to work towards a just solution was first made in March 2010, over three years ago. On the timetable proposed, it looks as if the terms of reference will not be in final form until next year, to be followed by a period for selecting the consultants, so that the study might not be ready until just before the election in 2015. This is a risk. I understand that following the completed study, there will be a policy review into which it will feed. This, of course, will go wider, and include, for instance, renegotiation of the 1966 UK/US agreement, sovereignty and future management of the marine protected area.
There really must be a solution before the election. I urge Her Majesty’s Government to shorten this timetable to get it in well before the election. Can the noble Baroness advise her colleagues that procedures should be simplified where possible so that it takes six not 12 months; that the consultants should be chosen by the quickest appropriate means rather than lengthy tender; and that experts be identified without delay? These must, of course, be drawn from specialists in small island development, familiar with the culture, strengths and history of the Chagossians. I ask for the Minister’s response to these points, if not now, in a letter.
We have come a long way from the lament of the noble Lord, Lord Skelmersdale, the noble Baroness’s predecessor at the Dispatch Box, answering my late noble friend Lord Brockway—Fenner Brockway—on 11 November 1982, that,
“the departure of the Ilois from the island settlements must have been a sad and distressing occasion”.—[Official Report, 11/11/82; col. 411.]
That is a far cry from the present Foreign Secretary’s admirable statement that,
“it is not in our character as a nation to have a foreign policy without a conscience, and neither is it in our interests”.
But it has taken too long to get there and we still need to make up for that.
My Lords, I congratulate warmly the noble Baroness, Lady Whitaker, on securing this debate and on all the hard work that she has put into securing a just solution for the problems of the Chagos Islands and their inhabitants over many years.
I agree with the noble Baroness in welcoming the feasibility study on resettlement of the Chagos Islands announced by the Government last week, and I also agree with her that the consultants should be invited to produce their final report in time for the policy review to be carried out, and conclusions reached on it, before the 2015 general election campaign. That was the view expressed by the Chagossians themselves in their response to the initial consultation published by the FCO in September, and by the chairman of the All-Party Group on the Chagos Islands in a letter to the Foreign Secretary of 16 July—a reply to which, I am sorry to say, has yet to be received.
One would hope that there would be consensus between the political parties on the absolute right of the inhabitants to return to the homeland from which their ancestors were unlawfully evicted almost half a century ago. Certainly, my right honourable friend the Deputy Prime Minister has always been strongly supportive of the rights of the Chagossians, and I am sure that he would have a major input into the policy review if it took place this side of the election. I can say much the same about the right honourable gentleman the Foreign Secretary, who was always supportive of the rights of the Chagossians when his party was in opposition. I therefore hope that when the policy review is conducted the coalition will come to the conclusion that we all hope for: namely, that the Chagossians should have that right of return. However, if the feasibility study does not take place this side of the election and the review has not been held by the time the campaign begins, the principle of those rights, and the attitude of the parties to it, would obviously be factors to be considered by the British electorate in deciding how to vote in 2015.
The only factor mentioned in the ministerial Statement as needing to be considered, other than the practicality of resettlement, is whether the presence of the Ilois on the outer islands, 140 miles from Diego Garcia, would have any adverse effects on the operations of the US base. We know from WikiLeaks that the US embassy did not respond to an FCO request to,
“affirm that the USG requires the entire BIOT for defense purposes”.
The embassy received the famous assurance from the FCO’s director of overseas territories, Colin Roberts, that there would be no “Man Fridays” on the BIOT’s uninhabited islands. It would be useful if the Government would now cancel that 2009 undertaking and obtain an assurance from the Americans that they would have no objections under the UK/US 1966 exchange of letters to a repopulation of the outer islands. There is no reason why this clarification should be deferred until the feasibility study has reported, as the ministerial Statement appears to suggest. The obvious peg for the matter to be settled is when the 1966 agreement comes up for renewal in 2014.
Picking up the point made by the noble Baroness, there is no mention of Mauritius being consulted at the stage when preliminary views were sought on the feasibility study, in spite of the fact that we are committed to returning the islands to Mauritian sovereignty when they are no longer required for defence purposes. Yet we are nearing the point when major decisions will be made about the future of the Chagossian people and of the Chagos Islands, in which it is inconceivable that Mauritius, as the future sovereign power, would not be involved.
There is an appeal pending in a case brought by Mauritius against the UK under the international Convention on the Law of the Sea, to be heard in mid-2014, which is indirectly about the UK’s failure to consult Mauritius on the declaration of the BIOT as a marine protected area—the motivation for which, as we now know from the WikiLeaks cable, was to make resettlement impossible.
There is also an appeal to be heard in March 2014, in a case brought by Monsieur Olivier Bancoult on behalf of the Chagossians, challenging the consultation process on the MPA, where the High Court had ruled that the WikiLeaks cables were inadmissible as evidence. It would be a disaster for justice, not just for the Chagossians, if this decision was upheld, but I hope that neither of these cases will be used as a reason for boycotting the Mauritians now, thereby risking further litigation in the future.
As my noble friend is aware from our correspondence, I strongly believe that we should attempt to engage Mauritius in a dialogue about the future management of the islands and of the MPA, both of which will ultimately be its responsibility. Certainly, Mauritius should be invited to comment on the draft terms of reference for the feasibility study, including in particular the proposed timeframe, which was discussed so ably by the noble Baroness, Lady Whitaker.
I also suggest that to help break the ice, the new BIOT science adviser, Dr Mark Spalding, who seems ideally suited to the task, along with scientists on the BIOT Science Advisory Group, should have a meeting with their Mauritian counterparts to discuss a joint approach to the MPA and the science of Chagos, sharing data, current research and scientific measurements. The draft terms of reference of the feasibility study make it clear that the MPA can be amended. Revising it now, in consultation with Mauritius and with the Chagossians to take account of their interests, would potentially save much trouble in the future.
My Lords, like the noble Lord, Lord Avebury, I am very grateful to the noble Baroness, Lady Whitaker, for introducing this debate, particularly at this time, in the light of the Government’s decision—a good decision—to have a wide-ranging feasibility study on the future of the Chagossians.
I think that it was in early 1982, when I was a Minister of State at the Foreign Office and had responsibilities for the African continent and the Indian Ocean, that I paid my first visit to Mauritius. When we landed, we were the only aeroplane at the airport. I came down the steps and the high commissioner whisked me away. At that point, I noticed that there were some 2,000 people at the airport. I expressed surprise that for one aeroplane there should be 2,000 people and I asked him why they were there. He said, “That’s a demonstration”. I said, “A demonstration against whom?” He said, “A demonstration against you”. So I said, “Look, if there’s a demonstration, the important thing is to meet the leaders. Please lay on the demonstration again and ask them to demonstrate again”.
They demonstrated the next day outside the high commission. I invited the five leaders, five marvellous Chagossian ladies, to come in and have tea. That was the first time that I realised that what we had done in the late 1960s and early 1970s by expelling 1,500 people, going back two, three and even four generations, was a really black mark for our country. It was serious abuse of human rights. I very much regret that, because I decided with the noble Lord, Lord Carrington, to resign very soon after that, I did not do more about the issue at that time.
I believe that the issue has undermined our voice in the case that we put for human rights all over the world. If we are going to argue for upholding the Commonwealth charter on core values, which we do, we have to be able to say that we are strong, in our own country and in our own foreign policy, on respecting human rights. Last week, on 21 November, we had a splendid debate, led by the noble Lord, Lord Alton, in which I could not take part, on human rights all round the world. When we do that, we need occasionally to pause to remember that we abuse human rights from time to time. In this case, we have, and we need to put it right.
I commend the Government for taking this action. I commend the Foreign Secretary and Mr Simmonds, the Minister, and the previous Minister for Africa and the Indian Ocean, Mr Bellingham, for the thought that they have given to this issue and for the way in which they are searching for a way forward. We should also remember the late Robin Cook, who, in 2000, restored the right of return, which was then abrogated in 2004. He should be remembered for that.
As the noble Lord, Lord Avebury, and the noble Baroness, Lady Whitaker, said, as the Government have now taken the lead on that issue, it is also essential that they should decide on the way forward before the 2015 election. As the noble Lord, Lord Avebury, said, the critical factor is that, under the 1966 exchange of letters between the United States and the United Kingdom on Diego Garcia and the British Indian Ocean Territory, the idea was that after the completion of 50 years, renewal for another 20 years from 2016 would be considered. This is the critical factor in why decisions need to be taken speedily. There would not be adequate time between the summer of 2015 and the renewal, if there is to be one, in Diego Garcia in 2016, for a new Government to give proper consideration to all those issues. The time span would be too short.
I should like to mention three aspects of this that are relevant to the timing. First, there is the feasibility study, which is admirably broad-ranging. It is imaginative and takes into account every facet of the issue, looking at all the options, costs, environmental issues, employment, political and economic issues, the fishing problem—which is very important to the Chagossians—ecotourism, and so on. Against that background, as the noble Baroness, Lady Whitaker, said, there is the study by the Foreign Office of the bigger issues to do with the future of the British Indian Ocean Territory, the future of the marine protection area, the sovereignty issues, resettlement of the Chagossians and relations with the United States and Mauritius.
I agree that it is very necessary that the feasibility study should be completed speedily, preferably by mid-2014, to give time for the Government to have discussions with the United States and Mauritius, after the completion of the study but before the election. That means speeding things up. That is why this debate is important.
The second issue is our relations with the United States and the need, in my view, for informal discussions, even at this stage, before the study is completed. Both the United Kingdom and the United States need to understand the mutual parameters on this issue that we have to live with. In the past two or three years, during my visits to Washington, I have called in on the State Department. On all occasions, I have asked where it stands on Diego Garcia and the British Indian Ocean Territory. One positive answer that I have always had is that the United States is prepared seriously to consider the employment of Chagossians in Diego Garcia itself, if that is what Chagossians want.
Where there may be a problem—this would be for discussion with the British Government—is over security issues, if there is any arrangement made by the British Government for the outer islands, 150 miles or so from Diego Garcia, to be settled. Even then, the State Department says, “If the British Government put a proposition to us, we would certainly be concerned about security but we would look at it seriously”. We need to facilitate things by having informal discussions with the United States now, rather than leaving it until later.
My last point is about Mauritius. I entirely agree with what the noble Lord, Lord Avebury, said. We need to engage; we need a diplomatic dialogue. After all, Mauritius is a strong partner of ours in the Commonwealth. It is a former colony. We therefore have very strong links. It is an old friend of ours, and we have a common interest in the issues that have recently been discussed at CHOGM in Sri Lanka about maintenance of human rights in Sri Lanka itself. That is an important factor. We have common ground on human rights issues. Relations between the British Government and Mauritius have soured over the past three or four years. That is a pity. It is largely due to the imposition of the marine protection area, just before the previous Government lost office, without any proper discussion with the Mauritian Government.
We need to restore good relations with Mauritius. We need to have a good dialogue. I hope that the Minister can say something about that. After all, when we eventually decide—as we will at some point—that sovereignty over the British Indian Ocean Territory should be handed back to the Mauritians, it will be fundamental for them. It is essential that they are regarded as a vital player in any Chagossian solution. Many questions need to be covered, such as the future of the Chagossians, the possibility of co-management of the outer islands and sovereignty issues. We are all aware that there is a legal appeal at the moment against the marine protection area, but it would be much better if we could pursue a dialogue and get talking about how it may evolve in the longer term.
I congratulate the Government on what they have done. I hope that they will move forward urgently with things—particularly the feasibility study—and, at the end of the day, will get the credit for finding a solution before the next election.
My Lords, it is good that my noble friend Lady Whitaker has raised the plight and the future of the Ilois as, in the words of the noble Lord, Lord Luce, a considerable black mark on our late colonial history, which has been revealed in documents provided for various court cases. Of course, the Ministers and civil servants involved are now either dead or retired. Most of the Ilois have no personal knowledge of life on the islands. Things have moved on remarkably from that black mark in the late 1960s. We should perhaps partially understand the problems of those decision-makers in the context of the Cold War. Strategically, our ally, the US, needed a secure base, and the local population was cleared—indeed, sacrificed—to provide that. Successive UK Governments have since ignored the problem, except when forced to take note during litigation.
Of course, more weight is now given to the case for the islanders, but the strategic importance of the islands to the US remains: a secure base within easy distance of that most volatile region, the Middle East. Presumably the United States will wish to renew the lease in 2016. It will have to be fully consulted on future plans as, as all colleagues have said, will the Government of Mauritius. Hence, I ask: have the US authorities given any clear indication that they are prepared to be helpful not only in employment of those Ilois who so wish but, for example, in the use of the airfield to supply those Ilois who choose to return?
The complex history is set out very well in last December’s decision of the European Court of Human Rights, where proceedings started almost 10 years ago. There have been many excuses over the years. The first is that there is no settled population, only migrant workers. That was shown conclusively to be false. The second was that adequate compensation was offered and accepted as full and final settlement. That was confirmed by the courts and, indeed, the European court. Global warming and rising sea levels make a return to some of the islands precarious. Again, there is the excuse that since the evacuation the Ilois have been given the opportunity to settle in the UK, with all the benefits of life in a developed country. Will life under the palm trees be attractive, particularly to the younger generation who have seen the bright lights of the West? Questions must be asked about the viability of the old way of life, as described in another context by Arthur Grimble in A Pattern Of Islands, which was about his work in the Gilbert and Ellis Islands. Perhaps he romanticised a rather benign colonial rule, with indigenous people waiting for the coconuts to fall from the trees and the fish to enter their nets.
Now we approach the end game. The UK Government deserve congratulations on accepting their responsibilities. A feasibility study will take place, so in perhaps less than 18 months the Ilois will know their future. I adopt what has been said; it must ideally be done before the election. We must recall that a similar study in 2004, nine years ago, concluded as follows:
“whilst it may be feasible to resettle the islands in the short-term, the costs of maintaining long-term inhabitation are likely to be prohibitive … resettlement is likely to become less feasible over time”.
Well, time has passed and the question for the feasibility study is whether that statement remains true.
I have met representatives of the Ilois over the years and have enjoyed their hospitality, having met them socially in Mauritius. I have listened sympathetically to their justified complaints but I am troubled by one key consideration. They have been in exile now for perhaps almost 50 years and it is tempting when forced into exile, as they have been, to have a rather rosy view of life before that exile. How long would such a memory survive, in the potentially harsh and isolated reality?
Although opinions vary, it is said conclusively that most Ilois wish to return. There is of course a cost. There will be renewed infrastructure and modern facilities—those which they have enjoyed in the West and in Mauritius, such as hospitals, schools, drinking water and energy—will have to be provided. Is settlement likely to be precarious in the medium and long term? How will the Ilois be supplied by air and by sea? How far will the US be constrained for security reasons in any help that it can provide? What will be the nature and extent of the consultation with the Government of Mauritius? Will the clear majority for settling in BIOT survive the change for long, particularly for any younger people who “return” but have never been to the islands? What jobs will there be on the US base? Will there be scope for eco-tourism?
I concede of course that these are all questions for the feasibility study. It is important that the independent experts be appointed as soon as possible, because there must be a limited field of experts in this esoteric area of small island development. Perhaps a staged return is called for, with a small pilot project. The problem there is that the people who are likely to return will be those most enthused about and committed to the prospect of return. If they stay there for a relatively short time, it is hardly a case for spending vast sums on the infrastructure.
After almost 50 years, the problem certainly bristles with complexities but I am glad that our Government have at last recognised their responsibility. I hope that as a result of regular consultation with the islanders, they will get a clearer picture of the options. Surely, a just solution can be found consistent with both the wishes of the islanders—the Ilois—and their interests. That is what they deserve, as a grave injustice has been done to them over the past decades.
My Lords, about an hour and a half ago a charming lady came up to me and said, “I wonder if I could persuade you to speak in my debate”. It was the noble Baroness, Lady Whitaker. I realised that the rest of my party had gone off to some smart dinner, while I was going to eat quietly here, but what the noble Baroness did not know is that I have a great affection for Mauritius.
When I was in the banking world we dealt with most of the world’s countries, including the Commonwealth ones, and I used to allocate Easter for an adventure and take my small son with me. One year, that adventure was to Mauritius to see whether we could help it compete with the Seychelles on tourism. I happened to mention it to Lord Jellicoe, who was the Leader of the House. He said, “They’ve got sugar over there. Go and have a look round, will you?”. Anyway, I went with my family, including my five year-old son.
I arrived at the airport to find a crowd there, rather as it was for the noble Lord, Lord Luce. The crowd was clapping, cheering and waving and a man came up to me and said, “How nice to meet you. My name’s Ramgoolam—I am the premier. How nice of you to come. Have you come to look into sugar? But why don’t you enjoy yourself on holiday? I’ve made a booking for you in a hotel and here’s my driver Dypoo, who will take you around and show you things”. We had a really wonderful time and 10 years later, Dypoo became one of my international spies—he was driving the ambassadors in Washington. However, I fell in love with the place. It was not really the most suitable for sugar but, at that time, tourism was on the make. The Seychelles had grabbed everything, rather as the Maldives have now, and Mauritius was a bit flat. However, we happened to own Thomas Cook and managed to do some help out there.
Being an islander, I have always had affection for islands. I love the sea and coastlines. One thing I keep citing in your Lordships’ House is that if you take the coastlines of the Commonwealth, it has 60% of the total in the world. In the Mauritian area of the Indian Ocean there are 112,000 kilometres of coastline. What do the seas mean to us? In fact, they mean fish, which is effectively one of the highest added-value products in the world at the moment. Your Lordships will be aware that illegal fishing is now estimated to be at between $10 billion and $24 billion per annum, and that there is worry about the depletion of fish stocks. Going with that illegal fishing, there is then the piracy and extortion taking place worldwide. If you take a view of the islands in that part of the world, it becomes quite a significant business.
I speak of Mauritius but I do not know the other islands. I have them all plotted on a map; I have the coastlines and the population of each, the distances they cover, whether the coral is good or not and whether any underground cables were laid there. But it is an important place as a staging post, as the United States reckons. We should not forget that RAF Gan, as I think it was called, used to be there. As an island nation, dependent on the sea and with our own large fishing fleet, we cannot ignore it. At the moment, our own fleet is 21% of the world’s fleet and has 27% of its gross tonnage. Mauritius has 49 vessels totalling 53,000 tonnes.
It is in the maritime sector that we could attach much importance to our relationship with this place, which I love and to which I would like to find a reason to go back again. There was a moment there when I saw someone on a stick and a bit of board, windsurfing. I had never seen a windsurfer before. In a short time, I had fallen in again and again but there was my small son, aged five, windsurfing on the back of some door or other with a Mauritian boy. I fell in love with that place, as I do with any islands. When I look at the whole Indian Ocean I say that we should have a political, economic and commercial strategy of our own. The Indian Ocean is important. I have not come to piracy yet, which is a favourite subject, but that will be for another day.
My Lords, how marvellous it was to hear about the fantastic trips the noble Lord, Lord Selsdon, took to Mauritius. I hope that one day I will be able to do the same. I congratulate my noble friend Lady Whitaker on securing this debate and on her commitment to this important cause.
Britain has always considered itself to be a country where fair play is important, where the rule of law is respected and where rights are enforced, but there is a land far away which should prick the nation’s moral conscience, in the unfair treatment meted out to the inhabitants of the Chagos Islands, otherwise known as the British Indian Ocean Territory, by the UK Government.
This group of 54 individual tropical islands was home to around 1,500 people—the Chagossians—for more than a century and a half. The UK Government evicted them in the early 1970s in order to allow the United States to build a military base on Diego Garcia, the largest island in the area. This is now the only island which is inhabited and it is inhabited only by US military and civilian contracted personnel.
Today only around 700 Chagossians survive, scattered around the globe following their forced exit from the island. Many are living in profound poverty and are still reeling and suffering severe psychological problems from their sense of dislocation and from being separated from their homeland. This is a complicated story interwoven with imperialist overtones, environmental concerns, military and defence considerations, costs concerns, compensation claims and an unfolding tragedy of a people wronged.
The 1966 exchange of notes between the UK and the US, which led to the forced evacuation of the island, can be extended for a further 20 years in 2016, but with a provision for termination in 2014 so, as the noble Lord, Lord Luce, suggested, now is a good time to reassess what should happen next.
A number of the islanders still yearn for the opportunity to go back to their native land. I therefore begin by welcoming the fact that the Government will commission a new feasibility study on the resettlement of the British Indian Ocean Territory. The draft terms of the study are comprehensive and thorough. There are some difficult issues to assess in the feasibility study. The Government will be aware that the Labour Government in 2000 also commissioned a study to assess to what extent it would be feasible for the outer islands to be reinhabited. I am afraid that the report concluded that resettlement was not feasible. As time has passed, many have concluded that some of the findings, in particular the scientific predictions relating to climate change, have proved not to have been accurate. While welcoming the new study, I first ask the Minister: are there any other significant factors which have changed since 2000 to make the Government think that this study will come to a different conclusion from the one commissioned in 2000?
The first obstacle to overcome would be the renegotiation of the terms of the agreement with the US defence authorities, which have an agreed right to use the island. I am sure it is not beyond the wit of the US defence force to live alongside, or to protect their base from, the Chagos Islanders. They seem to manage fairly well in Guantanamo, where they have lived side by side with the Cubans for decades. Who knows, it might even be helpful for the US to employ some of the islanders at its base.
Beyond that, in theory it would be fairly simple to allow the Chagossians to return—to simply say, “Yes, home you go”—but the real question and issue is: what would they be going home to? What, if any, is our responsibility in the UK to the islanders and their standard of living, in particular in view of the fact that successive UK Governments have undertaken to cede the territory to Mauritius when it is no longer needed for defence purposes? Will the Minister confirm that the current Government also agree that the islands should be transferred to Mauritius at some future date?
There is very little on the islands. The islanders led a basic existence prior to 1966 with very little infrastructure in place, just a few schools and clinics. The marine protection area status which has been granted to the waters around the islands in recent years would have to be developed and adjusted to allow artisanal fishing, as already happens outside the marine protection area around Diego Garcia. The costs of resettlement and a clear understanding by all sides of what resettlement will entail must be explored in the feasibility study, and we must be sensitive in what we ask of the British taxpayer in a time of austerity. However, I urge the Government to heed the advice given by my noble friend Lady Whitaker and explore fully the opportunities for the costs of resettlement to be shared between other interested Governments, the EU and the US.
There are significant risks associated with resettlement, including an understanding that most of the islanders who left in the late 1960s will be well over 60 years of age, and there will be very little access to healthcare. These people may not want to settle on the island; they may want simply to visit the country of their birth. At the very least, the opportunity to visit is surely something which should be explored in the feasibility study.
It is, however, also an opportunity to be creative in what could be offered. Will the Minister say whether the designation of the seas surrounding the islands as a marine protection area will be seen as a threat or an opportunity, and who will make the judgment on this? Will the consultants appointed to make the recommendation be given any kind of political steer?
We welcome the fact that there will be ongoing consultation with stakeholders before the document is finalised, in particular with the Chagossian community. I echo the suggestion that the consultation should be extended to the Mauritians.
Finally, I echo my noble friend Lady Whitaker’s concerns about the speed of the process. There is a suggestion that the feasibility study will take at least 18 months to conclude. It need not take that long. We will be nudging right up against the general election, so will the Minister undertake to ensure that Her Majesty’s Opposition are consulted on the final wording of the terms of reference prior to its commissioning?
My Lords, I begin by expressing my thanks to the noble Baroness, Lady Whitaker, for highlighting the important issue of the future of the British Indian Ocean Territory. I am grateful for the important contribution she makes through her membership of the All-Party Parliamentary Group on the Chagos Islands, and I am sure many noble Lords share her deep interest.
I will therefore focus on the Chagos Islands and the question of the resettlement of the islanders after their compulsory evacuation in the late 1960s and early 1970s. This Government have expressed regret about the way the resettlement was carried out at that time, and we do not seek to justify those actions or excuse the conduct of an earlier generation. What happened was clearly wrong, and therefore it was right to pay substantial compensation. Both the British courts and the European Court of Human Rights have confirmed that compensation has been paid in full and final settlement.
Decisions about the future of the British Indian Ocean Territory are more difficult. Successive Governments have opposed resettlement on the grounds of feasibility and defence. Noble Lords will recognise that we must be honest about the challenges and concerns. In 2000, we looked at the practical challenges of returning the Chagossians to the territory permanently, concluding that it would be precarious and entail expensive underwriting by the British Government for an open-ended period.
However, the Government recognise the strength of feeling on this issue and are not dogmatic. In December, my right honourable friend the Foreign Secretary announced that we would review our policy, and my honourable friend Mark Simmonds announced in July that we intend to commission a new study into the feasibility of resettlement. Officials from the Foreign and Commonwealth Office consulted extensively with more than 400 members of the Chagossian community and their supporters on that issue over the summer. Views within Chagossian communities varied widely on the issue of resettlement. Although a majority expressed a preference to return to the territory, many concerns and issues were highlighted which this study will need to consider carefully.
The Government have taken these views into account in shaping the proposed terms of reference for the study which we published, as announced by my honourable friend Mark Simmonds, on 19 November. We will continue to consult widely throughout the review, sharing emerging findings as the study develops and seeking views so that all relevant factors are taken into consideration. I will make sure that the Opposition are informed of that.
The noble Lord, Lord Anderson, and the noble Baroness, Lady Morgan, asked about the 2002 study and what had changed. We have no reason to doubt the 2002 study conclusions, which showed that lasting settlement would be precarious and would entail expensive underwriting by the UK Government. However, the Government recognise the strength of feeling on this issue and that others believe that resettlement could feasibly be carried out. It is therefore right that we look at this issue again.
The noble Baroness, Lady Whitaker, and the noble Lord, Lord Anderson, asked whether the US had agreed to the study. The territory is British and our policy there is a matter for us. We have of course kept the US closely informed on progress, and we welcome the US presence on Diego Garcia, which is important. We consider it to be a significant and important strategic asset, both to us and to them.
The noble Baroness, Lady Whitaker, also spoke about the policy review in relation to Diego Garcia. This policy review will deal with the issue of resettlement. Ministers’ decisions on this issue will bring helpful clarity to both sides in time for discussions on the continuation of the 1966 UK/US agreement. We are clear about the sovereignty of the islands.
The noble Lord, Lord Avebury, asked whether the feasibility study would also include Diego Garcia. We said in the Written Ministerial Statement announcing the terms of reference for the study that a key factor for Ministers to assess when considering the study will be the ability of a military base to continue and to be able to function undisturbed within each option being considered. The study will bring helpful clarity to a range of issues when we begin substantive discussions with the US Government on the successor agreement to the exchange of notes which govern the use of the island.
The noble Lord, Lord Luce, my noble friend Lord Avebury and the noble Baroness, Lady Morgan, asked about the handover of the island and the role of Mauritius. We are of course keen to return to constructive dialogue with Mauritius on the British Indian Ocean Territory and have invited the Mauritian Government to input their views on the study’s terms of reference. The study is of course without prejudice to ongoing legal proceedings which the UK is defending. We will not be making concessions on sovereignty.
My noble friend Lord Avebury also asked about a joint scientific committee, and potential for joint work between Mauritius and the British Indian Ocean Territory. We welcome the engagement of Mauritian scientists in helping the scientific community better understand the unique and pristine environment of the British Indian Ocean Territory, and in the scientific structures co-ordinating that science.
The Government are acutely aware of the need to make progress on implementing this important study. Officials are taking forward the procurement process so that we can start the study promptly and, to that end, a supplier will be appointed from a selection of those that have already competed for a place on an HM Government framework agreement, rather than a full tender. We must, however, ensure the best value for money and access to a range of credible suppliers so that the right product is delivered.
The noble Baroness, Lady Whitaker, stressed the need for speed. We recognise the desire for speed, but that should not detract from our ability to conduct a thorough review which draws on the best possible expertise. By using an existing, pre-competed, government framework in order to benefit from a streamlined route for purchasing consultancy services, we are deploying the quickest timeframe possible. It is our intention to complete the study within 12 months of appointing a consultant. The previous study took 18 months to complete. That study and other relevant background material will need to be considered as part of the new review.
The noble Lord, Lord Anderson, outlined practical concerns and difficulties that could come from a resettlement. We have not set any parameters in predetermining whether or not resettlement would be feasible. We have said that it will not prejudice the outcome of the study and that we will publish the study in its entirety. However, we recognise the challenges to resettlement, especially of low-lying islands.
It is important for us to get this work right. This study is a complex one. It will require expertise in a range of issues such as the infrastructure, amenities and economic sustainability for a modern community. It will also consider the impact on the unique environment of the British Indian Ocean Territory. The selected consultants will draw on the advice of independent experts where they do not have that expertise themselves. In assessing the potential options for resettlement, the Government will wish to balance a range of factors, including whether they could be accommodated without inhibiting the operation of the existing military base. In addition, I am sure that noble Lords will agree that the study must also capture the full costs of any resettlement options, associated risks and the costs of mitigating them, to make an informed decision.
To conclude, I reassure the House that, while it is the Government’s intention to complete the study as quickly as possible and to ensure value for money, all relevant issues will be properly considered. However, the Government will not prejudge the outcome. It will be for Ministers to make their assessment after completion of the study.
The challenges to resettlement of these islands after all these years are very real. Nevertheless, the Government recognise the interest of Members of this House and the importance of a renewed debate on this issue. That has been an important aspect of that consideration. I will continue to keep the House informed and updated as the feasibility study progresses.