Grand Committee
Maternity and Parental Leave etc. (Amendment) Regulations 2014
Lord Popat
That the Grand Committee do consider the Maternity and Parental Leave etc. (Amendment) Regulations 2014.
Relevant document: 9th Report from the Joint Committee on Statutory Instruments
Lord Popat (Con)
My Lords, I will also speak to the Paternity and Adoption Leave (Amendment) (No. 2) Regulations 2014.
Over recent weeks we have debated some of the key regulations which will implement the Government’s modern workplace agenda, which is updating and landscaping the family-related leave legislative framework. My noble friend Lord Bourne led the debate on 10 November on the main, architectural regulations, which create a new statutory right to shared parental leave and pay for eligible working parents. On 17 November, my noble friend Lady Neville-Rolfe led the debate on the six sets of regulations which allow other groups to benefit from shared parental leave and pay. These new groups are intended parents in surrogacy arrangements and employees who are adopting from overseas. Those regulations also provide an entitlement to adoption leave and pay, and paternity leave and pay, to qualifying intended parents.
Today, we have our last debate on the regulations which will complete the overhaul of the family-related leave landscape to which this Government are committed. We are debating two sets of regulations today. First, the Paternity and Adoption Leave (Amendment) (No. 2) Regulations provide an entitlement to adoption leave and paternity leave to employees who are prospective adopters and with whom looked-after children are placed. These placements are sometimes known as fostering for adoption placements. They are made using the powers introduced into the Employment Rights Act by Section 121 of the Children and Families Act 2014.
These regulations amend the Paternity and Adoption Leave Regulations 2002 to ensure that the eligibility criteria for adoption leave and paternity leave are modified. They will now recognise the particular process in which an employee has a child placed in their home by means of a fostering for adoption placement. As a result, the regulations enable local authority foster parents who are also approved adopters and who have a child placed with them with a view to adoption to access adoption leave and pay, and their partners will be able to access paternity leave and pay, if they meet the eligibility requirements. This group of individuals is willing to take on and care for perhaps some of the most disadvantaged children in the country and to provide them with loving, stable homes. These prospective adopters do so knowing that the placement may ultimately not end up becoming formal adoption. In recognition of the role that these prospective adopters play in providing loving, long-term homes for looked-after children, the Government feel that it is only right to extend the same benefits to them as are enjoyed by other adopters.
The regulations apply to situations where a child is matched with a local authority foster carer who is also an approved adopter and the adopter is notified of that match on or after 5 April 2015. From that date adoption leave will become a day-one right, and, as provided for through the Children and Families Act 2014, if they are entitled to statutory adoption pay, prospective adopters will receive an enhanced rate of statutory adoption pay for the first six weeks which amounts to 90% of their salary.
The regulations are aimed at smoothing the transition for a looked-after child into their new home. Enabling families to spend time together when there is a new member of the family and not having to wait for the final adoption paperwork to be finalised will be an important part of the settling process. Being able to be at home for the first year following placement means that the prospective adopter is there providing love and support in those first challenging months. However, as anyone with a child will know, it is not just the first year of parenthood that is challenging. The challenges of parenthood and the difficulties of managing career and family life are not like a tap that switches off after one or even five years. Being able to find the right balance is a challenge that working parents continue to face right up until their child is an adult.
The second set of regulations that we are debating today aim to address that. The Maternity and Parental Leave etc. (Amendment) Regulations 2014 extend the period in which an employee can take unpaid parental leave from the existing five years to 18 years. That means that an employee who is entitled to 18 weeks of unpaid leave because they have been continuously employed for at least a year, and have parental responsibility for a child, will have a much longer period in which they can make use of that leave if they need to. This applies to both birth and adoptive parents. The requirement to give an employer 21 days’ notice before taking leave and the limit of taking a maximum of four weeks in a year are unchanged.
The Government announced that they were making this change in November 2012. We also decided to bring in the change to coincide with the wider package of reforms to family-related leave and pay in April 2015. In light of the broader changes, the Maternity and Parental Leave etc. (Amendment) Regulations also make a small consequential change to the right-to-return provisions to reflect the introduction of shared parental leave.
These two sets of regulations complete the full picture of reform that this Government committed to in November 2012. They mark an important milestone, which we hope will support wider cultural change to encourage greater shared parenting and equality in the labour market. They are important steps towards ensuring working parents are able to manage their careers and caring responsibilities more effectively. I commend these draft regulations to the Committee.
Paternity and Adoption Leave (Amendment) (No. 2) Regulations 2014
Lord Popat
That the Grand Committee do consider the Paternity and Adoption Leave (Amendment) (No. 2) Regulations 2014.
Relevant document: 9th Report from the Joint Committee on Statutory Instruments
Lord Gardiner of Kimble (Con)
My Lords, it may be necessary for the Committee to adjourn for a few moments because of the sequence of events. The Minister is arriving almost imminently but it might be sensible if we were to adjourn during pleasure for five minutes.
The Deputy Chairman of Committees (Lord Geddes) (Con)
I can hardly decline given that I was somewhat late.
Legal Services Act 2007 (Chartered Institute of Legal Executives) (Modification of Functions) Order 2014
(10 years ago)
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Lord Faulks
That the Grand Committee do consider the Legal Services Act 2007 (Chartered Institute of Legal Executives) (Modification of Functions) Order 2014.
Relevant document: 9th Report from the Joint Committee on Statutory Instruments
The Minister of State, Ministry of Justice (Lord Faulks) (Con)
My Lords, I shall also speak to the draft Legal Services Act 2007 (The Institute of Chartered Accountants in England and Wales) (Modification of Functions) Order 2014, the draft Legal Services Act 2007 (the Chartered Institute of Patent Attorneys and the Institute of Trade Mark Attorneys) (Modification of Functions) Order 2014 and the draft Referral Fees (Regulators and Regulated Persons) Regulations 2014.
The first order—for CILEx, the Chartered Institute of Legal Executives—is made under Section 69 of the 2007 Act and modifies the functions of CILEx. CILEx is currently an approved regulator under the Legal Services Act 2007 for the following reserved legal activities: probate activities, the exercise of a right of audience, reserved instrument activities, the administration of oaths and the conduct of litigation. If made, this order will enable CILEx to operate more effectively by modifying its powers to make regulatory arrangements.
Specifically, the order will enable CILEx to make compensation arrangements as defined in the 2007 Act and allow it to make rules authorising it to establish and maintain a compensation fund, requiring CILEx-authorised entities to contribute to it. The compensation fund will protect clients of CILEx-authorised entities who suffer loss in the event of dishonesty or a failure to account.
In addition, this order modifies the provisions of Schedule 14 to the 2007 Act so that the intervention powers there are available to CILEx in its capacity as an approved regulator. For example, these powers would enable CILEx to seek an order from the High Court to intervene into an entity, to enter its premises and seize documents or property. This power will both protect consumers and provide the public with continued assurance that there are mechanisms in place to protect and safeguard their interests.
Taken together, the increased safeguards put in place by this order will enable CILEx to authorise and regulate entities for the first time. This will enable individuals who have been assessed by CILEx as sufficiently competent to carry on one of the reserved legal activities for which CILEx is designated to set up independent businesses for that reserved legal activity. The LSB conducted a public consultation between 23 June and 21 July 2014. No responses were received. This order follows a recent order designating CILEx as an approved regulator for reserved instrument activities and probate activities, bringing the total number of reserved legal activities it can regulate to five.
The Section 69 order for the Institute of Chartered Accountants in England and Wales modifies the functions of the institute in two main ways. First, it enables the institute to make regulations or rules providing for appeals to the First-tier Tribunal against its decisions as an approved regulator and licensing authority. Secondly, and similarly to the CILEx Section 69 order, this order modifies the provisions of Schedule 14 of the 2007 Act so that they apply to the institute in its capacity as an approved regulator. This gives the institute the same intervention powers as an approved regulator that it already has automatically as a licensing authority. This order follows the two orders, made in July and August this year, designating the institute as an approved regulator and licensing authority for probate activities.
This Section 69 order, dealing with appeals and intervention powers, now comes before the House following a public consultation by the Legal Services Board. No responses were received to the consultation. The recent designation of the Institute of Chartered Accountants in England and Wales as an approved regulator and licensing authority for probate activities has been an important step. The institute’s entry to this sector will help to contribute to the growth of the legal services market and bring further innovations, leading to benefits to consumers of legal services.
The order will ensure that the institute’s decisions as both an approved regulator and a licensing authority can be appealed to the First-tier Tribunal, which will help to ensure consistency of regulation. The order will also provide the institute with the same intervention powers as an approved regulator that it already has as a licensing authority, similarly ensuring consistency of regulation.
With regard to the Section 69 order for the Chartered Institute of Patent Attorneys and the Institute of Trade Mark Attorneys, CIPA and ITMA are both approved regulators under the Legal Services Act 2007 for the following reserved legal activities: the exercise of a right of audience, the conduct of litigation, the administration of oaths and reserved instrument activities. CIPA and ITMA have applied to be designated as licensing authorities in relation to the same reserved activities for which they are approved regulators.
The order essentially does two things. First, it harmonises the approach that CIPA and ITMA take in regulating all registrants to undertake patent and trade mark work, whether they are registered bodies—that is, non-alternative business structures—or licensed bodies—that is, alternative business structures. It does this by making various provisions to ensure that the regulatory framework for CIPA and ITMA is the same whether they are acting as an approved regulator or as a licensing authority. Secondly, the order enables CIPA and ITMA to make rules or regulations providing for appeals to the First-tier Tribunal or High Court against decisions made by CIPA and ITMA as an approved regulator and, in certain circumstances, as a licensing authority.
CIPA and ITMA are not yet licensing authorities, but they applied in May 2013 to the Legal Services Board to be designated as licensing authorities in relation to the same four reserved activities for which they are already approved regulators. Following a recommendation from the LSB to the Lord Chancellor, a decision in principle to make such a designation order was made by the Parliamentary Under-Secretary of State on 5 March. The order was laid in Parliament on 20 November. The present Section 69 order modifying the functions of CIPA and ITMA comes before the House following a public consultation by the LSB. No responses were received.
The order puts in place a number of measures to harmonise the approach that CIPA and ITMA take in regulating all registrants to undertake patent and trade mark work, whether they are acting as approved regulators or, eventually, as licensing authorities. This will help to ensure consistency of regulation and will pave the way for the continued widening of the legal services market.
With regard to the CILEx referral fee ban order, the background is that on 1 April 2013 a ban was introduced on the payment and receipt of referral fees in personal injury cases by “regulated persons”. The ban was introduced by the Legal Aid, Sentencing and Punishment of Offenders Act 2012, which defines “regulated persons” as solicitors, barristers, claims management companies and insurers. This ban was a response to the concern, highlighted in Lord Justice Jackson’s review of civil litigation costs, that referral fees in personal injury cases contribute to the high costs and volume of personal injury litigation.
As CILEx-regulated practitioners did not fall within the definition of regulated persons at that time, they were not included in those provisions. However, if made, the CILEx Section 69 order being debated here today will bring CILEx-regulated practitioners who are authorised to conduct litigation within the scope of the referral fee ban. Without formally extending the ban to them, they will be able to pay and receive referral fees. This would compromise consumer protection and would give them an unfair commercial advantage over other practitioners in the field.
This order therefore adds CILEx to the list of regulators for the purposes of the ban and specifies the group of practitioners to whom it will be applied. In so doing, it fulfils one of the major objectives of statutory regulation—namely, to protect and promote the public and consumer interest. It will also create a level playing field in relation to other regulated legal service providers.
In conclusion, these orders enable those bodies to strengthen their regulatory powers, leading to greater consistency and greater protection for consumers, and I commend them to the Committee.
Baroness Hayter of Kentish Town (Lab)
My Lords, I rise simply to welcome the first three orders which extend alternative business structures—which, of course, started under the 2007 Act. That change is gradually rolling out and is to be welcomed.
I want to say a particular word of welcome about the first order, on CILEx, because CILEx has gone through part of the process to enable legal executives to carry out reserved or regulated legal activities, which now include litigation, rights of audience, administering oaths, probate and conveyancing. As the Minister suggested, CILEx members are currently not able to set up their own businesses unless they get together with someone else who is regulated by another regulatory body such as the Law Society. In future, however, with this change, CILEx will be able to authorise independent CILEx businesses. That is good for clients. As we know, many local firms, particularly small ones, will not go to a lawyer when they have a legal problem because of the expense. This much broader provision of legal services will therefore be very good. At the moment, only about 12% of small businesses turn to a lawyer even when in difficulties. With this gradual increase in what they can do, as well as a greater availability of CILEx businesses, these specialist firms will be able to offer a service.
I want to say just one other thing. Because of the particular way in which CILEx’s members come up through the institute and become lawyers, CILEx is composed of a far broader mix of people, from a broader range of backgrounds, than is perhaps the case with the traditional lawyer. It has a much more diverse membership in terms of, for example, ethnicity, as one-third of CILEx members are from ethnic minorities; gender, as three-quarters are women; and social background—indeed, 86% did not have parents who went to university, a statistic which is quite different from that applying to some other groups. What is happening with individual lawyers will now also happen with these new businesses. They, too, will be more diverse, and represent the diverse needs of consumers. I therefore thank the Ministry of Justice for getting this through. The Minister indicated that there had not been many responses to the consultation but, as I understand it, that is basically because people were happy with the change. I think that it will be broadly welcomed.
Lord Kennedy of Southwark (Lab)
My Lords, the three orders that we are discussing today modify the functions of the Chartered Institute of Legal Executives, the Institute of Chartered Accountants in England and Wales, the Chartered Institute of Patent Attorneys and the Institute of Trade Mark Attorneys in respect of regulatory matters to the extent necessary to modify their powers under the Legal Services Act 2007, and the one regulation extends the ban on the payment and receipt of referral fees in personal injury cases to include appropriately qualified practitioners who are members of the Charted Institute of Legal Executives.
CILEx is an approved body to award practice rights in the reserved legal activity area and this regulation will be undertaken by ILEX Professional Standards. It also has to have the ability to protect the interests of the public who use the services of its members, and this includes the power both to provide redress in the form of compensation to clients and to be able to intervene into legal practices. The order gives it the required powers to set up a compensation fund and collect the required fees and, secondly, to take appropriate enforcement action to protect the interests of consumers. I agree with my noble friend Lady Hayter of Kentish Town that this is good news for consumers in giving them a wider choice in the marketplace when looking for legal services and in providing the public with proper protection. It is a boost to legal executives seeking to widen the sphere of work that they undertake, particularly unsupervised work, as they can demonstrate that they have proper protections in place.
The order in respect of the Institute of Chartered Accountants in England and Wales provides for appeals to the First-tier Tribunal against decisions made by the institute as an approved regulator and as a licensing authority. It also changes its arrangements and increases its scope for using intervention powers. This again is a sensible measure, and the Opposition have no issues with what is proposed here. Giving consumers uniform protections and rights is in itself a sensible move and works towards improving the efficiency of the regulatory and protection framework for legal services.
The third order makes changes to the regulatory arrangements in respect of the Chartered Institute of Patent Attorneys and the Institute of Trade Mark Attorneys acting as approved regulators and, if designated in the future, as licensing authorities. Again, the Opposition have no issue with what is proposed, but I have a few questions for the Minister. In respect of the order relating to CILEx, what work has the Ministry of Justice done to satisfy itself that the Legal Services Board has acted with due diligence in coming forward with this proposal and that CILEx has the range of competences required to undertake these new regulatory powers?
In respect of the order regarding the Institute of Chartered Accountants in England and Wales, what work has the MoJ done to satisfy itself that this order is appropriate and, again in respect of the third order, what specific work has been undertaken in the MoJ to satisfy itself that these measures are proportionate, they deliver the objectives being sought here and those objectives are right in practice?
I have no issues to raise in respect of the regulation adding CILEx-registered practitioners to those banned from the paying and receipt of referral fees.
Lord Faulks
My Lords, I am grateful for the contribution to this debate from the noble Baroness, Lady Hayter, and the noble Lord, Lord Kennedy, who I know broadly welcome all these changes by statutory instrument. I shall deal first with what the noble Baroness said about CILEx. She accurately described this as the next step in rolling out CILEx so that its increased role and activities can be used by more people. She rightly pointed out that many people will go to legal executives rather than spend more money on lawyers. There is increasing confidence in the standard of advice that they are giving. I have been to a number of events of theirs, and it is a profession that is in good health. The noble Baroness is also right to point to the range of diversity among their number. Although my figures do not precisely coincide with hers, as there were some CILEx members who chose not to provide information, I confirm that on the figures that the MoJ has, 74% of CILEx members are women and there is a higher than usual percentage of members from black and minority ethnic backgrounds—certainly not less than 16%, which is encouraging.
The noble Lord, Lord Kennedy, asked whether the Government were satisfied that CILEx had put effective and appropriate arrangements in place generally for these arrangements. He will appreciate that under the Legal Services Act 2007 the Legal Services Board was set up as a super-regulator. It was his Government who brought in that legislation, and it is not for the Government to regulate the regulator who then regulates the regulator, so we have to be satisfied that the Legal Services Board is in fact doing its job. Of course, as with all arm’s-length bodies, it is regularly reviewed.
The Ministry of Justice analysed each application made to it by the Legal Services Board before the Lord Chancellor agreed to make the specific orders that are before the Committee today. That included looking at the underlying regulatory framework. I can assure the noble Lord that that additional step was taken. The Ministry of Justice has to be satisfied with the overall framework of regulation that exists in relation to all these professions, whether it is legal executives or trade mark and patent attorneys. The Government are satisfied that effective and appropriate arrangements have been made in respect of the regulation and authorisation of CILEx members, and indeed in relation to compliance with the Legal Ombudsman, although the noble Lord did not specifically ask me about that.
The intention, by setting up the compensation fund and giving rights to intervention, is clearly to put such professionals in the same, more established position applying elsewhere and to provide additional security for consumers. That has been done, in so far as one can ever be 100% sure of these things.
Baroness Hayter of Kentish Town
Before the Minister sits down, I want to apologise: his figure was right and mine was wrong. The one-third figure refers to new CILEx students, so I got that wrong. His figure of 16% is right. However, up to one-third of new CILEx students are from black and minority ethnic groups.
Legal Services Act 2007 (The Institute of Chartered Accountants in England and Wales) (Modification of Functions) Order 2014
(10 years ago)
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Lord Faulks
That the Grand Committee do consider the Legal Services Act 2007 (The Institute of Chartered Accountants in England and Wales) (Modification of Functions) Order 2014.
Relevant document: 9th Report from the Joint Committee on Statutory Instruments
Legal Services Act 2007 (the Chartered Institute of Patent Attorneys and the Institute of Trade Mark Attorneys) (Modification of Functions) Order 2014
(10 years ago)
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Lord Faulks
That the Grand Committee do consider the Legal Services Act 2007 (the Chartered Institute of Patent Attorneys and the Institute of Trade Mark Attorneys) (Modification of Functions) Order 2014.
Relevant document: 10th Report from the Joint Committee on Statutory Instruments
Referral Fees (Regulators and Regulated Persons) Regulations 2014
(10 years ago)
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Lord Faulks
That the Grand Committee do consider the Referral Fees (Regulators and Regulated Persons) Regulations 2014.
Relevant document: 9th Report from the Joint Committee on Statutory Instruments
Compensation (Claims Management Services) (Amendment) Regulations 2014
(10 years ago)
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Lord Faulks
That the Grand Committee do consider the Compensation (Claims Management Services) (Amendment) Regulations 2014.
Relevant document: 8th Report from the Joint Committee on Statutory Instruments
The Minister of State, Ministry of Justice (Lord Faulks) (Con)
My Lords, the regulations before the Committee amend the Compensation (Claims Management Services) Regulations 2006 with regards to the available enforcement tools of the claims management regulator. The regulations provide for the regulator to impose financial penalties on non-compliant regulated claims management companies. The penalties would apply to: breaches of the Conduct of Authorised Person’s Rules; failing to comply with a code of conduct; failing to comply with directions relating to indemnity insurance; failing to comply with directions relating to redress and complaints handling; failing to comply with an information notice from the regulator; and obstructing the execution of a warrant.
The regulations also provide for certain situations in which CMCs will not be able to surrender their authorisation without the consent of the regulator. This is to ensure that a CMC cannot avoid investigation and enforcement action by simply surrendering its authorisation. The new financial penalty power provides an additional deterrent from malpractice within the regulated claims management industry. With this new power, the regulator can look to remove any monetary gain that may have been made by a CMC through non-compliant practices, where possible.
Before setting out further details about the regulations and why the Government are taking this action, I will briefly explain some background with regards to claims management regulation and the need for an additional available sanction in this area. Businesses providing regulated claims management services in England and Wales under the Compensation Act 2006 must be authorised to do so by the regulator, which forms part of the Ministry of Justice.
Claims management regulation covers a range of sectors, most notably the personal injury and financial products and services sectors. There are also a number of lower profile claims sectors, such as employment, criminal injuries, industrial injuries disablement benefit and housing disrepair, which are subject to regulation by the regulator. Once authorised, regulated CMCs are required to comply with certain conditions of authorisation, including adherence to the Conduct of Authorised Persons Rules. Where breaches of the conditions of authorisation are identified, the regulator can take enforcement action, such as the variation of the CMC’s authorisation, by imposing additional conditions or the suspension or cancellation of authorisation in the most serious cases.
These measures form part of a wide package of reforms which I will explain shortly. First, I will set out why they are needed. Bad practices by some regulated CMCs have created poor outcomes for some consumers and businesses, particularly in the area of financial products and services. Current enforcement powers have not deterred some CMCs from carrying out speculative behaviour or engaging in other forms of malpractice. This has led to delays in receiving compensation for some consumers who have legitimate claims and has increased costs for some defendant financial services firms where claims are unsubstantiated. Where a CMC is subject to formal enforcement action, such as the cancellation of authorisation, this can directly affect clients whose cases cannot be progressed by the CMC if its authorisation is removed.
The power to impose financial penalties on non-compliant CMCs does not replace any existing enforcement sanctions but provides an additional, flexible tool that will assist the regulator to carry out its duties even more effectively. This new power therefore acts in the best interests of both consumers and businesses by ensuring that the regulator has a full range of appropriate tools to deter non-compliant behaviour.
A public consultation on the proposed amendments received wide support from the claims management and banking industries as well as those with a general interest in claims management matters. Responses to the consultation suggested that the proposed measures would improve regulation while providing an additional and necessary deterrent from malpractice.
It is important to make clear that, since the start of regulation in 2007, the regulator has utilised its existing powers fully and has done extremely well to stamp out non-compliant behaviour across the claims management industry. The regulator continues to make improvements to the regulated claims market through targeted compliance programmes and enforcement action.
Since April 2013, the regulator has overseen a package of reforms to the regulatory regime. These include: key changes to the conduct rules to ensure that claims are substantiated before being pursued; naming CMCs under investigation and subject to enforcement action online; increased resources and the establishment of a specialist compliance team to tackle non-compliant marketing practices; a ban on CMCs offering financial rewards or similar benefits to potential claimants as an inducement to make a claim; a ban on the payment or receipt of referral fees between CMCs, lawyers, insurers and others; and the appointment of the first two independent non-executive board members to the executive-led claims management regulation board, enabling a greater element of external challenge and continuous improvement.
With that background, I turn to the draft amended regulations before the Committee today. In effect, the order amends the regulations to include provisions regarding: the process that must be followed to impose a financial penalty, which is the same process currently used for the imposition of existing forms of formal enforcement action; the requirements to consider the nature and seriousness of any breach by the regulated CMC and its turnover in determining the amount of the penalty; and the penalty that can be imposed, which will be a maximum of £100,000 for regulated CMCs with a turnover of less than £500,000 and 20% of turnover for regulated CMCs with a turnover of £500,000 or more. It also amends how the regulator can deduct any administration costs incurred in collecting or enforcing the payment of a penalty before the remainder is paid into the Consolidated Fund; how the penalty can be enforced by the regulator as a civil debt, if necessary; and the restriction on the surrender of authorisation by an authorised person without the consent of the regulator.
I am sure that the Committee will agree that the regulator must have the necessary tools to impose a range of appropriate sanctions that deter malpractice and encourage regulatory compliance. The order provides the regulator with additional powers to ensure that a complete range of robust and proportionate enforcement options can be considered as appropriate. I therefore commend the draft regulations and beg to move.
Lord Kennedy of Southwark (Lab)
My Lords, I say at the outset that the Opposition very much welcome what is proposed today. Since joining your Lordships’ House in June 2010, I have regularly raised the question of claims management companies and the end of the industry that indulges in bad practice. I also want to start by paying tribute to the work undertaken by the claims management unit at the MoJ, led by Kevin Roussell. It does a really good job with limited resources and the regulations will be another important tool in its box to deal with bad practitioners who rip off consumers and cause unnecessary costs for businesses to which they submit claims.
What is most reprehensible is submitting pointless, vexatious claims to financial services providers with which their client has no record of doing business. That is done as a fishing expedition on the off chance that they may get lucky, with no regard to the cost to the business, the clogging up of the processes in each business and the Financial Ombudsman Service, or to the genuine people who have been ripped off by bad practice in the financial services industry, who will have to wait even longer to have their claim settled.
I must say that I have no problem with the responsible claims management company, which can provide a valuable service to its clients. It can give advice on how to proceed, and as long as its client is aware of the charges to be incurred and is happy to pay them, and the company is properly processing and managing claims, that is fine. Nothing here will concern the responsible claims management company. In the consultation there was broad support for the proposals from all respondents, including the claims management industry, which wants to improve the image of its industry, raise standards and get rid of the rogues.
However, it is important to put on record that CMCs working in this field are dealing with bad practice in the financial services industry. There have been a number of cases in recent years where people have behaved very badly in that industry. I note in the Explanatory Memorandum that the Ministry of Justice does not see a case for consolidation at present. I think that that is probably right. I hope, however, that the department will keep this under review, as things change over time, sometimes very quickly. We may get to the point where the case for consolidation becomes more compelling. If that is the case, the Minister can be assured of support from these Benches. I have no wish to detain the Grand Committee any longer than necessary, and conclude my remarks by again welcoming the proposals.
Lord Faulks
I am grateful for the observations of the noble Lord, Lord Kennedy, who has indeed several times in your Lordships’ House raised questions about claims management and the more unattractive habits in which they have been prone to indulge. I am also grateful to him for specifically drawing the Committee's attention to the claims management unit and Kevin Roussell, who runs it. I have visited that unit in Burton-on-Trent. It is a small, efficient, extremely dedicated collection of employees who, I think, have made real progress in improving the industry. Although there are some who wonder why we need claims management companies at all, we are increasingly left with fewer, better regulated and better organised claims management companies who provide a service to clients.
I accept the noble Lord’s point that that there is a need to be nimble and alert, and possibly in due course to consolidate. This is an area where the market changes swiftly, and there has to be a swift response—if necessary, a legislative response—to make sure that changes in market do not bring about unacceptable practices. We feel that the changes embodied in the statutory instrument—the new power to impose financial penalties—which are similar to those of regulatory authorities such as the Financial Conduct Authority and the Information Commissioner’s Office, are an additional and useful adjunct to the existing powers. I hope the Committee will agree that they are proportionate and necessary measures, and in those circumstances, I commend the regulations to the Committee.
Child Poverty Act 2010 (Persistent Poverty Target) Regulations 2014
(10 years ago)
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Lord Freud
That the Grand Committee do consider the Child Poverty Act 2010 (Persistent Poverty Target) Regulations 2014.
Relevant documents: 10th Report from the Joint Committee on Statutory Instruments, 11th Report from the Secondary Legislation Scrutiny Committee
The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud) (Con)
My Lords, the regulations laid before the Committee today introduce a new persistent child poverty target, as required by the Child Poverty Act 2010. At the end of this Parliament, as at the start, the coalition Government remain committed to tackling the key drivers of child poverty and improving the lives of the most vulnerable people in our society. We remain committed to the goal of ending child poverty in the UK by 2020 and, despite challenging economic conditions and fiscal restraint, we are making significant progress: under this Government, 300,000 fewer children live in relative poverty.
The evidence is clear that work remains the best route out of poverty. We know that children are about three times as likely to be in poverty if they live in a workless family. Therefore, at the centre of our child poverty strategy is a commitment to tackling worklessness, and it is clear that our reforms are making a real difference. With employment up by nearly 1.7 million since 2010, there are now around 390,000 fewer children in workless households, and both the number and the proportion of children in workless households are at the lowest levels on record. Through our structural reforms to welfare, we are lifting people out of poverty, putting in the right incentives to get people into work and to make work pay.
We are not stopping there. We are helping people to progress in work through universal credit and the next phase of the Work Programme with a clear focus on skill development. Before they reach the workplace, this Government’s commitment to improving educational outcomes has seen poor children do better than ever at school. Between 2010 and 2013, the proportion of children on free school meals getting good GCSEs, including English and maths, has increased by 7% to 38%. These are substantial leaps in educational attainment, which will make a real and lasting difference to children’s lives as they develop.
Today, we are publishing the Government’s response to the Social Mobility and Child Poverty Commission’s State of the Nation 2014 report. This reiterates our goal to end child poverty and achieve lasting change for the poorest in our society. This, along with the regulations before the Committee today, demonstrates our ongoing commitment to tackling child poverty and helps us to meet our obligations under the Child Poverty Act 2010. The Government firmly believe that, in the long term, a revised set of child poverty measures are needed which underline our commitment to reducing child poverty but better reflect the evidence about its underlying causes. We are not yet in a position to put these new measures forward. In the absence of these new measures, we therefore remain committed to meeting our existing obligations under the Act and to introducing a persistent child poverty target by the end of this year.
This fourth child poverty measure will complement the three existing child poverty measures which are already in statute. These are on relative poverty, absolute poverty, and combined low income and material deprivation. There are compelling reasons for introducing a persistent poverty measure. This Government recognise that persistent poverty can be particularly harmful to children’s life chances. We know that children living in persistent and long-term poverty have a radically different experience of growing up, compared to other children. The longer that a child remains in poverty, the more likely it is that he or she will experience poor outcomes such as social exclusion, below average attainment and reduced life chances. This was a view shared in the majority of responses to our consultation on the target. Reponses from the Social Mobility and Child Poverty Commission and others put particular emphasis on the damaging effects of persistent poverty and urged the Government to continue to put this at the centre of policy ambition.
We are steadfast in our commitment to addressing child poverty in all its forms and our Child Poverty Strategy 2014-17, published in June, sets out the action that we are taking as a Government. We will continue to focus action on breaking the cycle of persistent poverty and exploring what further steps can be taken to reduce persistent poverty as far and as fast as possible. So in June this year, the Government launched a consultation on setting a persistent child poverty target of less than 7%. This means that the percentage of children living in households that are in relative poverty in at least three of the four years up to 2020-21 must be less than 7% of all children in the UK.
The Secondary Legislation Scrutiny Committee queried why we are not setting this target at zero per cent. According to all measures, child poverty is assessed using robust and well established statistical surveys to capture information about household income. However, like all sample surveys, this one contains some naturally occurring error. For example, some people will give inaccurate reports of their income when interviewed, or are between jobs at the exact point when they respond to the survey. It is therefore not statistically feasible for these surveys to report that zero per cent of children are in poverty and does not make sense to set a target at this level. That is the same reason that the existing Act’s targets were not set at zero per cent.
Our decision to choose a target of less than 7% is both evidence-based and consistent. First, it is based on analysis of the historical relationship between persistent poverty and relative poverty. Secondly, it is consistent with the ambitious relative poverty target of less than 10%, as set out in the Child Poverty Act 2010. The evidence shows that in a given year, levels of persistent poverty are typically 50% to 70% of relative poverty. According to past trends, therefore, when relative poverty reaches around 10% persistent poverty should be somewhere between 5% and 7%.
However, we must also take into account how future trends might affect the relationship between relative and persistent child poverty. As the number of children in relative poverty reduces, the children from harder-to-reach families who face most disadvantage are likely to make up a greater proportion of the group. These children are more likely to suffer from persistent poverty, which means that the historical relationship between relative child poverty and persistent poverty is likely to shift. Therefore, when levels of relative child poverty are about 10%, children in persistent poverty could make up a high proportion, if not the entirety, of the group. In such an event, the proportion of children in persistent poverty could be much closer to 10% of all children.
Baroness Lister of Burtersett (Lab)
My Lords, I endorse what the Minister has said about the damaging effects of long-term persistent poverty. However, I am sure that he did not expect me to come here to agree with him, so I will now make a few critical points. The Secondary Legislation Scrutiny Committee was critical of the lack of clarity in the explanatory material with these regulations, which, as it points out, is not for the first time. It asked about the definition of qualifying households. Just for the record, will the Minister clarify which children are excluded? The scrutiny committee referred to children in state institutions. Am I right in thinking that it also excludes the children of asylum seekers and Travellers? Are there any other groups? It would be helpful for noble Lords to know that.
A perhaps rather techie but significant point, which was not raised by the committee, is the use of before housing costs to measure child poverty. According to the Social Mobility and Child Poverty Commission’s State of the Nation report—I did not realise that the Government’s response was published today; I am not a clairvoyant and I have not read it—if you use the after-housing-costs measure rather than the before-housing-costs measure, which is preferred by the Government, it adds an additional 1.4 million children to the numbers in relative poverty. Therefore, 27% of all children rather than 17% of children are in poverty. As I say, that may seem a rather techie point but it makes a huge difference. As recent research by the Joseph Rowntree Foundation has underlined, housing costs are an increasingly important driver of poverty among people of working age and their children. When I questioned the Minister about this in Oral Questions yesterday, he did not answer my question, and it is a rare opportunity to be able to come back the next day. I will not re-ask the question, which concerned what the Government are doing about high housing costs, but I noted that, instead of answering the question, he talked about how they are making really good progress in tackling poverty. Of course any reduction in the figures is welcome, but it is interesting that every time the Government get up and say, “We’re reducing poverty”, they use a measure that in other contexts they tend to rubbish. Anyway, I will put that to one side.
If we take the figures after housing costs, they are rather less favourable. Indeed, the child poverty figures increased in 2012-13 over the previous year, whereas if you look at before housing costs, they are flat. That is just to underline the importance of these different measures and how they are used.
The scrutiny committee also queried, as the Minister acknowledged, why the target figure in the regulations is not lower. I absolutely accept that zero is not realistic, but the committee pointed out in particular that the majority of consultation responses argued for 5% or less. In fact, 31 out of 39 written responses were against the below 7% target, with only six arguing for it, and 23 were in favour of a below 5% target. One example was the Child Poverty Action Group—I declare an interest as honorary president—which made the point that:
“In setting the persistent child poverty target, the government should consider past historical performance in the UK, and the performance of other comparable countries in tackling persistent poverty. This is suggestive of a range of 3 to 5 per cent”.
It was also critical of the lack of ambition of a 7% target.
I cannot help wondering why the Government bothered to consult in the first place. When they reject a clear consensus of pretty expert opinion, I fear that that feeds cynicism around consultation exercises, despite the warm words in the Written Ministerial Statement, which the noble Lord repeated, that the Government “carefully considered all representations”.
The scrutiny committee also said that it remained unclear as to how the Government intend to implement their policy. The Minister talked about that today with regard to the child poverty strategy, which, as I am sure noble Lords are aware, was published earlier this year. I could say plenty about that, but I will not say what I think about it; I will simply quote—at a bit of length, because it is worth putting on the record—what the Social Mobility and Child Poverty Commission said in response to the draft child poverty strategy, and the final strategy was not that different regarding the overall strategic approach. The commission said:
“The new strategy is the Government’s opportunity to revise its plans for tackling child poverty to get back on track towards meeting its legal obligation to end child poverty by 2020 … Our key conclusion is that this opportunity has not been taken. While there have been improvements in the Government’s strategic approach and in some policy areas, overall the strategy falls far short of what is needed”.
The Minister talked about reducing worklessness being at the heart of the strategy, but the commission points out that its research shows that,
“ending poverty mainly through the labour market does not look remotely realistic by 2020”.
It goes on to say:
“We acknowledge that there are some good things in the draft strategy”—
as do I—but continues:
“However, overall it falls far short of what is needed. Key problems include: the lack of any clear measures, with the Government continuing to distance itself from the statutory measures in the Child Poverty Act 2010 without suggesting any additions or alternatives. This is not acceptable—a strategy which cannot be measured is meaningless. In the absence of further measures and in line with our statutory duty, the Commission will continue to monitor progress”.
Other key problems are:
“The absence of a step-by-step plan for meeting the statutory targets, with the strategy presenting a list of policies rather than a detailed plan with impacts clearly delineated. A failure to engage with independent projections that poverty is set to increase substantially … Lack of new action on in-work poverty … Limited action to mobilise society-wide efforts to tackle poverty … Ignoring the impact of additional welfare cuts”.
It points out what that likely impact would be. Then it says:
“To ensure the final strategy is an effective and credible plan for tackling child poverty, the Government needs to … set out clear measures … Develop a step-by-step plan … Engage with independent projections of increases in child poverty over the next few years … Resolve gaps in the strategic approach … by taking action to address the structural as well as the individual-level causes of poverty”.
That is a really important point, because the Government are always going on about how they are concerned about the causes of poverty but do not tend to acknowledge the structural causes as opposed to individual ones. The response also says that the Government need to:
“Ensure the strategy represents a clear plan for mobilisation and leadership of other actors in society … Engage with the challenges posed for the child poverty strategy by continued fiscal consolidation”.
All the projections are very worrying regarding what the impact of other policies will be on the numbers in poverty, including the numbers in persistent poverty. The fear is, obviously, that the 7% is not going to be achieved because of these policies. It sometimes feels a bit unreal that we are designating 7% or 5% when the policies now being implemented suggest that we are going to go the wrong way on levels of child poverty, including persistent child poverty.
Lord Kirkwood of Kirkhope (LD)
My Lords, it is a pleasure to follow the noble Baroness—my noble friend, as we steal one another’s best lines. I concur with just about everything that she has said except to say that, while I yield to no one in having demanded money over the last 30 years for social security purposes, I am getting quite frightened about the national debt; £1.449 trillion is an enormous sum of money. You may have to configure responses to these kinds of policies a little more carefully than I have been doing.
Having said that, however, I would like to gently poke the Minister in the ribs, politically speaking. The pupil premium has been a significant potential success but I am not sure that we can be certain that this is replicated throughout the United Kingdom. We will need to watch that very carefully in future. Weighing in the balance some of the work done by the IFS, of which I am a council member, the persistent reductions in the social security spend over the past five years have been enormous. There is a lot of tension here and we have to do all that we can to remain positive and ambitious.
I concur with the view expressed by just about everyone in the consultation, including the noble Baroness who has just spoken, that 5% would have been a more ambitious target. That is an opportunity missed. I am trying to understand better the basis on which the target has been set. I think that the circumstances have changed a lot since 2010. Along with other colleagues, I was responsible for the implementation of the Child Poverty Act 2010, and I thought that it was the right thing to do. It was much more focused on money than it now is, so I can understand the coalition Government’s intention to try to broaden the approach to deal with some of the underlying consequences, but it is a bit disappointing.
I know that this is not easy but at paragraph 7.2 of the Explanatory Memorandum there is a confession that the Government,
“are not yet in a position”,
to take some of these new child poverty measures forward. Can my noble friend the Minister give us any expectation of when that work may be completed? He is right to say that we are all slightly blindsided by the fact that the British Household Panel Survey data finished in 2008, so we will probably have to wait until the end of 2015 to see the data that we really need. If that is the reason for the delay, I will understand; it might be impossible to make any sensible assessments until that point. However, that leaves it rather late to try to affect things by the end of fiscal 2020, which I suppose means achieving a target by 31 March 2021.
However, that is still a very short timescale. The legislature is right to say to the Executive, “There may well be compelling reasons why we are hastening slowly here”, but it is unfortunate that we still do not have a clear idea what the Government are really driving at—an argument reflected, reasonably, by the Scrutiny Committee. From a position of relative poverty standing at 17% in 2012-13—although it may be 27%, because of the difference in before and after housing costs—trying to get to 7%, or even 5%, over the period from 2017-18 to 2021 is a good trick, if we can do it.
Lord Farmer (Con)
My Lords, I believe that it is important to acknowledge that poverty rates, and persistent poverty in particular, will not be beaten down to the small number of 7% that we are talking about today—which is, rightly, the Government’s target—by means of financial assistance alone. The root causes need to be addressed in the total war against poverty that it is morally and pragmatically necessary to fight. The Joseph Rowntree Foundation, which my noble friend mentioned, and others have made the persuasive and well evidenced case that no country can afford to keep paying the costs of poverty, not least in terms of lost human potential. Therefore, I encourage the Government, in their various policies for tackling persistent poverty in children and adults, to come at this problem from as many angles as research has shown are necessary.
The 2014 social justice progress report, which has just been published, led on the recognition that family breakdown, divorce and separation, father absence, and dysfunction are drivers of poverty, not just a result of it. The report says that,
“family breakdown and other risk factors—worklessness, educational failure, mental health or drug and alcohol dependency—can feed off one another, compounding their effects, and leading to outcomes that can be very damaging for those affected and costly to society as a whole”.
Yesterday, the front page of the Times revealed that almost two-thirds of children felt that their parents’ break-up affected their GCSEs. One in eight had turned to drugs and alcohol to ease the stress, while almost a third were at risk of developing mental health problems in the form of eating disorders. Put that alongside the fact that two-thirds of 12 to 16 year-olds in the poorest households have seen their parents separate, and it becomes clear that the full effects of family breakdown will hit the poorest the hardest. Poor family functioning also gives children a very poor start in life, so this Government are to be applauded for their investment in the troubled families programme, about which we have just heard, as well as the Family Nurse Partnership Programme and other approaches aiming for the transformation of children’s life chances. This is the much bigger prize to be won, as opposed to merely moving their parents’ income across a somewhat arbitrary line.
However, we must not mistake the battle for the war. This Government have been courageous in putting family breakdown on the policy agenda for the first time ever but 40 years of negative family trends cannot be reversed in one term and with the somewhat restrained approach which we have seen to date. Divorce and separation carry a £46 billion price tag, yet only £7.5 million is spent on prevention. This is 0.02%, or less than one five-thousandth, of the costs that the policy is trying to save. Marriage is the far more stable family form yet the transferable tax allowance for married couples is worth a meagre £200 per family per year. This is a vital form of assistance to single-earner families who are not eligible for any childcare subsidy. It should be at least doubled for families with young children, so that they have a little more choice about mum and dad staying at home for the few short years of infancy. I believe that this would cost an additional £480 million per annum—money well spent.
Finally, the Government’s groundbreaking family stability review is deemed to warrant only a scant couple of pages in the social justice progress report. It must be published in full because of its fundamental importance for local authorities. They have to construct their own local child poverty strategies and urgently need to commission on the basis of the evidence contained in that review. I urge my noble friend to look again at the policy base for tackling family breakdown and consider strengthening it in the interests of hitting the persistent poverty target that he has set through these regulations.
Lord McAvoy (Lab)
My Lords, I open by getting it on the record that the last Labour Government lifted more than 1 million children out of poverty. In passing the Child Poverty Act 2010, Parliament enshrined into law the commitment of the then Labour Government to prioritise—a word that I will come back to—the fight against child poverty. A central aspect of this legislation dictates that appropriate targets be set for poverty reduction and that future Governments be held to account for their success in reducing the number of children and families living in poverty.
My noble friend Lady Lister of Burtersett mentioned one or two points made by the Secondary Legislation Scrutiny Committee. It is worth putting on record that its 11th report states:
“These Regulations are drawn to the special attention of the House on the ground that the explanatory material laid in support provides insufficient information to gain a clear understanding about the instrument’s policy objective and intended implementation”.
Lord Freud
My Lords, I wish that the noble Lord, Lord McAvoy, had not gone rather crudely political on what is a difficult area, especially as the facts that he used are simply not true. There has been an absolute cut in income for the richest 20% and an increase for the lowest, as has been put out by the Government. This is not the forum to have that kind of crude debate and I do not want that.
Some really important points have been made today. This is a difficult area at a difficult time. My noble friend Lord Kirkwood looked at the national debt and blanched, for very good reason. I look down my nose at him because, when looking at the performance of the last Government on poverty, one saw that they achieved the trajectory for people who were out of work, and they were able to do that through income transfers, but for people at the next level who were just in work and at the next level of income, there was very little movement. That is the problem that we are addressing. We are looking at a problem that cannot be solved just by moving money around particular areas. I commend the noble Lord to look through those figures, which are very interesting and illustrate the fact that we have got to the limits of what you can do just by income transfers, which is what the previous Government did.
Baroness Lister of Burtersett
I was not part of that Government, but will the noble Lord not accept that part of their child poverty strategy was also to move people into work? Part of the problem with the current situation, as the noble Lord, Lord Kirkwood, said, is that, although it may not be completely new, this is certainly the first time where more people in poverty are in work than out of work. We all agree that work is a good route out of poverty; but it is not necessarily a route out of poverty. Both Governments have faced the same problem of what you do with a labour market which is not providing enough to keep people out of poverty.
Lord Freud
I speak here from a somewhat privileged position, in that I advised the last Government in exactly this area and now speak for the current Government on it. So I am in a position—
Lord Freud
So I am in a position, slightly embarrassingly, to do this. The trouble with statistics is that you can get very confused by them. When you have had a massive increase in employment and a lot of people entering the market—2 million people into the private sector—you have some very substantial distorting data relating to those new entrants, which change the averages. You have also had massive changes because of the biggest financial crash since the 1930s—it used to be since the 1920s. I looked through the figures, and one-third of the fall in average income, for instance, can be roughly explained, as far as I can tell, by the reduction in bonuses in the City. Before one looks at these average figures, one really needs to dig under them to understand them. Otherwise, people in the Opposition will get into some cheap points that do not really stand up and which will just look foolish when people do the research properly, which they will do in the years to come.
I come off the generality into the specifics and the very difficult set of problems involved in solving child poverty, which we remain absolutely committed to. I will go through the points raised. The noble Baroness, Lady Lister, asked about the qualifying households. Surveys work by taking data from private households, so there are a relatively small number of children—it is a small number—who are not in there. They are, as she said, children in children’s homes, Travellers and one or two other categories, as she mentioned.
The after-housing-costs point has been very thoroughly debated. My noble friend will remember the thoroughness of some of those debates; the noble Lord, Lord Northbourne, was there too. Costs before housing are the set of measures in the Act, which is why we are using them. To change the measures would be to rewrite the primary legislation. Also, clearly, if you use a different base, you might think about what the right percentage figure is. That is the reason that we use before housing costs as a standard measure and as an international comparison. It was chosen because after housing costs reflect, or can reflect, choices that people make to spend more on rent or mortgages because that is what they value more than other things. Therefore there was a good reason that that set of measures was chosen.
Baroness Lister of Burtersett
I am sorry to intervene again. Before the Minister moves on, my understanding was that although the noble Lord, Lord Kirkwood, mentioned the delay because of the survey data, he was asking about what the actual measures are, and that is separate from the survey data. There was a big consultation about a set of measures that I personally did not think were measures of poverty. That is also what most people said in response so, fortunately, that time the Government did take note of the consultation and withdrew it. However, as the commission says, they are still distancing themselves from the measures that they have without coming forward with a more acceptable set of measures to complement them. The question is: what has happened to them? Have they got lost? There have been rumours about the Treasury having had something to do with it. What has happened to those complementary measures?
Lord Freud
In the long term, the Government think that we need a revised set of child poverty measures which would better reflect the evidence about poverty’s underlying causes and where we need to target action most—the kind of thing that my noble friend Lord Farmer, in particular, was talking about, but we are not currently in a position to put those new measures forward. As our consultation, which the noble Baroness mentioned, showed, this is a complex area and there are a variety of views. I am afraid that that is all I am in a position to say at this stage.
On the noble Lord’s point about how these measures are made up; clearly, both relative and persistent poverty levels depend in part on how both median income changes and how those with low incomes improve relative to the median. That is just how the Act was made. We spent an awfully long time debating during the passage of the Bill a general level of discomfort with just this mechanistic approach to this kind of measure. That is just how it is, and that is what the Act shows, but the fundamentals are that we need to maintain our focus on helping those on lower incomes, which means helping people into work—or more work, which is what universal credit will do—and in help with living costs.
Lord Kirkwood of Kirkhope
The Minister is being very helpful, and I do not want to detain the Committee. Presumably Section 6(3) of the Child Poverty Act 2010, as I understand it, requires the Government to set a figure, which has been set at 7%. However, that is all it does. Presumably, the Government, on cause shown if the evidence changed, could in subsequent years change that target. Am I right about that?
Lord Freud
I actually said something rather careful—that we will keep the evidence under review. We will get some up-to-date evidence next year about the persistent poverty target in relation to the relative poverty targets. Clearly, we will be able to monitor that and see how it moves, but we will have set the targets here in these regulations.
Lord Kirkwood of Kirkhope
The question I am asking is: are we stuck with the 7% target until 31 March 2021?
Lord Freud
The targets are in secondary legislation, and it would be up to a future Government, for which at this stage I cannot talk, to change secondary legislation. In practice, yes; it is a changeable target.
As I said in my opening remarks, we are committed to tackling child poverty, and we have a strong record. Relative child poverty is at its lowest level for 30 years—a fact that will perhaps surprise the noble Lord, Lord McAvoy. There are 300,000 fewer children in relative poverty since the election, and now 390,000 fewer children are growing up in workless families. We are especially committed to tackling persistent poverty and to breaking the cycle which sees poor children grow up to become poor adults. That is why I am proud to present these regulations before the Committee today, which set an ambitious persistent poverty target of less than 7% of all children in the UK, meeting our obligations under the Child Poverty Act 2010.
Lord McAvoy
The noble Lord did not respond to many of my points because, as I understand it, he dismissed them as being wrong. Can I respectfully ask him if he could help me by writing to me, outlining what parts of my speech were factually wrong and what the answers were to them? I am sure that he would not want to be thought to be making a cheap accusation—a cheap note—and I am sure that he will recognise his responsibility by writing to me, giving the details of what he said.
Lord Freud
I will, with great pleasure, note down and send to the noble Lord the figures, which I think I have used in the past, about how the income of the richest 20% has moved relative to the poorest 20% under this Government. I will provide him with those precise figures. I commend the regulations to the Committee.
Reports on Payments to Governments Regulations 2014
Baroness Neville-Rolfe
That the Grand Committee do consider the Reports on Payments to Governments Regulations 2014.
Relevant document: 11th Report from the Joint Committee on Statutory Instruments
The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Baroness Neville-Rolfe) (Con)
My Lords, I thank you for finding the time to consider these regulations. We tried for an earlier date, but the weight of business in the House meant that that was not possible.
I should first mention that we are introducing the regulations ahead of the next common commencement date in order to allow oil, gas and mining companies to align these reports with the calendar-year approach that they take to gathering information, making the work easier for them and avoiding reporting on a partial-year basis. The directive allows us the flexibility to implement prior to the transposition deadline.
The introduction of the regulations is important for the UK but also for the rest of the world. It is estimated that 1.6 billion people live in countries officially classified as rich in oil, gas or mineral deposits. Greater transparency will provide important information about the payments made: the income that a country gets from the extraction of natural resources. That may seem obvious, but that is not the case in every country around the world. This is a vital step in enabling citizens to hold their governments to account. Payments made to governments by companies active in the extractive industries have the potential dramatically to boost economic growth and to help resource-rich developing countries to pull themselves out of poverty.
The regulations demonstrate the UK’s commitment to transparency. We are taking the lead globally. The UK will be the first EU member state to introduce legislation to fully implement the requirement, although France is well on the way to doing so, Norway already has similar legislation in place, Canada is on track to implement a similar new law this year and we expect the USA to have rules in place next year.
Increased corporate transparency was a key feature of the UK’s presidency of the G8 in 2013. Following the discussions at Lough Erne, the official communique endorsed by our Prime Minister noted that the EU members of the G8 had committed to “quickly implement” the EU’s extractive reporting requirements. The UK is now delivering on that important commitment.
As noble Lords know, much of my career was in business. Transparency also makes good business sense: those who invest in companies must consider a wide range of issues and many investors will welcome additional information to enable them to make sound decisions. Increasing economic stability in countries where long-term investments are made is also good business.
The regulations before us are being considered following the agreement of the EU accounting directive. Chapter 10 of the directive deals with payments to governments by companies in the extractives industry. The UK took an active role in negotiating the detail of the new accounting directive. While recognising the importance of a strong and effective reporting requirement, we also recognised that the burdens imposed on industry by such a requirement needed to be proportionate. Industry and civil society representatives were closely involved throughout the negotiations for the directive. I am pleased to say that this close working relationship has continued as we developed the regulations that we are considering today.
I will now explain some of the detail of the regulations. As I have said, they implement part of the EU accounting directive and many of the requirements are fixed by that directive. Companies must report on payments made to all governments at all levels—national, regional and local—as well as to government agencies and state-owned companies. The report must detail information of the payments made on a project-by- project basis. During negotiations, we ensured that the definition of “project” was one that would reflect the ways in which industry manages and reports on its business activities.
The payments to be reported are listed within the regulations and include production entitlements, royalties, licence fees and payments for infrastructure improvements. The directive does not allow for any exemptions from reporting if a company is within scope. Companies are required only to report payments over the threshold of £86,000. The regulations also make clear, however, that one payment cannot be split to avoid the reporting requirements.
In many countries, payments to governments may not always be in cash; they may be in kind. Such payments are common and an in-kind payment could include improvements to infrastructure by building a new road, or perhaps a hospital. Such payments have to be included and, for the purpose of the report, a value must be attributed to any in-kind payment. To avoid doubt, the basis for the value given must also be set out. The directive requires all large companies and public interest companies active in the extractives sector to prepare reports. The transparency directive applies the same requirements to all companies listed on the main regulated stock markets in the European Union. This will ensure a level playing field, in that foreign listed companies also have to report even if they are not based in the EU. The Financial Conduct Authority, which is responsible, is currently considering rules to implement the requirements of the transparency directive.
Our consultation also considered the areas where the directive offered flexibility. These areas included the date of the first reporting period, the period allowed for the preparation and publication of reports and the reporting format. In line with the UK approach to improving transparency, companies will be required to prepare reports for financial years that begin from 1 January 2015—this January. The first reports will therefore be published in 2016.
The reports do not form part of the accounts but form a separate record of taxes paid directly to each level of government in each country around the world where they operate. The information will be set out project by project, so it will be possible to see the taxes paid directly to an individual country as a result of removing natural resources from the ground. The reports will have to be sent in two months after the deadline for filing company accounts—that is, 11 months after the end of the financial year, or six months for listed companies. This will allow sufficient time to compile the appropriate information without putting extra pressure on business at the time when accounts are due. We also want the reporting format to be as simple as possible. Companies House is working closely with industry on the format of the report. Requiring electronic reporting will facilitate the efficient receipt and sharing of data contained within the reports.
The Companies Act requires companies to report on a wide range of issues. In many cases, Companies House relies on public scrutiny of the register to ensure that company information is up to date. This is the approach that we are taking to achieve compliance for reporting payments to governments. We want to ensure that all companies are able to report in a simple and effective way.
If a company fails to prepare and publish a report or delivers a factually incorrect one, the registrar will write to ask why. There is no automatic penalty imposed as it may be that a company did not actually make relevant payments to governments in the year in question, or they may have been included in a parent’s consolidated report. The company will be given the opportunity to comply with the requirements, but if they fail to do so then the law sets out a penalty regime. The penalty regime for complying with the regulations has been carefully considered. The regime is consistent with that for similar reporting requirements in the Companies Act 2006. Failure to prepare and publish a report could result in either a fine or a prison sentence—so, a criminal penalty.
There is also provision for a review of the regulations. We will report within three years on whether they are efficiently achieving the intended objectives. This report will also enable us to feed into the European Commission’s own review of the directive, which is scheduled to be completed by July 2018.
Industry recognises the importance of reporting payments made to governments. Those who responded to our consultation clearly stated that transparency was an important tool in improving governance as well as fighting against poverty. Many companies already collect this information and make it available on their websites, and they find that investors welcome it. The Reports on Payments to Governments Regulations are an important step in improving global standards in transparency reporting in extractive industries, and I commend them to the Committee.
Lord Young of Norwood Green (Lab)
My Lords, I welcome the report from the Minister on what I agree is an interesting and important introduction of new legislation, and I welcome the speed with which the Government have operated.
Most of the questions that I started to write down have been answered by the Minister. I was interested in what the penalties would be, and we got some additional information on that. In the conclusion of her contribution, the Minister referred to a three-year report. I wondered whether any interim information would be published about how companies are beginning to comply.
The other thought that crossed my mind—this is not an attempt to launch an impossible question—is how this legislation, as it seems to me it did when I checked, complies with the UN Ruggie principles. I was hoping that the Bill team were not going to look puzzled; given that these are principles that they ask businesses to enact in relation to human rights and corporate governance, I would have thought that they would have met with them. I ask that as a matter of interest because the Ruggie principles are important.
We are willing to introduce this legislation. The Minister is right that it will make a difference as the sums of money involved around the world are enormous. Hopefully, it will make a difference in giving further information to investors before they make up their mind about the ethical nature of the company that they are about to invest in. Apart from awaiting answers to those questions, I am happy to support this statutory instrument.
Baroness Neville-Rolfe
My Lords, I thank the noble Lord for his welcome—I welcome the welcome. There seems to be fair measure of agreement on the way that we have implemented this measure, including the penalty regime and the ultimate sanction of criminal penalties. I very much agree with his point about investment—that having ethical information is increasingly important for investment and the identification of, if you like, political risk.
Obviously, I very much welcome the point made by the noble Lord about the Ruggie principles, in which I certainly took an interest in my former life. But I am afraid that he has managed to ask us a question which we cannot answer. Therefore, I will write to him. My guess is the answer will be a resounding yes. There are very few things that I have introduced that seem to be closer to those principles. I will confirm that.
On interim information, we will start to see information published from 2016 at Companies House. We are not planning a formal review until 2017 but, given the interest in transparency and development, civil society certainly will be looking to see what is happening in this important area, and we will begin to get information coming through. I think that the effect in the countries of the information being available online should help to encourage regimes to use the money being given to them, either in taxes or in kind—as I have said, that is important—and will help citizens in developing countries to hold the politicians to account. That is another benefit.
The regulations mark a step change in transparency reporting. They were agreed during our presidency of the G8 and it is always good to see progress during these important leadership opportunities. It is also good to see the UK at the forefront of this change. Once payments to governments are available, citizens will be bringing governments to account to a greater extent. The fact that this is not just a UK initiative but an EU directive with changes also taking place around the world is very encouraging. I urge the Committee to support the regulations and I beg to move.