Grand Committee
Arrangement of Business
The Deputy Chairman of Committees (Viscount Ullswater) (Con)
My Lords, if there is a Division in the House, the Committee will adjourn for 10 minutes. It is unlikely, but I ought to say that.
Emissions Performance Standard Regulations 2015
Baroness Verma
That the Grand Committee do consider the Emissions Performance Standard Regulations 2015.
Relevant document: 22nd Report from the Joint Committee on Statutory Instruments
The Parliamentary Under-Secretary of State, Department of Energy and Climate Change (Baroness Verma) (Con)
My Lords, the regulations before the Committee today are the implementing secondary legislation for the emissions performance standard. The EPS was introduced by way of the Energy Act 2013 and constitutes one of the measures that collectively make up the Government’s programme of electricity market reform.
Noble Lords will be aware that substantive EPS policy—including its application to any new or existing fossil fuel plant—is established by way of the Energy Act 2013. The regulations before us today are limited to making the practical arrangements associated with the EPS legislation contained in the Act. They set out the application of the EPS in cases permitted by the underlying legislation, and, for England alone, put in place the practical arrangements for implementing and enforcing the EPS. We expect that the devolved Administrations will also soon bring forward legislation implementing the enforcement provisions for the EPS.
By way of reminder, the EPS acts as a regulatory backstop to the amount of carbon dioxide emissions that new fossil fuel plants can emit. To clarify, a “new plant” is an electricity generating station that secures development consent after the EPS came into force on 18 February 2014. The EPS is part of the Government’s strategy to transition to a low-carbon electricity system at the lowest cost to consumers, while maintaining security of supply. It works to complement our existing planning policy, which prevents any new coal-fired generating station being approved unless it is equipped with full-chain carbon capture and storage technology. In combination, these measures ensure that any new coal plant will be equipped with, and must use, CCS.
The power to make these regulations is contained in the Energy Act 2013. Part 1 of the regulations establishes their extent and application. Part 2 makes provision for the additional application of the emissions limit duty, which is the legal duty to conform to the requirements of the EPS, and the modification of that duty in specific circumstances. It will apply throughout the United Kingdom. Part 3 sets out the monitoring and enforcement arrangements that will apply in England. I will now describe the operation of these parts in more detail.
As an exception to the EPS applying only to new fossil fuel plants, Part 2 of the regulations clarifies the limited circumstances in which the EPS will be applied to an existing coal plant. The regulations provide that where an existing coal plant installs or replaces a main boiler—so effectively extending the life of the plant by a period comparable to the operating life of a new plant—that plant is treated as if it were a new plant and is therefore subject to the EPS. This is consistent with the approach set out in the Act.
Part 2 also sets out the circumstances in which a plant’s annual emissions limit will be modified. Where a plant commences or ceases operation part of the way through a year, the emissions limit is amended for that year to take into account the portion of the year to which the EPS applies. Similarly, if the installed generating capacity of a fossil fuel plant changes, its emissions limit is to be adjusted to reflect the new situation.
Part 2 also establishes arrangements associated with the three-year carbon capture and storage exemption from the EPS, provided for in Section 58(1) of the Act, the purpose of which is to provide plants adopting CCS with some flexibility during the commissioning of the full CCS chain. The regulations clarify that the exemption applies only to those generating units of the fossil fuel plant equipped with a full CCS chain.
Part 2 also sets out the methodology for calculating emissions arising from qualifying combined heat and power plants, which provides that the emissions associated with the production of useful heat are not taken into account for EPS purposes. This is to ensure that the EPS does not become a barrier to the development and deployment of good-quality combined heat and power. Finally, Part 2, together with the relevant provisions in the Energy Act 2013, provides that where a power plant uses fuel derived from fossil fuel that is gasified off-site, the associated emissions will be taken into account when the relevant power station’s total emissions are calculated. This is to avoid possible circumvention of the EPS.
Part 3 establishes the process by which the monitoring, reporting and enforcement of the EPS will take place in England. Outside England, the monitoring and enforcement obligation will fall to the relevant authority within the territory. These arrangements have been developed in close co-operation with the Environment Agency, which will act as the enforcement authority in England. In designing this framework, we have sought to minimise any regulatory burden by basing it on and tying it to the arrangements already in place for the EU’s Emissions Trading System, which is also administered by the Environment Agency.
Before commencing operation, a plant’s operator will be required to declare its emissions limit—calculated in accordance with Section 57 of the Energy Act—to the Environment Agency. The operator will then be required to provide emissions data where the plant’s total annual carbon emissions, as measured and reported under the EU ETS, exceed the plant’s EPS emissions limit. This approach removes for many plants the need to do significant extra regulatory work, as carbon emissions data already have to be compiled for the EU ETS. Where the reported EU ETS emissions for a plant exceed the plant’s EPS limit, the plant operator will be required to provide a further breakdown of carbon dioxide emissions, identifying those that are relevant for EPS purposes and those that are not. This information will allow the Environment Agency to verify whether the emissions limit for the plant has been breached in any particular period.
Power plants throughout the UK have a strong track record of compliance with their regulatory responsibilities, and many of them took part in our consultation on these regulations last year. We therefore do not expect that there will be breaches of the emissions limit duty. However, in the event that such a breach were to occur, these regulations provide the Environment Agency with the ability to take strong, proportionate enforcement action, ensuring that no plant breaching its emissions limit can benefit commercially from that breach. The Secretary of State may issue enforcement guidance under the regulations that can set the parameters of any penalties to be applied by the Environment Agency in cases of breach by a plant operator. An appeals route is also provided.
My department has worked in close consultation with the devolved Administrations in designing the monitoring and enforcement regime set out in this instrument with a view to ensuring that, consistent with the government policy, a standardised approach to administration of the EPS is applied throughout the UK. I commend these regulations to the Committee.
Baroness Worthington (Lab)
My Lords, I am grateful to the Minister for introducing the regulations for debate this afternoon. They are implementing regulations that relate to the part of the Energy Bill where an emissions performance standard was to be set for new build of fossil fuel generation. We had a lengthy debate during the passage of the Bill about the EPS regulations and the role that they need to play. It was clear that the Government had decided that the only role that EPS could play was for new build and would not consider the role of an EPS for existing power stations.
We have raised this on several occasions, and we will continue to raise it, because the context for the regulations is that there is very little appetite for the building of new coal-fired power stations in the UK—in fact, there is very little appetite for building any new power stations in the UK if they do not have a contract for difference, which comes from another part of the Energy Bill. So there is potential for a lock-in to existing thermal assets for some time to come. We have always understood that the EPS is a backstop measure to underline and further support other interventions that the Government are planning to try to meet challenging carbon budgets and decarbonisation targets that we expect to be set for 2030.
The crucial question to consider on whether the Government have got the EPS regulations right is the extent to which that back-up—that belt and braces approach—is also needed on existing plant. I say that for a number of reasons. Partly, it is because in the recent capacity market auctions, a large number of plants bid for those capacity contracts and a large number of existing players won contracts, including a significant amount of capacity of old coal. Nine gigawatts of old coal received a contract through that mechanism. That meant that a large number of potential new build, more efficient gas stations, did not receive a contract, so the net effect of that intervention into the market has been to consolidate the existing plant in the market and to squeeze out investment in potentially cleaner, more modern, more flexible and more efficient stations.
We think that that is regrettable and that the situation needs clarity. We have cross-party support. On 4 February, all three leaders of the major parties signed up to a cross-party recommendation that we should take bold action on climate change,
“to accelerate the transition to a competitive, energy efficient low-carbon economy and to end the use of unabated coal for power generation”.
That is a welcome statement. From our side, we do not see a role for unabated coal going forward and we are committed to decarbonising our electricity system by 2030. Within that, we absolutely want carbon capture and storage to play a big role.
We have to look at how the combined elements of the energy market reforms that were accepted in the Energy Bill work together to deliver that aim. That is the crucial question. We must view these EPS regulations in that light. The truth of the matter is that the Government have insufficient levers at their disposal to ensure that we see a steady move away from unabated coal towards carbon capture and storage and cleaner gas generation. The EPS provided one potential lever, but the Government have chosen not to use it. The regulations highlight that it continues to apply just to new build and not to existing plant.
I do not want to have a lengthy debate about this, but I wanted to make that context clear. We cannot consider these instruments in isolation; we must look at the net effect of how they interrelate. At the moment we have a set of policies that are allowing old coal to persist. The only mechanism that the Government have to hold back coal is the carbon price floor. Indeed, that is referenced in the supporting notes to the regulations: the EPS is seen as a back-up for the carbon price floor.
As we all know, the carbon price floor was frozen merely a matter of months after it had been introduced, so the escalator that the Government expected it to follow—the steady increase in its level—has been stopped. It will now be frozen until 2020. DECC seems to continue to believe that at some point in the future we will return to an escalating carbon price floor and that it is this that will drive unabated coal off the system. However, how politically feasible is it that that price mechanism will return to that trajectory?
Baroness Verma
My Lords, I am extremely grateful for the general support of the noble Baroness for the regulations. She is right that we did discuss it at great length at various stages of what became the Energy Act and within the Infrastructure Bill—so the debate has been well aired. It is an important backstop measure that complements the wider range of interventions that act to secure and decarbonise our electricity supplies as we work towards a low-carbon future.
The noble Baroness touched on a number of issues and I shall try to go through them—but, as with all things, if I feel when reading Hansard that I have missed something out I undertake to write to her. She asked about the capacity markets and felt that the market had squeezed out gas. We have always made it clear that the capacity markets would be technology neutral and that we needed to make sure that there is competition built in, so that we get best value for the consumer. We project that coal will eventually come off and that we will have far less dependency on it, given that we have the potential for the exploitation of shale and other technologies. We see coal playing less of a role going forward. However, it is important to ensure through the measures we are taking that we do not put such a cost pressure on the consumer and that we have security of supply because it is so necessary for us to demonstrate to the public that the Government have taken all precautions to ensure that the lights stay on. So I think that the noble Baroness was being slightly unfair. The capacity market brought on a lot of different technologies at a cost that was driven by competition, which gives the consumer better value for money.
The noble Baroness also asked us to look at the future of coal. I have just touched on that. Our analysis is very much in league with a lot of other analysis that has been given to us, which suggests that unabated is expected to account for only 1% of total electricity generation in Great Britain by 2025, and will decline even further.
The Duke of Montrose (Con)
I thank my noble friend for giving way. Are the Government taking a view on when they think carbon capture and storage will become viable at a reasonable price? There were attempts to put out pilot projects, one of which was Longannet in Scotland, which was found to be an uneconomic proposition. I gather that it is now proposed to close that power station.
Baroness Verma
My Lords, my noble friend may be aware of two projects that we are funding—one at Peterhead and one at White Rose. They will become the world’s first commercial-scale gas CCS projects. They are still being developed. If my noble friend will allow, I will give him a fuller response. We are demonstrating that we are leading in the world with CCS. Investing £1 billion shows our seriousness about taking CCS forward.
I shall continue with the questions raised by the noble Baroness, Lady Worthington. She referred to the carbon price floor, saying that there was a projection and a sort of wish list that it would rise. We all know that the EU ETS has to be reformed properly. None of us expected the carbon price to fall as much as it did. However, we are where we are with it. I was at a European Council meeting a couple of weeks ago where there was broad agreement that we needed to look at reforming the EU ETS to make sure that it better reflects its participatory role in ensuring that countries that do not have an extreme tendency to reduce their carbon footprints will be encouraged to do so. There is broad agreement that it has to be reformed. That will play a large part in how we respond to the discussion around the carbon price floor.
Another important point is that we must remain competitive. It has always been key that as a country we should not out-compete ourselves by driving ourselves to reduce carbon emissions at a pace while others use them to be more competitive. We need to reach a fine balance, and it is important that in pushing for reform we ensure that the measures we take, internally and domestically, give great examples for others to follow. That is my response to the noble Baroness.
Baroness Worthington
Before the noble Baroness moves on to the next topic—perhaps the Minister can write to me if it is easier—to get to that projection of only 1% of electricity coming from unabated coal by 2025, what is the carbon price assumption in that model? Does it start from the current £18, where it is frozen until 2021, and rise from there, or does it go back to its original trajectory, as was published by the Treasury and others?
Baroness Verma
My Lords, I think it would be beneficial for me to write to the noble Baroness, because I do not want to give her an assumed figure that turns out to be misplaced.
My final response to the noble Baroness concerns the conditions under which the EPS would be suspended. The Government have published a policy statement that sets out the conditions that must be met for a suspension to be made. Details of any suspension must be laid before Parliament. Again, if the noble Baroness and my noble friend find it helpful to have further details on that, I would be happy to put them in the letter that I will send to the noble Baroness on the other issues.
I agree with the noble Baroness that by and large, politically, the three major parties have come to an agreement. We need to work together to reduce the carbon emissions of this country to meet our own goals, but it is important that we send out consistent messages around the policies that we are working on. The Energy Act has driven that and shown that, working together, investors have come with confidence to invest in the UK. I end by thanking noble Lords for their positive remarks, and commend the regulations to the Committee.
Children and Young People (Scotland) Act 2014 (Consequential and Saving Provisions) Order 2015
(9 years, 9 months ago)
Grand CommitteeRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Lord Wallace of Tankerness
That the Grand Committee do consider the Children and Young People (Scotland) Act 2014 (Consequential and Saving Provisions) Order 2015.
Relevant document: 24th Report from the Joint Committee on Statutory Instruments
The Advocate-General for Scotland (Lord Wallace of Tankerness) (LD)
My Lords, this draft order is made under Section 104 of the Scotland Act 1998. In summary, it proposes to do three things. Before explaining them in some—I am afraid—unavoidable detail, I would summarise them thus. First, we propose to amend Section 44 of the Children (Scotland) Act 1995 for the rest of the United Kingdom, with a related saving provision. Secondly, we propose to amend the definition of “child” for the rest of the United Kingdom in relation to the amended Section 44. Thirdly, we wish to make a minor corrective amendment to the definition of “secure accommodation” in the Criminal Procedure (Scotland) Act 1995 for the rest of the United Kingdom.
On the first of those, Section 44 of the Children (Scotland) Act 1995, which I shall refer to as the 1995 Act, makes provision to prohibit the publication of proceedings at children’s hearings and certain related proceedings before a sheriff. Section 44 was repealed, as it extends to Scotland, by the Children’s Hearings (Scotland) Act 2011 and replaced for cases going forward under that Act by a similar provision made in Section 182 of the 2011 Act. However, it is now clear that Section 44 is still needed to ensure that it continues to be an offence for a person to publish relevant information in relation to historic children’s hearings cases dealt with under the 1995 Act, and cases which began under the 1995 Act system and continue to proceed under that Act by virtue of the transitional arrangements.
The draft order is made in consequence of the Children and Young People (Scotland) Act 2014, which I shall refer to as the 2014 Act and which now reverses for Scotland the unintended repeal of Section 44 of the 1995 Act. I wish to reassure the Committee that while it is evident that the repeal of Section 44 was an error, no child’s welfare was jeopardised by it as the repeal was not commenced when the rest of the 2011 Act was commenced—the error having been identified before the commencement order. The 2014 Act also amends Section 44 for Scotland so that, going forward, it applies only to exclusion order proceedings under Section 76 of the 1995 Act. This is required as those proceedings remain under the 1995 Act and are not covered by the 2011 Act.
Given the United Kingdom extent of Section 44 of the 1995 Act, the draft order is required to give effect in the rest of the United Kingdom—that is, outwith Scotland—to both the amended version of Section 44, to restrict its future application to exclusion order proceedings under Section 76 of the 1995 Act, and to save the former version of Section 44 for both historic and ongoing children’s cases under the 1995 Act.
The second matter proposed is a related amendment to the definition of a child in Section 93(2) of the 1995 Act. Section 52(b) of the Criminal Justice (Scotland) Act 2003 made a change to the definition of child in Section 93(2) for the purposes of Section 44 of the 1995 Act, so that it was extended from persons under the age of 16 years to persons under the age of 18. However, that change was not extended to England, Wales and Northern Ireland. Just as the draft order seeks to bring the existing parallel texts of Section 44 into line, it seeks to have the same definition of child for Section 44 purposes for all jurisdictions.
Thirdly, the draft order also corrects a minor error made by the Section 104 order made in consequence of the 2011 Act. The previous Section 104 order amended Section 44(11) of the Criminal Procedure (Scotland) Act 1995 by substituting the definition of “secure accommodation” with a new definition that took into account the most up-to-date statutory cross-references for Scotland, England, Wales and Northern Ireland. However, the substituted definition contains an undefined reference to the “2000 Act”. The 2014 Act corrects this for Scotland by clarifying that the reference is to the Care Standards Act 2000. The draft order makes the same clarifications for the other jurisdictions.
This order again demonstrates the Government’s continued commitment to working with the Scottish Government to make the devolution settlement work. I can confidently say that this will be the last such order in this Parliament, so it may be for the interest of the Committee to note that 45 orders have been made under the Scotland Acts of 1998 and 2012 in this Parliament, since May 2010. In your Lordships’ House, 27 of these have been subject to the affirmative resolution procedure. There was an extra one in the other place which related to bonds, and therefore did not require to be affirmed by your Lordships’ House, and 17 of them were subject to the negative resolution procedure. That is indicative of the way in which the devolution settlement is flexible, and indeed of the commitment on the part of the Government to work to ensure that legislation passed in Scotland is applicable in other parts of the United Kingdom and that the devolution settlement works.
With that, I thank the officials in the Scotland Office, in various departmental offices and, not least, in my own office of the Advocate-General, for all the work they have put into these, as well as officials in the Scottish Government, because it requires a lot of co-ordination to get these orders to be brought forward and there has been a lot of co-operation here. I also thank the noble Baroness—I think this is the second time she has done a Scotland Act order—and her other colleagues, not least the noble Lord, Lord McAvoy, who I saw up until just a moment ago was engaged in the Chamber on the Corporation Tax (Northern Ireland) Bill. I appreciate the constructive co-operation they have given, and with those words I commend the order to the Committee.
Baroness Smith of Basildon (Lab)
My Lords, I thank the Minister for his explanations, which are helpful. We support what seems to be the tidying up and correcting of some anomalies in the legislation. I also thank him for his generous comments. I know that he will have been somewhat surprised to see me here again today, having been expecting my noble friend Lord McAvoy, who discovered at the last minute that he was unable to be in two places at once. His skills extend some distance, but he could not quite achieve that. I will pass on the noble and learned Lord’s comments to him, and I know that he will welcome them. He has always found the Minister to be very co-operative and willing to engage in discussion of issues, which is appreciated. Again, the Minister will be surprised to see me—this is the second order I have done. My link is that I have a Scottish mother and I spent a lot of my childhood in Scotland; that alone does not qualify me, but I hope that it helps.
I have a couple of questions on this. I appreciate that Section 44 was repealed in error and that this is a step to correct that—to which we give our full support. When was it recognised that the mistake had been made? Was the issue ever raised in debates as the Bill was going through? The comments the noble and learned Lord made were helpful when he said that the repeal was not commenced, so no child had suffered as a result of that. That is clear, and it is helpful to have that information. However, for it not to be commenced, it must have been recognised very soon afterwards at least that there was a problem and that it should not have been repealed. Perhaps the Minister can help us by saying when that came to light; that is the only question we have on that. Overall, we support the order before us today.
Lord Wallace of Tankerness
My Lords, I thank the noble Baroness for her kind comments. I, too, know the tremendous talents of the noble Lord, Lord McAvoy, but being in two places at once probably defeats him.
The noble Baroness asked when it was recognised that a mistake had been made. Clearly, it was not recognised during the passage of the Bill, otherwise up until the final stage 3 in the Scottish Parliament it would have been possible to move an amendment. However, it was recognised before the Act was commenced in 2013. The error was noticed between the passage of the 2011 legislation and its commencement: therefore, when the commencement was done, it did not commence the repeal provision. When the Section 104 order, which was consequential to the 2011 Act, was brought before this Parliament, the error had been noted by then, so in no way did we seek to extend the appeal provisions to England, Wales and Northern Ireland. I repeat the assurance that because of that and because of the lack of commencement, no child has had their interest jeopardised.
Community Radio (Amendment) Order 2015
Lord Gardiner of Kimble
That the Grand Committee do consider the Community Radio (Amendment) Order 2015.
Relevant document: 25th Report from the Joint Committee on Statutory Instruments
Lord Gardiner of Kimble (Con)
My Lords, the Government are committed to a strong and vibrant community radio sector. Since the sector’s establishment in 2004, it has developed into an important and integral part of the modern radio landscape—valued by the communities that it serves and reflecting a diverse mix of cultures and interests.
Stations range from those targeted at a particular community, those run for our forces and those targeted at students and hospitals to stations serving small and rural communities. Community radio stations are required, by legislation, to be run by not-for-profit organisations and to provide original, distinctive and, crucially, local output. Two hundred and twenty-three stations are currently on air. This is made possible by the huge amount of effort and support that stations receive from their army of volunteers—on average, the equivalent of 214 volunteering hours per week, every week. Community radio also attracts young volunteers, who gain really valuable skills.
Although demand for community radio licences up and down the country has remained high, the position for existing licences has not been easy. We have received representations that community stations have had to turn down sponsorship—not advertising—from local businesses. For the 19 stations not allowed to take any income from sponsorship or advertising, such as Swindon 105.5, the issues are particularly acute.
The other concern expressed was the position of stations launched in 2005, whose licences would, under the current law, start to expire from October this year. Quite rightly, community radio stations wanted to know whether they would be able to renew their licences or whether they would need to go through an open competition for a new licence.
In the Connectivity, Content and Consumers strategy paper, published in July 2013, the Government said that they would consult on possible changes to the restriction on commercial funding of community stations. We also said that we would look at whether there was a case to allow community stations that continued to fulfil their remit to have licences renewed for a third five-year period. We carried out this consultation between February and April last year and received more than 100 responses. We published our response to the consultation in January this year. It is fair to say that there was strong support from community radio stations for the changes, although some were concerned that the changes might affect the characteristics of community stations. RadioCentre and commercial radio stations were, overall, opposed to the changes. In essence, they wanted to maintain the precautionary approach taken when the Community Radio Order was adopted in 2004.
Given the lack of common ground, we took further soundings from both RadioCentre and the Community Media Association before publishing the conclusions to the consultation. I acknowledge the frustrations of the community radio sector about the delay, but it was important that we should make sure that, in setting the new arrangements, we got the absolutely right balance between the legitimate needs of both sides.
We need to ensure that there remain protections for the smallest independently run commercial stations, and we have reflected that in our conclusions. We therefore believe that the so-called “absolute rule”, which enables Ofcom to place restrictions on some community stations, preventing them receiving any income from sponsorship or advertising, should be modified but not removed entirely. Instead, the order introduces a new arrangement allowing all community radio stations, including the 19 stations currently subject to the “absolute rule”, as a minimum to raise up to £15,000 per year from those commercial sources. This figure represents a quarter of the average revenues for community stations. Stations not subject to restrictions will be able to raise 50% of income above that level from commercial sources. This increases the headroom for all community stations, but helps most those community stations with smaller average revenues.
Baroness Thornton (Lab)
I thank the Minister for that extremely clear introduction to the issue. By and large, we welcome the order. The Minister is quite right to say that it is modest. I would like to press him on the fact that it perhaps needs to be less modest.
I come at this partly from having been an activist in the 1980s on community radio, where I worked with the sociologist Michael Young, who believed that there was great scope for community-controlled radio stations in tower blocks with common aerials. He was technically right: getting a licence from the Home Office, as was the case then, was impossible. It took a very long time from then, until about 10 or 15 years ago, for community radio to become truly accepted.
Community radio is a great thing and we should be helping it to happen. It is clear that Article 5(5) is the important one: it gives provision for holders of community radio licences to extend their licences twice; provision to allow one organisation to be the holder of a local digital television programme licence, as well as a community radio licence; and provision to allow certain community radio stations to receive income from the takings of advertising and sponsorship of their programme output, when they were previously prevented from doing so. I remember when this legislation went through your Lordships’ House; I thought it was restrictive then and I think it is still restrictive.
I point the noble Lord to the Government’s notes—the Explanatory Memorandum. Paragraph 7.2 states:
“Notwithstanding this apparent success”—
of community radio stations under the current regime—
“many community radio stations are struggling to build a long term sustainable business model”.
The question that we need to ask is: will the £15,000 limit help to make community radio stations more sustainable? Was there an examination of the business case for this? How will that help them?
The Community Media Association believes that this is a modest step forward but not necessarily one that will provide community radio stations with sufficient. Why is there a limit of £15,000 and why set the level at 50% for community radio stations earning revenues through advertising and sponsorship? Back in 2003, the Everitt report recommended that there should be greater flexibility and I wonder why the Government have not picked up those recommendations and run with them. Those are my questions to the Minister but, as I say, they are within the context of supporting the order as a further step in recognising the important role that community radio plays in our local communities. In Bradford, we have Sunrise Radio, which is absolutely wonderful and brilliant.
Lord Gardiner of Kimble
My Lords, it is a pleasure to reply to the noble Baroness because she clearly knows very much more about these matters from her long-standing experience of activism, which always helps to colour the debates. I am delighted by her welcome, and I do identify the noble Baroness as an activist. From reading about the many community radio stations that exist up and down the country, I know that that activism has been of great benefit to the communities with which it has been seeking to communicate. On the point about tower blocks, one of the issues that we have always had is how to retain a sense of community and communicate well there. The arrival of community radio stations has been of great social benefit to those communities.
In terms of building a sustainable business model, there have been discussions with the commercial sector and the Community Media Association about the £15,000 and the 50%, and about trying to get the balance right. Like all these things, in the end it is about where to strike the balance. The Government felt that we should move in a direction that we thought would not adversely impact on the commercial radio sector, but would very much help the community radio sector to prosper and enable it to raise funds. To answer the question: it was to try to keep some distinction of retaining this not-for-profit, for-social-gain community sector, but wanting it to prosper more and to have the ability for revenue generation. The £15,000 represents a quarter of the average revenue of a community radio station, and we thought that that was an appropriate level at this stage. No one wants to rule anything in or out; we have all moved since 2004 into thinking that we need to do a bit more to help the community radio sector. That is the Government’s move, and, as I say, I am most grateful to the noble Baroness for her welcome of the provisions.
The main point is that I am sure that any future Government will want to keep these matters under review; that would be the appropriate response. We want to see how the provisions bed in. We want community radio to prosper. When I received my first brief on this matter, there were 219 community radio stations on air; by the time I had my final briefing, there were 223. That shows that this sector commands the attention of, and is of great interest to, the communities which they serve, and I wish it well. In the mean time, I commend the order.
Occupational Pension Schemes (Charges and Governance) Regulations 2015
Lord Bourne of Aberystwyth
That the Grand Committee do consider the Occupational Pension Schemes (Charges and Governance) Regulations 2015.
Relevant document: 22nd Report from the Joint Committee on Statutory Instruments
Lord Bourne of Aberystwyth (Con)
My Lords, I am satisfied that this instrument is compatible with the European Convention on Human Rights. The instrument was passed by the House of Commons on 3 March 2015 and, subject to your Lordships’ approval, will come into force on 6 April 2015.
As noble Lords will be aware, automatic enrolment has got off to an excellent start. We now have more than 5 million people enrolled in a workplace pension scheme. As we move towards our goal of automatically enrolling 10 million workers, we must be sure that their pension savings are invested in well governed schemes with fair and reasonable charges. The regulations will protect members in occupational schemes from high and unfair charges and will introduce new governance standards. The Financial Conduct Authority will introduce similar provisions for workplace personal pension schemes, which will come into effect on the same date.
First, the regulations introduce measures to control the level and types of charges in pension schemes used by employers to meet their automatic enrolment duties. There will be a cap on charges in the default arrangement within these schemes, protecting savers who have had little or no engagement with their pension savings.
Broadly speaking, a default arrangement is the arrangement into which a member contributes if they have not made an active choice about where their savings should be invested. Historically, not all schemes have had that sort of default arrangement. The regulations therefore set out two further tests to identify arrangements which are used in a similar way to the “true” defaults. In order to ensure member protection, they, too, will be subject to the cap.
The charge cap will be set at 0.75% annually of funds under management, or an equivalent combination charge. The regulations also restrict the charging structures that schemes may use in their default arrangement. Schemes must use either a single funds-under-management charge or a funds-under-management charge in combination with either a contribution charge or a flat fee. The cap covers all costs and charges relating to general scheme and investment administration. Transaction costs, along with a small number of other costs—including those associated with providing death benefits—are not included. The regulations provide two methods by which trustees can measure whether charges in their default arrangements have complied with the cap. They may decide which of these methodologies to use, depending on how they levy charges on members.
The regulations also ban active member discounts from April 2016. By these, we mean charges imposed on a member’s pot which are increased when they stop contributing to the scheme—for example, because they leave their job.
All of these measures on charges apply to occupational schemes offering money purchase benefits which are used by employers to meet their duties under automatic enrolment. They do not cover those schemes which include a promise to the member about the benefits that they will receive.
Secondly, these regulations set out minimum governance standards for relevant occupational pension schemes. These require trustees or scheme managers to ensure that default arrangements are designed in members’ interests and kept under review. They also require that core financial transactions are processed promptly and accurately, that trustees report on the level of charges and costs borne by scheme members, and that they assess the value of such costs and charges.
Baroness Drake (Lab)
My Lords, there is much to welcome in these regulations, including the banning of active member discounts—what I prefer to call “inactive member premiums”—where charges increase when a member stops contributing; the capping of charges at 0.75% in the default arrangements; that the cap will apply at the level of the individual member; and a set of minimum standards for governance, including the oversight of master trust multiple employer schemes where employers are not all part of the same corporate group. As I said, there is much to welcome.
When the staging of automatic enrolment is completed in 2018 and some 8 million to 9 million people will be newly saving, or saving more, most of them will not have made an active choice about their scheme or their investments. Many employers will be making most of the key decisions about their workplace schemes but they lack the capability and/or the incentive to ensure that workers receive value for money. Therefore, neither employers nor employees can be expected to drive competition—a proposition stated by numerous bodies in recent months.
As we know, auto-enrolment is built on inertia. At the same time, several reports reveal conflicts of interest in the industry. Therefore, it would be a failure of public policy if millions of citizens were auto-enrolled into workplace pensions but Parliament had not ensured that sound governance was in place and value for money delivered.
I am most grateful for the helpful replies to all my queries from the person at the DWP identified as the contact point in the Explanatory Memorandum. However, I have further questions. Regulation 3 specifies that, once an arrangement satisfies the definition of a “default arrangement”, it will always be a default arrangement and will be subject to the charge cap. If a scheme has a default arrangement covered by the charge cap but contributions then cease because the employer chooses to close that scheme, or a company becomes insolvent so that there is no employer, will the scheme’s default arrangement in those circumstances always remain subject to the charge cap? Are there any circumstances in which a default arrangement ceases to be covered by the cap?
Similarly, an employer’s scheme has a default arrangement but when an employee leaves, the employer is not bound to keep the ex-employee in their scheme. An increasing number of employers are choosing not to do that. If an ex-employee does not arrange their own transfer, the employer defaults their savings into a pension product that is not covered by the workplace pensions charges and governance protections. I can see no provision in these regulations that imposes restrictions on the pension products into which employers can default their ex-employees’ accumulated savings. I would be very happy to be told that I am wrong on this point.
Furthermore, if an employer is able to close their scheme and default arrangement, and bulk transfer the deferred members’ savings into an alternative pension product, which some can under the rules of their scheme, there appears to be no restriction on the products into which such bulk transfers can be made. Can the Minister say whether there are any restrictions on such bulk transfers, where they would breach the principle that a default arrangement is always covered by the charge cap?
Coming on to value for money, any charge not covered by the cap will be covered by the value-for-money assessment which trustees have to undertake on charges and transaction costs—a very welcome requirement—but some imponderables remain. TPR and the FCA want trustees and the independent governance committees to adopt a common approach. Although the Pensions Regulator publishes guidelines, good value is not defined in the regulations so it is not clear what is intended by a common approach. Trustees are required under the regulations to calculate,
“in so far as they are able … the transaction costs”,
which anticipates the complexities in the different types of costs—brokerage fees, bid-offer spreads, transaction taxes et cetera—and of getting hold of all the data. Trustees will need the co-operation of investment managers but if those managers are subject to confidentiality agreements with their own service providers, they will not provide all the information. So the Government need to consider such confidentiality agreements if transparency on transaction costs and other costs is to be achieved.
A matter of interest is how the charge cap will apply to the new pensions flexibilities. I welcome the provision that a saver who wants to access the new flexibilities and transfer out of their default arrangement into another scheme or draw-down arrangement will be protected by the cap for charges incurred by transferring out. But that leaves outside the cap the costs of transferring into the draw-down arrangement and the ongoing charges in the draw-down product. On the final rules for charges, the FCA reports that the Government have decided that, for the time being, draw-down should not constitute a core service and that in view of this temporary position, the FCA does not intend to amend its proposed rules. Can the Minister confirm that excluding from the charge cap the charges in income draw-down arrangements is indeed a temporary position and that they will be included later?
The regulations ban active member discounts but employers will be able to pay some or all of the charges on behalf of their current employee. So when Regulation 11(1) refers to prohibiting trustees and managers imposing higher charges “on a non-contributing member”, that means the overall level of charges to which the member’s pot is subject and not the charges borne by the member themselves—a subtle but important distinction.
The regulation allows employers to choose to subsidise active members, but active members cannot be subsidised by deferred members. I support the Government in wanting to allow generous employer practices towards employees who are active members. It will be important to ensure there is no masking of differential charging. The requirement that the amount the employer pays must be equal to the subsidy the employees receive will act as a control up to a point. But these practices will need to be properly documented by employers and providers if differential charging is not to be masked. The ban on applying higher charges applies to workers who cease contributing after 6 April 2016—not before, I understand. Similarly, the charge cap will not apply to those who ceased contributing before its introduction. That still leaves a lot of pension savings vulnerable to poor value for money.
The minimum standards of governance are welcome. The requirement on the chair to sign an annual statement will focus the minds of trustees, although many trustee boards are already very focused. Failure to prepare such a statement will result in a fine but it is unclear what the penalties are for non-compliance with other governance duties. Raising the governance standards in master trusts for multiemployer schemes is very welcome, but the requirement to have at least three trustees is a rather low threshold, especially as only two of them need to be independent of the provider.
I welcome the regulations because they represent an important start, not the end of the journey to achieve better value for the saver. However, there are still important matters to be addressed. A cap of 0.75% on a default arrangement needs to come down further. It is not the role of the saver or public policy to fund inefficient business models or conflicts of interest. Full transparency on all costs levied on the saver is needed. Extending the cap to include transaction costs is also a need, as is achieving value for money in draw-down products and annuities. We await the regulations to ban commission and consultancy charges in occupational schemes.
I repeat that there is much in these regulations that are welcome, but ensuring sound governance through the effective control of conflicts of interest I am sure remains unfinished business.
Baroness Donaghy (Lab)
My Lords, I feel to some extent that this is where I came in. I spent the 1970s persuading a number of university colleges to join a decent occupational pension scheme and to leave their insurance-based, extremely poor-value local college schemes. Incidentally, the charges for those poor-value schemes were between 4% and 5%. I was able to persuade people that that was such appalling value that they would be much better off in a different scheme. That is where I think there is a bit of repetition of history. That is not counting, of course, what the investment people took from the scheme; that was just the administration charge. Therefore, I cannot help thinking that in the pensions political world we take one step forward and then sometimes two steps back.
Inertia selling is something that I strongly agree with when it comes to an issue as important as pensions, and we certainly had that in the 1970s. People were joined up to their schemes and they had to take a step to opt out. That was made unlawful by a Conservative Government and it changed the pensions world substantially.
I am sorry if I have a good memory on these things but that is very important when we start off on something that might turn out to be a very good thing, as only history will show whether it is. My fear is that the smaller schemes will have a worse record on governance and compliance. The surveys that are pointed out in the Explanatory Memorandum prove that 24% of small schemes are likely not to conform, compared with 10% of big schemes. So here we go again on this roundabout. I understand that the Government do not want to force schemes together, but there is a logic in pointing out that you get better value for money in the larger schemes.
Baroness Sherlock (Lab)
My Lords, I thank the Minister for his explanation of these regulations, my noble friend Lady Drake for a characteristically thorough interrogation of them, and my noble friend Lady Donaghy for highlighting some very important lessons from the past that should inform our discussions today. I remind the Committee of my registered interest as the senior independent director of the Financial Ombudsman Service.
We on these Benches welcome the fact that action is now being taken to address the problems with governance and excessive charges. Like my noble friend Lady Drake, I welcome action on the active member discounts, although her terminology may indeed be a fairer description of what happens there.
As the Minister indicated, 5 million people are already saving in schemes under auto-enrolment, and that figure will end up closer to 9 million or 10 million in due course. The point made by my noble friend Lady Donaghy is crucial here. If we are to cap the charges levied on pension savers in such schemes, we need to be sure that it works well because of the duty of care owed to those savers who have made no active choice about saving but who have been defaulted by their employer in particular or by the state in general into schemes which they have simply never chosen. It is critical that those who are auto-enrolled remain so and that we do not see a significant opt-out rate, but also that the highest possible retirement income is derived from the savings that individuals and their employers make. That is the context for these regulations, and the history lesson from my noble friend Lady Donaghy is very helpful. People need to know that their pension pots are not being siphoned off in unreasonable charges and that someone in whom they can have confidence is looking after their interests.
My noble friend Lady Drake asked a number of very important questions, and I will add just a few. First, on the charge cap, Labour has been campaigning for that, so it would be churlish not to welcome it—and I very much welcome it. However, can the Minister please tell the Committee why the Government chose 0.75% and what plans they have to reduce that further? The latest impact assessment suggests that, following the response to the consultation, the Government considered just two options: the one set out in these regulations, and doing nothing. I agree that of those two choices, acting to cap charges is definitely the right one, but the case for a lower figure is very strong. Certainly on these Benches we support capping charges at 0.75%, but with the aim of reducing it to 0.5% over the course of the next Parliament. Does the Minister agree that that is where we ought to end up?
Secondly, I would appreciate some clarification about how the cap will work. The Minister explained that it will be set at 0.75% of funds under management or an equivalent combination charge, but can he explain a bit more how the combination charge will be calculated? Regulation 5 seems to suggest that there will be three options: a funds-under-management charge, a combination of a funds-under-management charge and a contribution charge, or a combination of a funds-under-management charge and a flat-rate fee charged to the member.
Regulation 6 sets out the limits if one of the combination options is chosen. Can the Minister tell us a bit more about why these were fixed as they were? Is it the intention that a combination option cannot yield more than the equivalent of 0.75% of funds under management? If so, how can the saver be assured of that? If that is not the case, why are the Government giving the option to choose a charging structure that could yield more than the headline rate of 0.75% of funds under management?
Whatever figure is chosen, for controls on charging to bite, savers need to understand fully what charges are being levied. As we know, defining pension charges is not an easy job. The Minister indicated that transaction charges are not included in the cap. The biggest problem is that, as my honourable friend Gregg McClymont pointed out when the regulations were considered in another place, we do not yet know the full range of transactions attached to pension schemes. The only way to deal with that is through full disclosure of all transaction costs, which is long overdue and to which the Opposition are committed. I would be interested to know the Government’s position on that.
Will the Minister tell me a bit more about the compliance regime? Whose job is it to check that the cap is not breached and what will the penalties be for a breach? As for the minimum governance standards, they are welcome as far as they go, but again I would like to ask about compliance. Is the intention that the main or only compliance tool will now be the chair’s statement? Paragraph 7.34 of the Explanatory Memorandum says that the Pensions Regulator will have the power,
“to issue a fine against the Board of trustees or managers”,
in the event of failure to prepare a chair’s statement as required by the regulations. Will the Minister give some indication of the likely level of fines?
Of course, charges can take different forms, and the Government have made a welcome move in recognising this. For a while, they chose to focus primarily on the annual management charge, but these regulations acknowledge that that is only one part of the picture. My honourable friend Gregg McClymont highlighted the need to focus on the total expenses ratio, which includes custody, legal accounting and administration, and which consequently tends to be significantly higher than the AMC. Do the Government have any plans to evaluate the impact of the regulations on the total costs levied on affected pension schemes and savers?
We need urgently to address the range of challenges facing pensions at the moment if we are to be successful in persuading workers to save for their retirement at the rate that they need to do. My noble friend Lady Drake mentioned the draw-down products, but Labour will take a range of other, tougher steps to protect savers—for example, from new products that damage retirement income. Indeed, a Labour Government will begin immediate consultation on plans for a cap on fees and charges for income draw-down products, with a focus on products bought from the saver’s own pension provider. However, I welcome the progress that has been made and I very much look forward to the Minister’s reply to these and all the other questions that have been asked.
Lord Bourne of Aberystwyth
My Lords, I am grateful for the participation of noble Lords in this debate. Let me try to deal with the points that have been made while saying at the start that, over the next decade, the default fund charge cap should transfer around £200 million from the pensions industry to savers. That is an important point.
I very much take the points made by the noble Baroness, Lady Donaghy, about the historical perspective and the fact that, across the House, we are trying to ensure a fair regime relating to charges. We need a balance to make sure that the industry is properly and fairly rewarded for the services that it is providing and that, at the same time, savers are not overcharged for the services that they are receiving. That has very much been the thrust of the reform and it is why the figure of 0.75% has been chosen, which will represent for most people a fall in the amount that they are charged for the service, as I indicated.
Let me turn to the contributions made by noble Lords. I very much welcome the welcome in general terms from the noble Baroness, Lady Drake, for these regulations, which, as I say, bring in governance arrangements for the default automatic enrolment, as well as a cap on charges. I am pleased that we have universal welcome in general terms for the regulations. I welcome the support that we have had from around the Room in trying to get right the legislation and the consequential regulations.
The noble Baroness—and I apologise if my answers are not necessarily in the order of her questions—asked whether once a default always means a default. In general terms, the answer is yes. The regulations set out where an arrangement is designated as a default for a particular employer by virtue of meeting the tests in the regulations. It will continue to be designated as a default regardless of whether it continues to meet those tests. That is the general position. However, I will write to the noble Baroness on some of the specifics that she raised, because the devil is in the detail and I would not want to mislead her on specific examples, some of which I was a little blindsided by. I will, therefore, write to her about some of the specific examples she brought forward.
The noble Baroness also raised value-for-money issues. The regulations are designed to ensure that we get value for money and that there is transparency on the transaction costs—a matter also raised by the noble Baroness, Lady Sherlock. A transparency regime will come in as a result of these regulations that will enable us to look at value for money in relation to transaction costs. We are committed to looking at that in April 2017 to see whether we should bring it into the cap. That is the schedule. Therefore, at the same time as we are looking to ensure that we have an effective cap, in general terms, on auto-enrolment, we are also looking more widely at the transaction costs, to see whether it is appropriate to bring those into the cap in April 2017. We are already looking at that issue as we move forward from these regulations.
I turn now to the active member discount, or, as the noble Baroness, Lady Drake, phrased it—with some justification—the inactive member premium. There is no intention that we should stop a discount for active members unless it is the deferred members—the inactive members—who are paying for it. As the regulations make clear, there is nothing wrong with providing a discount for employees, provided it is not being subsidised by deferred members. That is the intention of the regulations, and I think that it is delivered by them. Again, however, if I am wrong about that, or there are exceptions to that general principle, I will write to the noble Baroness and copy my letter to other noble Lords who participated in this debate.
The noble Baroness also raised the issue of decumulation, which, as she rightly says, is not covered at this stage by these regulations. That does not mean that the Government are not looking at decumulation; it means that we are not looking at bringing it in at this stage. We are, however, keeping it under review, because, as we say, we want to ensure a fair regime: a fair amount paid—or a fair cap—so that the industry gets its fair return on what it is doing but savers are not ripped off, to use the vernacular. We have that under review.
The matter of the penalties regime was raised by the noble Baroness and also by the noble Baroness, Lady Sherlock. First, there are regulations that provide for a statement by the chair of trustees and a mandatory penalty of between £500 and £2,000 if such a statement is not produced. Trustees will have to demonstrate compliance with the governance and charges requirements in the chair’s statement. I am not sure of the precise sanctions that apply; I think it is under Section 43 and Schedule 18 of the Pensions Act 2014. I think that is right, in respect of the regime. However, I will write to noble Lords on the regime relating to non-compliance with the regulations and what the sanctions are.
Secondly, the contribution of the noble Baroness, Lady Donaghy, gave a very fair assessment of where we are. The noble Baroness made the very fair point that smaller schemes, generally speaking, do not represent such good value as larger schemes. It would not be fair to say that that is universally true, but it is probably generally true. Consolidation is happening—the figures show that—but it is right that we ensure that there is effective protection across the piece. That is, therefore, something that we need to keep under review. I made that clear as the Bill was going through the process of becoming an Act. It applies in general terms but it is a point well worth making.
I am trying to remember whether there were other points raised by the noble Baroness, Lady Sherlock, which I have not covered. If there were, perhaps she would remind me of them.
Baroness Sherlock
I thank the Minister. He has picked up most of them or has said that he will write to me about them. However, I asked how the combination charging options would work, whether the intention was that, if a combination option were chosen, it would be no more than the equivalent of 0.75% of funds under management, and how savers would know about that.
Lord Bourne of Aberystwyth
I am most grateful to the noble Baroness for reminding me of that. It is fair to say that generally, although not universally, that will be the case. I will write to her about the exemptions because there will be some situations where the charge will be higher, but in the majority of cases it will be the combination charge, which will certainly be no more than the 0.75% cap.
With that, I once again thank noble Lords for their support for the regulations. I undertake to write on the points that I have raised and on anything else that I have missed. I commend the regulations to the Committee.
General Medical Council (Fitness to Practise and Over-arching Objective) and the Professional Standards Authority for Health and Social Care (References to Court) Order 2015
(9 years, 9 months ago)
Grand CommitteeRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Earl Howe
That the Grand Committee do consider the General Medical Council (Fitness to Practise and Over-arching Objective) and the Professional Standards Authority for Health and Social Care (References to Court) Order 2015.
Relevant documents: 24th Report from the Joint Committee on Statutory Instruments, 26th Report from the Secondary Legislation Scrutiny Committee
The Parliamentary Under-Secretary of State, Department of Health (Earl Howe) (Con)
My Lords, I beg to move the first Motion standing in my name on the Order Paper.
This Section 60 order will amend the Medical Act 1983 to establish the Medical Practitioners Tribunal Service, the MPTS, in statute and make other reforms to the General Medical Council’s fitness to practise procedures. Reforming the way that the GMC adjudicates on cases where a doctor’s fitness to practise has been called into question has been a long-term policy objective for both the Department of Health and the GMC, following the decision not to proceed with the establishment of the Office of the Health Professions Adjudicator, the OHPA, in 2011.
The introduction of these amendments will strengthen and modernise the GMC powers and systems, enabling it to carry out its fitness to practise adjudication functions more effectively. They will place the MPTS on a statutory footing and enable the GMC to make amendments to its fitness to practise rules to further modernise the procedures which govern how fitness to practise cases are handled.
These reforms will increase the separation between the investigation of fitness to practise cases and adjudicating on what should happen in each case to enhance public and professional confidence in the system of medical regulation. They will modernise the MPTS’s adjudication function, including strengthening the case management arrangements, by introducing enforceable case management directions. These include costs for unreasonable behaviour, introducing the ability to hold reviews on the papers where the parties agree, and introducing a duty to use rule-making powers in order to pursue the objective that cases be dealt with fairly and justly, similar to the courts’ Civil Procedure Rules.
The MPTS will be subject to accountability hearings held by the parliamentary Health Committee in Westminster, ensuring transparency and public debate in relation to the way that it discharges its statutory functions. The MPTS will also be required to lay its annual reports and accounts before the UK Parliament, and it is also held to account by the Professional Standards Authority, the PSA, via its annual performance review.
This order will address a number of patient safety issues, including strengthening the power of the registrar to require the disclosure of information from a doctor, to refer a doctor to the MPTS for decisions as to whether to impose conditions in relation to registration or to suspend that doctor in the event of non-compliance.
The GMC currently operates a rule which enables it not to proceed with an investigation if the matters relating to the allegation are more than five years old, unless it is deemed to be in the public interest to do so, and is in the “exceptional circumstance” of the case. The Government are using the opportunity of the order to remove the “exceptional circumstance” element. That is because a developing body of case law demonstrates that the additional test of having to prove that a case has an exceptional circumstance has prevented cases from being taken forward, even when it was considered in the public interest to do so. By expressly setting this out in statute, we are ensuring that an investigation can be taken forward, regardless of the amount of time that has passed, without having to prove exceptional circumstances. That will mean that the GMC will be able to investigate an allegation no matter what the circumstances or how much time has passed, if it feels that it is in the public interest to do so. That can only strengthen public protection and reduce risk to patient safety.
The order will bolster the objectives of the GMC in relation to its fitness to practise functions expressly to take account of the need to promote and maintain public confidence in the profession and the need to uphold proper professional standards and conduct, in addition to protecting the health, safety and well-being of the public. However, maintaining public confidence must only be considered as being relevant in pursuit of the protection of the public. Its inclusion in the overarching objective will help to ensure that it is given due weight in all fitness to practise cases.
The proposed overarching objectives will include the term well-being, as this term encompasses those aspects of a professional’s role that may have an impact on individual patients—not directly impact on their health or safety, but nevertheless affect them in a manner which is relevant to the health professional’s clinical care. Dignity, compassion and respect are all important in delivering care, and it would not be right to disregard them. The inclusion of the term well-being ensures that the well-being of a patient under the care of a health professional is not disregarded as a standard for regulatory action. The Law Commission’s report states that well-being has already been incorporated, without difficulty, into the main duties or objectives of regulators, and it feels strongly that, within that context, the term cannot be misinterpreted.
Increased separation will make it explicitly clear that the GMC has the role of investigating and presenting evidence in fitness to practise cases, but it will be for the MPTS to constitute tribunals to adjudicate on whether a doctor’s fitness to practise is impaired. With the greater separation between investigation and adjudication introduced through the order, the Government believe that it would be appropriate for the GMC also to have a right to appeal decisions made by the MPTS in cases where it believes that a decision does not protect the public. That will provide a transparent mechanism for decisions to be challenged in those instances where the GMC has concerns about a decision made by a medical practitioner tribunal.
The proposals also change the grounds on which the Professional Standards Authority can make a referral to the higher courts. That will enable the PSA to make a reference if it believes that a decision is insufficient to maintain public protection, which involves protecting the health, safety and well-being of the public, maintaining public confidence in the profession and maintaining proper professional standards and conduct. The order will ensure that the PSA can take action where it considers it appropriate in the interest of public protection, guaranteeing its right to intervene and take over an appeal where the GMC has withdrawn. The proposed GMC right of appeal would be in line with these revised grounds.
The Department of Health undertook a UK-wide consultation on making changes to the way that the GMC makes decisions about doctors’ fitness to practise. The consultation received 81 responses from a range of respondents, including medical and legal professionals, healthcare recruitment organisations, regulatory bodies and members of the public. The responses demonstrated strong support for the principle of enhancing the separation between the GMC’s role in investigating fitness to practise concerns and its role in adjudicating on whether those concerns amount to impaired fitness to practise.
A significant proportion of respondents—52%—felt that creating an entirely independent body like the former Office of the Health Professions Adjudicator, rather than establishing the MPTS as a statutory committee of the GMC, was a preferable approach. However, this group included an organised group of 39 co-ordinated and near-identical responses, which the department had to consider as individual responses. The department’s original decision not to proceed with OHPA was taken in 2011 and endorsed and implemented by Parliament in the Health and Social Care Act 2012. The Government’s proposed approach remains that we should enhance and protect the independence of decision-making at fitness to practise panel hearings, to secure public protection and the confidence of doctors and patients. However, the department believes that the same benefit as establishing a separate body can be achieved without the expense by retaining the adjudication function within the GMC and increasing the separation between its investigation and adjudication functions. Taking into account the group of respondents who wanted greater separation, as well as those who supported the statutory committee model, there was significant support for the principle of greater separation. We consider that establishing the MPTS as a statutory committee of the GMC is the right means of achieving this. The majority of consultation respondents did not agree that the GMC should have a right of appeal to challenge MPTS decisions. However, this again included the group of 39 co-ordinated responses, although they did not give reasons.
The policy intention, once separation of functions has been achieved, is to enable the GMC—the organisation that is best placed to challenge a tribunal decision about a doctor’s fitness to practise, having already acted in the prosecution role before the tribunal—to be better able to make such a challenge, given its closer knowledge of the case. These proposals to strengthen and modernise the GMC’s fitness to practice process will make the system more efficient and effective, benefiting patients, practitioners and the health service. They will result in improved public protection and an increase in public confidence in the GMC. I commend the order to the Committee.
Baroness Finlay of Llandaff (CB)
My Lords, I am grateful to the Minister for the way he introduced this legislation. We debated much of the content and wording of it previously in discussions on the Health and Social Care (Safety and Quality) Bill. I do not intend to go over that ground again. I simply ask the Minister whether I am correct in believing that the guidance relating to this legislation is to be produced by the GMC, not the Department of Health, and whether the Department of Health will be able to have some kind of scrutiny role over the way that guidance is worded. As I have outlined before, there is concern among the profession—I declare my interest as a licensed practitioner, as well as a registered practitioner—that the term “well-being” could be viewed as being much wider. The public confidence issue is one where there remains concern—I am sure there will be concern—about trial by media and what is in the public domain that might influence the thinking of a panel.
Lord Patel (CB)
My Lords, I rise briefly to support the order. I declare an interest that, maybe for a short while only, I am a licensed practitioner and a registered practitioner, and the rules of the GMC may not be sufficient for me to revalidate.
However, the issue to which I want to refer is the separation of the functions, of which I approve—we have discussed that many times—but for the fact that the GMC can appeal against the decision made by the MPTS. Its role becomes that of an adjudicator as well. I would like the noble Earl to clarify that. I know that in the consultation process there were the same number of responses—39, as mentioned by the noble Earl.
Another issue that we have discussed before is that these changes are welcome, but there are other changes that the Law Commission identified in its report, published in April 2014, on the regulation of health and social care professionals Bill. The Government indicated that they would bring in legislation to deal with all the issues. This is obviously a piecemeal measure taken out of that Bill, so the noble Earl may want to comment on that.
Lord Hunt of Kings Heath (Lab)
My Lords, I, too, thank the noble Earl for introducing the order. I shall say at once that the Opposition support it. Like the noble Lord, Lord Patel, we are disappointed that it is yet another Section 60 order being considered in Committee. We should have had the Law Commission Bill, either in pre-legislative scrutiny or in its substantive form. It is disappointing that we are having to deal with these various professional regulation bodies in such a piecemeal fashion.
That said, on the question of the overarching objective, we very much support that and the three pursuits set out in Article 21(1B),
“to protect, promote and maintain the health, safety and well-being of the public … to promote and maintain public confidence in the medical profession, and … to promote and maintain proper professional standards and conduct for members of that profession”.
I want to pick up the point raised by the noble Baroness, Lady Finlay, and the British Medical Association. I suppose it is an issue of proportionality. In its report, the Law Commission expressed concern about examples given, suggesting that regulators were inappropriately imposing moral judgments in essentially private matters under the guise of maintaining confidence. The BMA has raised the issue of whether the order might end up punishing doctors who pose no threat to the health and safety of the public, on the basis that failure to do so might incur the public’s disapproval. The Law Commission has urged regulators to look carefully at regulatory interventions that do not take some colour from the need to protect the public.
This is a very important point. I have been very impressed with the GMC and the way in which it has improved its procedures and processes—and certainly with its current leadership. However, there are other regulators, perhaps not so much in the health sector, which clearly lack confidence and which are very much influenced by the flow and ebb of media comment and potential political interventions. I think that we have to be very careful about regulators which, in a sense, lose confidence in their own ability to make common sense judgments, and then have knee-jerk reactions in the face of media storms. I hope that the noble Earl will agree that that is not the intention in the case of the health regulators, and like me, he will express confidence, particularly in the GMC to apply common sense judgments in response to the points raised by the noble Baroness, Lady Finlay.
I now come to the question of the Medical Practitioners Tribunal Service. The Minister referred to the fact that the consultation demonstrated strong support for enhancing the GMC’s investigative and adjudication roles, but that 52% of respondents took the view that creating an entirely independent body would be preferable, with only 27% supporting the proposal to put the MPTS on a statutory footing.
We must refer in particular to the evidence of the Professional Standards Authority. It,
“did not agree that the proposals to establish the MPTS as a statutory committee of the GMC would achieve the aim”,
of appropriate separation of function. It commented that,
“former and current members of GMC staff should be excluded from sitting on medical practitioner tribunals or interim orders tribunals … The PSA also asked about the ability of the GMC to make rules delegating functions from the MPTS committee to ‘officers of the Council’”,
and it,
“referred to the fact that case managers will be paid by the GMC, but case managers will be performing a statutory office”.
The PSA was obviously concerned that because those managers were paid by the GMC, they might come under undue influence. As the Explanatory Memorandum points out, the PSA,
“conducts annual performance reviews of each of the health and care professional regulatory bodies”.
I would like the noble Earl to explain why the views of the PSA, above all others, were ignored in relation to this issue.
To pick up the point raised by the noble Baroness, Lady Finlay, about guidance, again, the Explanatory Memorandum says that:
“The Department does not intend to publish any guidance in respect of”,
this statutory instrument but that the GMC,
“will publish guidance as appropriate”.
Is the Minister in a position to respond to the noble Baroness about what kind of guidance will actually be produced?
However, overall I believe that the GMC has made great strides in recent years. It deserves to be supported for what it is doing. I accept that this will speed up processes to protect the public and provide more and better information about doctors on the register. It will improve doctors’ education and training and increase efficiency, and on that basis we are very glad to support the order.
Earl Howe
My Lords, I shall endeavour to answer the questions that noble Lords have asked but first I endorse the comments made by the noble Lord, Lord Hunt, about the GMC, in which we in the department have great confidence. It is a well led organisation and has approached this whole exercise in a very responsible way. The background to this order is of course, as the noble Lord stated, that we do not have— much as we wish we did—a consolidated Bill building on the Law Commission’s work. In the absence of parliamentary time for a Bill, we are therefore working within the limitations of existing legislation and using Section 60 orders. Let me reassure the Committee that we are very much committed to taking forward a Bill in this important area when parliamentary time allows.
The various Section 60 orders being taken forward are driven by the need to address a small number of areas which we view as priorities. They both deal with the priorities of government such as English-language concerns, which will be debated later this afternoon, and address some immediate issues that have hampered the regulators from being able to fulfil their basic function of protecting the public. I therefore welcome the fact that the noble Lord, Lord Hunt, is willing to give the order a fair wind.
The noble Lord, Lord Hunt, asked about the possibility that the inclusion of the objective of promoting and maintaining public confidence in the medical profession could in some circumstances be used in a vexatious way, perhaps at a personal level or in the media’s response to what has happened—a so-called trial by media. If the actions of a doctor appear likely to reduce confidence in the medical profession and influence the decision of individuals as to whether to seek medical help at all, it may be right to take action. However, panels and tribunals will be asked to reach their own objective judgment as to whether particular acts or omissions would affect public confidence if no action were taken. A subjective view, uncritically influenced by public opinion or the media, would be an unacceptable basis for a decision. The question of whether GMC staff will be able to sit on the MPTS was raised. The answer is no, they will not. The noble Baroness, Lady Finlay, asked about the guidance. The GMC is consulting on its rules, and the department, I can assure her, will work closely with the GMC in drafting the guidance.
The noble Lord, Lord Hunt, asked about the issue of legal support for a medical practitioner tribunal. The MPTS will be best placed to assess what kind of legal support a tribunal will need and therefore what criteria legal assessors should meet. It is important that medical practitioner tribunals have appropriate support to make decisions based on strong legal knowledge. Where the MPTS has appointed a legally qualified case manager to also act as a chair of a medical practitioner tribunal, the MPTS may consider that there is not also a need for a separate legal assessor.
The noble Lord, Lord Patel, asked about the right of appeal for the GMC. As I explained, the order would enable the GMC to appeal decisions made by the MPTS in cases where it believes that the decision does not protect the public. Currently a respondent doctor has a right of appeal against panel determinations, although the GMC has no such right. Once greater separation is introduced through this order, the Government believe that it would be appropriate for the GMC to also have a right of appeal. This will reflect and underline the separation of investigation and adjudication. It will also provide a transparent mechanism for challenging decisions where the GMC, as a party to the proceedings, disagrees with a decision made by a medical practitioner tribunal. I hope that that explanation is helpful.
Baroness Finlay of Llandaff
I would like to briefly return to the issue of guidance. I was not completely convinced by the noble Earl’s reply. Does he agree with me that there is a danger for a doctor, when there has been a lot of media coverage of the accusation—whatever that is—that the panel hearing the case may have been subject to a barrage by the media, which can be compared to baying hounds, and it can be very difficult for the doctor who is before the panel to be confident of a fair and balanced hearing?
For that reason the guidance becomes critical. It is incredibly stressful for a doctor to be reported to the GMC. The rates of suicide and mental health problems among such doctors are extremely high—higher, in any case, than the baseline population in normal circumstances, but there have been some notable cases of suicide. Does the Minister agree with me that the guidance for panels, particularly about the way they receive reports through the media, will be really important in ensuring that it is a balanced and fair hearing and not excessively influenced by press reports?
Earl Howe
I completely understand the point that the noble Baroness has made. I hope that I can reassure her that the GMC is mindful of that issue. It would be the last organisation to wish for anything other than a fair and just approach to every fitness to practise case. I suggest that one of the safeguards here is that the legal representative and the legal assessor would advise the MPT on what is acceptable in law and proceed on that basis, so the tribunal would be governed by legal considerations and the guidance will make that clear. However, if I can add to those remarks in writing after this debate, I will be very happy to do so.
Health Care and Associated Professions (Knowledge of English) Order 2015
(9 years, 9 months ago)
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The Parliamentary Under-Secretary of State, Department of Health (Earl Howe) (Con)
My Lords, the Government recognise that overseas healthcare professionals make a valuable contribution to our NHS, and we are keen to ensure that highly skilled professionals do not face unnecessary barriers to working in our health service. However, it is vital that all healthcare professionals practising in the UK have the necessary English language skills to properly communicate with and care for patients and members of the public. The department has consulted on proposals to introduce language controls for nurses, midwives, dentists, dental care professionals, pharmacists and pharmacy technicians, and the vast majority of respondents to the consultation—99%—were supportive of the proposals.
We have worked with the Nursing and Midwifery Council, the General Dental Council, the General Pharmaceutical Council and the Pharmaceutical Society of Northern Ireland to identify a system of language controls for EU nurses, midwives, dentists, dental care professionals, pharmacists and pharmacy technicians which provides greater safety for patients and members of the public. The draft order gives those regulatory bodies the powers to apply proportionate language controls so that only healthcare professionals who have the necessary knowledge of the English language are able to practise in the UK, together with an assurance that they can do their jobs in a safe and competent manner.
The draft order sets out to amend the Nursing and Midwifery Order 2001, the Dentists Act 1984, the Pharmacy Order 2010 and the Pharmacy (Northern Ireland) Order 1976 to strengthen the regulatory body’s powers to introduce proportionate language controls and to require EU applicants to provide evidence of their knowledge of the English language following recognition of their professional qualification—but before registration and admission on to the register. We also propose corresponding amendments to the fitness to practise powers of the NMC, GDC, GPhC and PSNI, so that they can initiate fitness to practise proceedings in cases where a healthcare professional’s knowledge of the English language may pose a serious risk to patient safety.
A new category of impairment relating to English language capability will be created. It will allow the regulatory body to request that a professional undertakes an assessment of their knowledge of the English language during a fitness to practise investigation where concerns have been raised—something that they are currently unable to do. Those changes will strengthen the regulatory body’s ability to take fitness to practise action where concerns about language competence are identified in relation to healthcare professionals already practising in the UK.
Our overall approach is compliant with EU law which clarifies, under recent changes to the mutual recognition of professional qualifications directive, the ability of national authorities to carry out language controls on European applicants where the profession has patient safety implications. Any language controls must be fair and proportionate. For example, there cannot be automatic testing for all European applicants, and any controls cannot take place until the applicant’s qualification has been recognised by the regulatory body.
The order makes amendments to the relevant legislation which will require the regulatory body to publish guidance setting out the evidence, information or documents which a healthcare professional must provide to demonstrate that they have the necessary knowledge of the English language in order to practise their profession. Any person who is refused admission on to the register on the grounds that they have failed to demonstrate the necessary knowledge of English will have a right to appeal. The process for determining whether a person has the necessary knowledge of English will be set out in the relevant regulatory body’s rules or regulations, which we anticipate will be amended and implemented before the end of the year.
These changes are a major step forward for quality of care and patient safety, and build on the language checks already in place for the registration of healthcare professionals coming to work in the UK from outside the EU. They further build on the amendments made last year, which provided the General Medical Council with the powers to introduce a strengthened system of language controls for doctors from within the EU.
Since the GMC’s legislation was changed in June last year, the GMC has required 1,956 doctors from Europe to provide evidence of their knowledge of English when applying for first registration and a licence to practise. Of these, to date 429 doctors have been registered without a licence to practise medicine in the UK due to insufficient evidence of language competence. This evidence shows that these proposals are essential to ensure patient protection and uphold the standards of care delivered. I commend the order to the Committee.
Lord Hunt of Kings Heath (Lab)
My Lords, I thank the noble Earl for explaining the order. Clearly, we support the order because we want to protect patients from the risk of avoidable harm.
My own view is that language testing of healthcare professionals from outside Europe is now entirely adequate as a result of last year’s measures—which, again, the Opposition supported. However, we accept that there may be a—one hopes—small number of European professionals whose knowledge of English is not at a level that we might reasonably expect, and indeed an even smaller number of UK nationals who do not possess the requisite knowledge of English and where there are concerns.
I wonder whether the Minister can spell out one or two things in relation to how this is going to be done. I note—the noble Earl said it and it is repeated at paragraph 7.5 of the Explanatory Memorandum—that:
“Any language controls must be fair and proportionate, for example, there cannot be automatic testing for all European applicants and any controls must not take place until the applicant’s qualification has been recognised by the regulatory body”.
Paragraph 7.10 cautions that, in relation to the requirements that can be imposed as to English language controls, the bodies concerned,
“must first request and consider any available evidence before requiring a test”.
Can the Minister explain a little further how it is expected that employing authorities will go about that?
I also want to ask the noble Earl about the implementation of the power to implement fitness to practise proceedings. I noted from the Explanatory Memorandum that there is currently provision for most of the relevant regulatory bodies to commission an assessment of performance where fitness to practise allegations have been made. I was not sure about the purpose of the extension in this order, given that the Explanatory Memorandum notes that there is already provision for most of the relevant regulatory bodies to do this.
I would like to ask the Minister about support and guidance for individual employers. This comes back to my first question about how you make the assessment that a test should be undertaken. I should have thought that human resources professionals within NHS organisations would need some careful advice and guidance on this—first, because this may be a sensitive area, and, secondly, because some consistency throughout the NHS would be appropriate.
Finally, there is the question of vexatious complaints, which we discussed in relation to the previous order. Clearly, we have to balance the public interest with that of the appropriate interest of medical professionals. We know that there are cases in which medical professionals have been subjected to complaints that have turned out to be unsubstantiated. Clearly there are political sensitivities around the ability of European immigrants to speak English; I refer the noble Earl back to our previous debate and the points raised by the noble Baroness, Lady Finlay. I want to be clear that the Government understand that, while this is undoubtedly the right measure for patient safety and the protection of the public interest, we have to have regard to ensuring that doctors and other professionals are dealt with fairly under these provisions.
Earl Howe
My Lords, I am grateful to the noble Lord for his support of the order. The first point for me to make about what might trigger a language test is that European healthcare professionals currently provide a range of supporting information to accompany their application for registration and admission to the register. It is during that process that if a regulatory body had cause for concern, such as a poorly written application form, it would write to the individual to seek further evidence of English language competence. It is important to restate that the individual would still have their qualification recognised, but would not be admitted to the register until the body was satisfied that they met all the requirements for registration.
The draft order requires the regulatory bodies to publish guidance on the evidence to be provided by a healthcare professional where there is cause for concern about their English language capability. However, the regulatory body, as the independent regulator of the relevant healthcare professionals in the UK, will have the power to decide what the necessary knowledge of English is to practise safely in the UK. All the regulators subject to this order are in the process of developing this guidance. In recent discussions they suggested that, where there is a cause for concern, the evidence required could be the required score in the academic version of IELTS—the International English Language Testing System—or that the healthcare professional has a primary qualification taught and examined in English. In making that determination, the regulatory body will need to be mindful of EU law and ensure that such requirements are necessary and proportionate in view of their scope of practice.
As regards vexatious complaints, responses to the department’s public consultation highlighted the potential serious risk to patient safety posed by a professional practising without adequate English language skills. As I explained, these proposals would allow the regulatory bodies to take pre-emptive fitness to practise action, even if no actual harm has yet occurred, to maintain public protection. We accept that this could lead to a rise in the number of referrals but we are confident that if these are triaged correctly, any discriminatory or vexatious complaints can be identified early on and dealt with appropriately by the regulatory bodies affected by the order. The regulatory bodies will also be responsible for communicating the changes effectively to employers, which may be best placed to deal with issues at a local level. As I mentioned, there is a right to appeal if a person is refused admission on to the register, or is subject to fitness to practise proceedings and then found to be impaired on the grounds of defective English.
The noble Lord asked how we would ensure that the controls were fair and proportionate. Guidance will be published by the regulator on the evidence accepted on initial application for registration. If that has not been supplied, an individual will be sent a letter of recognition requesting further evidence. If it is not supplied at that point, a test will be requested.
The introduction of language controls at national level should not have the effect of requiring individual professionals to undertake the same English language test twice: once at national and once at local level. We agree that that would be disproportionate. However, it must be remembered that the regulatory bodies’ roles as the national regulators of the healthcare professionals affected by the order will be to ensure that all professionals have the minimum English language capability required to work as a practitioner. It will still be for the employer to assure themselves that the applicant has the necessary English language skills for a specific role, which may require more sophisticated language skills. I hope that that is helpful.
House of Lords
Equality Act 2010: Wheelchair Users
(9 years, 9 months ago)
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Baroness Masham of Ilton
To ask Her Majesty’s Government, in the light of recent reported difficulties of wheelchair users in obtaining taxis at the same price as others, what plans they have to bring into force sections 165 and 167 of the Equality Act 2010.
Baroness Masham of Ilton (CB)
My Lords, I beg leave to ask the Question standing in my name on the Order Paper. In so doing, I declare an interest as a user of a wheelchair and taxis.
The Minister of State, Department for Transport (Baroness Kramer) (LD)
My Lords, in February 2014, I instructed officials to carry out a survey in order to provide a better understanding of the range of issues facing wheelchair users around the country when using taxis or private hire vehicles. I shared the outcomes of this research with ministerial colleagues and discussions are continuing across government on how best to address these issues, including the possible commencement of Sections 165 and 167 of the Equality Act.
Baroness Masham of Ilton
My Lords, I thank the Minister for that reply but it has been five years since the Equality Act was enacted, and Sections 165 and 167 are still not enforced. Does the Minister know that the BBC in Leeds did some research recently in Stafford by sending someone out with a disabled person for 12 taxi rides, and she was charged extra every time?
Baroness Kramer
My Lords, as I say, discussions are continuing but the news that the noble Baroness shares is disturbing. The issue that the Government are attempting to deal with is that there is some lack of clarity within Section 165 and there are potential questions, therefore, around enforceability. The question is whether this issue should be dealt with better in the possible legislation that would follow the Government’s response to the Law Commission report on taxi reform more generally.
Baroness Brinton (LD)
My Lords, charging is not the only problem that wheelchair users face with taxis. Are the Government considering whether there should be a requirement for any taxi that claims it is wheelchair-friendly to have just one ramp, because many have two ramps, which are inaccessible to people in electric wheelchairs?
Baroness Kramer
My Lords, the assumption is that charging is a violation of the broad anti-discrimination clauses of the Equality Act because one cannot discriminate and charge additional amounts for services provided to disabled people. In terms of ramps and the other issues that the noble Baroness describes, there are many problems for wheelchair users in accessing taxis and private hire vehicles. Again, a more extensive piece of legislation may be required to deal with this broader range of issues, which we are increasingly aware of.
Lord Touhig (Lab)
My Lords, no one who is disabled should be penalised because of their disability. Recognising this in May last year, the Law Commission’s review recommended that all taxi drivers should receive disability awareness training. Do the Government accept this recommendation and, if they do, when will it be implemented?
Baroness Kramer
The Government are still working on their response to the extensive report from the Law Commission and that is one of the recommendations that must be addressed in the reply. I remind the House that there will be post-legislative scrutiny in the next Session of the disability provisions in the Equality Act. There are several ways of tackling these problems.
Lord Low of Dalston (CB)
My Lords, did the Minister’s instructions to her officials and the ensuing discussions cover the carriage of disabled people using assistance dogs?
Baroness Kramer
My Lords, we have commenced the relevant sections 168 to 171 of the Equality Act, which cover assistance guide dogs.
Lord Tebbit (Con)
My Lords, the noble Lord is absolutely right—there is a great deal of difficulty for those who use assistance dogs. These difficulties arise in taxis, attempting to get into taxis and people being ignored because they have got a dog, in hotels, restaurants and other places. Does my noble friend agree that something needs to be done—I would be grateful if my noble friend would do it—to enforce the law to ensure that people with assistance dogs are not discriminated against?
Baroness Kramer
My Lords, I cannot give the general national numbers but Transport for London has brought something like 28 prosecutions in relation to guide dogs and taxis and has succeeded in at least 20 of those cases. Action is being taken but, as I say, broader issues need to be captured.
Lord Davies of Oldham (Lab)
My Lords, why does not the Minister fess up and acknowledge that the Government have made a complete shambles of taxi regulation? The only way in which we got effective regulation of taxis and any sense out of the Deregulation Bill, which the Government introduced ahead of the Law Commission’s final position, was through Cross-Bench and Labour amendments which the Government eventually effected. Now we have another Act of Parliament on which consultation is still taking place after five years. The record is disgraceful and the Minister should acknowledge that.
Baroness Kramer
Your Lordships will be aware that, in the Deregulation Bill, the changes that allowed an operator to use taxis from another area were largely motivated by enabling operators to reach a broader range of taxis and private hire vehicles that had disabled access.
Baroness Wilkins (Lab)
My Lords, the Law Commission recommended that taxis should have a duty to stop when hailed. Does the Minister not agree that it would cost nothing to enforce this and to tell taxi drivers that they would risk their licence if they did not?
Baroness Kramer
The noble Baroness is right: this is the problem most highlighted by people in wheelchairs or who have guide dogs. There is currently no requirement under the law or within the taxi licence that taxis have to stop. They are not allowed to discriminate but they are not required to stop for anyone. The Law Commission recommended that this issue should be addressed. As I say, the Government are working on their response to the Law Commission and legislation may follow.
Baroness Grey-Thompson (CB)
My Lords, it is quite a tough time for disabled people at the moment, whether because of the increased cost of taxi fares, which is reported as being rife, the recent High Court case about priority for wheelchair users on buses or the fact that 100 Motability cars are being removed from people every single week. Do not disabled people deserve the same rights to access public transport as everyone else?
Baroness Kramer
The noble Baroness is absolutely right. The constant message from the Government is that people with disabilities are a normal part of our community. She will be aware of the great strides that we have made in terms of accessibility on trains and buses. That has involved driver training, along with our recent progress in creating cheap audiovisual systems which can be retrofitted in buses. A great deal is happening, but much more must be done.
College of Social Work
Baroness King of Bow
To ask Her Majesty’s Government what long-term funding is in place for the College of Social Work.
Baroness Garden of Frognal (LD)
My Lords, the college has been established as a membership organisation independent of Parliament and as such it has ongoing revenue from membership fees. Over the past six years the college has received over £8.2 million in core funding, contracts and grants. Both the Department for Education and the Department of Health are currently in discussions with the college over a range of possible direct grants next year, and the college regularly competes for contracts with government and other agencies.
Baroness King of Bow (Lab)
Today is World Social Work Day and our changing world has never been more in need of high-quality social workers, whether in regard to children at risk or the fact that in Britain our population aged over 85 will double in the next 15 years. So would the Minister agree with the Lords Select Committee chaired by the noble and learned Baroness, Lady Butler-Sloss, which concluded that although improving the training of social workers has cost implications,
“this is an area of work of such importance to society … that under-resourcing it would be a false economy”?
If so, in supporting the College of Social Work, should we not seek cross-party consensus to secure longer-term adequate funding?
Baroness Garden of Frognal
My Lords, I entirely agree with the noble Baroness about the importance of social workers and the vital part that they have to play in our society. On the point about training, the coalition Government have spent over £680 million on training social workers. We now have the Step Up to Social Work programme which has attracted some £47.5 million of funding, and the Frontline pilot, which is also receiving significant funds. The importance of proper training for social workers is in absolutely no doubt.
Baroness Howarth of Breckland (CB)
My Lords, does the noble Baroness not agree that at present, social workers are finding life almost intolerable in terms of the pressures on them? What is the level of vacancies in local authorities at present? I know that it is very high. Further, what are the Government doing to encourage local authorities to make sure that they have long-term staffing programmes? I am sure that the work of the College of Social Work encourages these, but a better attitude towards social workers and a sense of being positive about their work, rather than constant criticism, would certainly help.
Baroness Garden of Frognal
Yes, I agree entirely with the noble Baroness on that point. Currently there are more registered social workers than there are vacancies, but it is a question of distribution in that they are not always in the areas where the need is greatest. Constant work is being done between local authorities and among providers to try to ensure that the right numbers of social workers are in the right places. Obviously the College of Social Work has a part to play in ensuring that that work progresses.
Baroness Browning (Con)
My Lords, I declare an interest as a friend of the College of Social Work. Does my noble friend agree that professionalism is as important in the public sector as it is in the private sector? The college affords people working in this very important profession across the country opportunities and support for the work they are doing, particularly in the areas of education and in-service training, as well as of course the important areas where new legislation comes into play and has to be accommodated and implemented at what is often quite short notice.
Baroness Garden of Frognal
My noble friend is quite right that one of the membership services which the college provides is help with continuous professional development as well as the encouragement of professionalism. We are totally committed to the professionalism of social workers. The sector now has an all-graduate entry and standards are constantly being monitored.
Baroness Lister of Burtersett (Lab)
My Lords, Ofsted’s social care annual report, which was published last week, underlines the importance and cost-effectiveness of early intervention and prevention in child protection. Does the Minister accept the case for adequate investment in social work so as to ensure that this preventive work is not neglected, as is so often the case at present? That leads to costly and less effective crisis intervention. Will she also ensure that hard-pressed local authorities have the necessary resources to enable this preventive work to take place?
Baroness Garden of Frognal
Indeed, my Lords; of course early intervention is always an economic thing to do, and it is also far more effective. There is constant work going on, revision and research, to try to make sure that we have the most effective ways of resourcing, funding and training social workers.
Baroness Tyler of Enfield (LD)
My Lords, does my noble friend agree that the College of Social Work has a vitally important role to play in ensuring that the profession remains unified and cohesive, and, in particular, that both children’s social workers and adults’ social workers have the skills to deal with both children’s mental health issues and adult mental health issues, as these are issues which impact on many other family members?
Baroness Garden of Frognal
My noble friend is quite right that the college has a responsibility for the professional capabilities framework, and that that has professional standards for generic social work which cover child, family and adult social work, and of course mental health is a key part of that.
The Countess of Mar (CB)
My Lords, is the noble Baroness aware that local authority social services departments peripheral to London are having acute difficulties recruiting and retaining staff because they do not get London weighting, but house prices are as high as they very often are in London? Is there anything that can be done about this?
Baroness Garden of Frognal
The noble Countess raises a point which ranges far wider than social workers. House prices, particularly in the south-east, are going to be a problem for many people in the public sector. Of course, that then strays into areas of housing, which is rather wider than the remit of this Question. However, I assure her that it is important that we have adequate housing for people who work in these vital services, such as social work.
Baroness Hussein-Ece (LD)
My Lords, can the Minister tell me what percentage of qualified social workers are foreign born?
Baroness Garden of Frognal
I do not have those figures at my disposal, and I think, in fairness, it is slightly wide of the Question on the Order Paper.
Baroness Uddin (Non-Afl)
My Lords, as a former trained social worker, I am all too aware of the demands on social workers and the challenges they face, including not receiving adequate training on general disability issues but, more important, on the issue of autism. Given that the lack of recognition often leads to delay and misdiagnosis, causing huge setbacks, how do the Government and the Department of Health view the College of Social Work in its role in supporting people with autism more effectively? Will it ensure that there is commensurate funding available for that?
Baroness Garden of Frognal
We are entirely committed to improving the quality of social worker training. Training, of course, is not done directly by the college but through universities and other places, and obviously that training is going to need to take into account all sorts of different forms of disability or disadvantage, of which autism would be one.
Forest Holidays: Forestry Commission Stake
(9 years, 9 months ago)
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Baroness Royall of Blaisdon
To ask Her Majesty’s Government what steps they are taking to protect the Forestry Commission’s stake in Forest Holidays and to ensure that in the event of a sale by the majority shareholder they would not lose all management control of any future development.
The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Lord De Mauley) (Con)
My Lords, the control the Forestry Commission has over developments by Forest Holidays is exercised through the arrangements in the legal framework agreement between Forest Holidays and the Forestry Commission, rather than through its shareholding in the business. Any change in ownership would not change the level of control exercised under the framework agreement and as landlord.
Baroness Royall of Blaisdon (Lab)
My Lords, concern about the future of our public forest estate continues, and the Answer of the Minister does nothing to assuage the fears that there are at the moment or the anxiety over the nature of the relationship between the Forestry Commission and Forest Holidays. What is the process for approving new and existing sites? Further to that, why does there not appear to have been any competitive tender process when Forest Holidays was restructured through a joint venture in 2012?
Lord De Mauley
My Lords, the Forestry Commission has to approve of any new sites for this activity, such approval not to be unreasonably withheld, which is a reasonably common requirement. In practice, Forest Holidays is unlikely to be able to progress a site if it does not have the full support of the Forestry Commission. Forest Holidays also has its own site selection criteria, which exclude any site where there are significant environmental constraints.
I spoke to the chairman of the Forestry Commission today, and he confirmed that only a limited number of sites are available within the public forest estate.
Lord Clark of Windermere (Lab)
I declare an interest as the chair of the Forestry Commission from 2001 to 2009. As the House may know, there have been two joint ventures with the Forestry Commission and Forest Holidays, one on my watch in 2006 and a later one in 2012. Will the Minister confirm that, on the first occasion, it followed full parliamentary procedure, had the approval of the Treasury and went out to full competitive tendering?
As regards the second venture, will the Minister assure the House that if the private sector investor decided to sell its share, the Forestry Commission would not be forced to sell the commensurate share at the same time?
Lord De Mauley
I can confirm most of what the noble Lord said. The terms under which the current joint venture operates are very much the same as for the original joint venture. If the controlling interest is sold, the Forestry Commission may be required to sell its interest in the company by the buyer, including the Forestry Commission’s stake in the business. The sale would not change the controls set out in the framework agreement and the site leases.
Lord Hylton (CB)
My Lords, I declare my entry in the register of interests. Public access and amenity are obviously most important, but they are not the only consideration. When it comes to marketing, will the Government ensure that the Forestry Commission does not intentionally undercut private owners and producers?
Lord De Mauley
My Lords, although that is slightly wide of the Question, I think I can none the less confirm what the noble Lord says.
Lord Greaves (LD)
My Lords, when this Question was first put down, I had no idea what Forest Holidays was, but I have been looking into it, and the more I do so, the murkier the whole business seems. It appears that, since the framework agreement in 2012 and the new joint venture companies having been set up, pieces of the forestry estate have effectively been handed to venture capitalists to pursue log cabin developments. The questions that need to be asked are: first, are the public getting value for money for that through the forestry commissioners? There are arguments that they are not. Secondly, is it true that the forestry commissioners are not exercising their powers effectively over such developments? Thirdly, how far will this go? Is it the intention that Forest Holidays will expand substantially, using cheap Forestry Commission land and taking over some of the national forestry estate for its purposes?
Lord De Mauley
My Lords, as I said, I discussed this matter this morning with the chairman of the Forestry Commission. As he said, the reality is that only a limited number of sites are available within the public forest estate, principally because much of the land is either ancient woodland or SSSI or protected in some other way.
Baroness Masham of Ilton (CB)
My Lords, what can be done about the wild boar in the Forest of Dean eating lambs? Might this not be dangerous to people on holiday?
Lord De Mauley
My Lords, that is an interesting question. It is important that we retain visibility of the trees as well as the forest. Primary responsibility for management of feral boar lies with local communities and individual landowners. This means that local land managers are free to control wild boar as they see fit, as long as that control is carried out in a humane and legal manner.
The Lord Bishop of St Albans
My Lords, the Forestry Commission in England is to be congratulated on the significant rise in the number of people visiting our public forest estates, not least as it is against the background of a recent report which suggests that the number of people visiting rural areas has slightly declined. It shows the huge value that our population puts on both the social and economic benefits of the forest, as well as on the environmental benefits because of carbon capture. Have Her Majesty’s Government made any assessment of the possibility of increasing the total amount of public forest estate to enhance those benefits even further?
Lord De Mauley
We have not given particular consideration to that, although the House will be aware of the background and the report of the Independent Panel on Forestry. It is important that we continue to increase the amount of woodland cover generally in the country. That is under way, principally funded through the rural development programme.
Lord Campbell-Savours (Lab)
My Lords, will the Minister answer the second part of the question asked by my noble friend Lord Clark of Windermere? If the private sector sells its share, does the Forestry Commission have to do likewise?
Lord De Mauley
My Lords, I did actually answer that. There are circumstances in which the Forestry Commission’s share is sold with that of the majority shareholder.
Water Cannon
(9 years, 9 months ago)
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Lord Clinton-Davis
To ask Her Majesty’s Government whether they support the use of water cannons in London.
The Parliamentary Under-Secretary of State, Home Office (Lord Bates) (Con)
My Lords, there is an established process for the approval of less lethal weapons, including water cannon. This includes an assessment by the Scientific Advisory Committee on Medical Implications of Less-Lethal Weapons—called SACMILL for short—a report from which has recently been received by the Home Office. The Home Secretary will consider the report carefully and issue a response.
Lord Clinton-Davis (Lab)
Why is the Minister unable to say now that this policy is wholly dangerous and unworkable? Does he agree that water cannon can be dangerous, ineffective, expensive and alien to the British way of life? This is not a laughing matter at all. Is their use not opposed by a large majority of senior police officers, who think the policy is dangerous and not workable? Why is the Minister unable to say now that this is a policy too far and should not be pursued?
Lord Bates
The noble Lord will be aware that we agree this could result in a very significant change in the nature of policing, which has a tradition of being by consent and with public support. When the report was submitted last March by the chief constable who is the national policing lead, the Home Secretary decided this needed to be looked at by the Centre for Applied Science and Technology—CAST—and SACMILL. Their report was received last week and the Home Secretary will issue a response, both on the science and on the ethics of whether this is something we want to see deployed on the streets of this country.
Lord Condon (CB)
My Lords, I have a registered interest in policing. Does the Minister agree that no compelling case has been made, now or in the past, for the use of water cannon in London and that that is why all former commissioners, me included, have resisted calls for their use? In those circumstances, is it not wise for the Home Secretary to take her time responding to this issue? If there is a change of policy, it would dramatically affect the mood and tone of how police respond to challenging demonstrations or street disorder.
Lord Bates
The noble Lord is absolutely right that we should take our time, and that is what the Home Secretary is doing. That is why she commissioned the report and that is why she wrote to ask for further information. Of course, this came to the Home Secretary from the Chief Constables’ Council—from the operational side—last year and we are giving very serious consideration to it.
Baroness Smith of Basildon (Lab)
My Lords, we are not talking about a gentle spray from a garden hose here. Is the Minister aware that water has to be heated before it can be fired from a water cannon? Does he agree with the comments from ACPO that water cannon could be justified because of the need to police protests against the Government’s austerity programme, or does he agree with the late Bob Jones, the police and crime commissioner for the West Midlands, who said that water cannon would be,
“as much use as a chocolate teapot”?
Lord Bates
There is a well established procedure for considering these things, as happened with Tasers under the previous Government. A proposal comes forward—a request is made—and consideration is given to the scientific and medical implications of deploying the particular model. That is also placed in the context of a decision by the Home Secretary on the nature of policing and public consent.
Baroness Knight of Collingtree (Con)
My Lords, is it not very important when discussing the use of water cannon that one also says in what circumstances they should be used?
Lord Bates
Yes, that is absolutely right. What we are talking about here is not peaceful protests that may take place on the streets but serious disorder where life could actually be at risk. It would be in very exceptional circumstances but, even so, it is something that needs to be considered very carefully and that is what the Home Secretary is doing.
Lord Blair of Boughton (CB)
My Lords, the operational deployment of water cannon is a rather arcane subject, but I can inform the House that it has only two purposes. The first is to keep a distance between protesters and a site that needs to be protected, and the second is to keep apart protesters who are going to fight. The Metropolitan Police has dealt with that for 150 years without the use of water cannon. Does the Minister agree that any question to which the answer is, “We should deploy water cannon in London”, is by definition the wrong question, and would he mind explaining that to the Mayor of London—the prospective candidate for Uxbridge and goodness knows what?
Lord Bates
As the noble Lord well knows, this was discussed very seriously after the 2011 riots in the capital and elsewhere in the country. It came forward from the chief constables, not the mayor. It was a policing-led proposal but it is something that there ought be political oversight of, and that is the reason why the Home Secretary is putting through these requests for additional information and scrutiny of the decision.
Lord Richard (Lab)
My Lords, I wonder if the Minister could help me and perhaps help the House a little. Has the prospective Conservative candidate for Uxbridge actually ordered two water cannon or not? I am not clear about that and I would be grateful if the Minister could help us. Secondly, can he tell us that if the prospective Conservative candidate for Uxbridge purports to order two water cannon, the Home Secretary will veto it?
Lord Bates
This decision was taken by Sir Bernard Hogan-Howe, the current Commissioner of the Metropolitan Police. The Met decided to proceed with acquiring three water cannon because, I am told, although they cost £870,000 apiece it was able to get them for £30,000 and thought it was a reasonable decision to take at the time. However, that is something that the Met is answerable for. What the Home Secretary and the Home Office are answerable for is whether the decision should be taken to allow them to be deployed in the UK.
Drug Driving (Specified Limits) (England and Wales) (Amendment) Regulations 2015
(9 years, 9 months ago)
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Baroness Kramer
That the draft Regulations laid before the House on 5 February be approved.
Relevant document: 23rd Report from the Joint Committee on Statutory Instruments. Considered in Grand Committee on 11 March.
Small Business, Enterprise and Employment Bill
(9 years, 9 months ago)
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Lord Taylor of Holbeach (Con)
My Lords, I have it in command from Her Majesty the Queen and His Royal Highness the Prince of Wales to acquaint the House that they, having been informed of the purport of the Small Business, Enterprise and Employment Bill, have consented to place their interests, so far as they are affected by the Bill, at the disposal of Parliament for the purposes of the Bill.
Clause 3: Companies: duty to publish report on payment practices
Amendment 1
Baroness Neville-Rolfe
(b) the company’s performance by reference to those practices and policies”
The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Baroness Neville-Rolfe)
My Lords, I thank the noble Lord, Lord Mendelsohn, for his diligent scrutiny of the late payment provisions in the Bill. We covered a wide range of areas during the debates. I hope noble Lords are now certain of the Government’s unwavering commitment to tackle late payment and are satisfied with the way that I have tried to address the concerns raised. We are all united in the belief that suppliers should be fairly compensated when they suffer from late payment. I was persuaded by the noble Lord’s arguments and made a commitment to bring forward amendments to specify in the Bill how we intend to use the reporting power in relation to payment performance and interest owed and paid. These amendments deliver on that commitment.
Amendment 1 inserts a reference to “performance” in the Bill. This amendment makes clear that payment performance is a vital component of the new mandatory reporting requirement and that we are committed to include it in regulations. Greater transparency will bring to the fore poor payment performance. Amendments 2 and 3 make express reference to late payment interest as an example of the type of information that may be included in the new reporting requirement. We are committed to using this power in the Bill to require companies to report on the amount of interest owed or paid because of late payment. This new reporting requirement will bring increased transparency to payment performance.
Together with the wider package of measures we are driving forward—to improve public sector prompt payment and strengthen the Prompt Payment Code—this will encourage a change in corporate behaviour. For far too long, large companies in the UK have used their economic power to make gains at supplier expense. The commitment I have made today will help to ensure that suppliers are fairly compensated. I hope noble Lords will feel able to support these amendments. I beg to move.
Lord Mendelsohn (Lab)
My Lords, I thank the Minister for introducing these amendments and for her unfailing courtesy throughout the passage of the Bill. We share a deep concern that the scope of late payments and poor payment practices is not only unfair, unjust and damaging to small businesses but is a brake on the entire economic potential of our country. With the sum outstanding approaching £60 billion, the Bill is an important step in trying not just to stop it rising any further but to create the ability to reverse that number as strongly and rapidly as we can.
While we favour additional measures—some of which could be considered in secondary legislation—we are grateful to the Government for recognising the need to add strength to their approach by ensuring that the payment report goes beyond intentions and reports on actual performance. In addition, the interest figure in payments highlights existing late payment legislation. These measures have our strong support and we are grateful to the Minister and the Government for listening and for their positive response and detailed scrutiny of our suggestions.
It may be for the convenience of the House for me to thank the Minister for the letter she sent to my noble friend Lord Stevenson and myself helping to tidy up some of the points of contention raised on Report relating to the co-protections when a pub is sold, the role of the adjudicator in these matters, investment by pub companies and the market rent only option, and the consultation on the code itself and on secondary legislation. We are very grateful for what the Minister has written and believe that it resolves almost all of the outstanding issues at this stage. Again, we offer our strong support for that.
We have good reason to be very proud and supportive of small businesses. One has only to look at the annual reports on European SMEs, published by the European Commission, to know how strong we could be with more focused public policy support. Let us hope that this Bill is a strong step in the way forward in dealing with late payments and prompt payments and ensuring that our small businesses take full advantage of the position that they are in. They are, of course, the backbone of our economy.
Baroness Neville-Rolfe
My Lords, I am grateful to the noble Lord, Lord Mendelsohn, for his very kind remarks and for giving me the opportunity to return briefly to the matter of pubs. As he said, I sent a letter to the noble Lord, Lord Stevenson, yesterday and I have, for the convenience of the House, placed a copy in the Library.
Noble Lords expressed concern on Report about protections that would be available to a tied tenant whose pub is sold. Let me clarify the position: when a tied pub, owned by a company covered by the statutory code, is sold to another code company, the rights of the tenant under the code will be unaltered and will continue seamlessly. A tenant in this situation will retain the right to exercise the market rent only option after sale if any of the MRO triggers are activated. Where a tied pub is sold by a code company to a company outside the scope of the statutory code—for example, to a family brewer—the tenant will retain all the protections of the code except for MRO until the end of the lease or until completion of the next rent review, whichever comes first. In this scenario, if the purchasing company offers the tenant an agreement on different terms from their existing agreement, the tenant will have the right to a rent review.
If the tenant considers that the rent review breaches the code then he or she will be able to refer the matter to the adjudicator for arbitration. The adjudicator will not have powers to investigate non-code companies because the investigation powers are designed to address suspected systemic abuses of the code across many tenants. It would not be right to include in scope companies which are covered by the code only by virtue of the historic ownership of some of their pubs and in respect only of those particular pubs.
I turn briefly to the matter of investment. I have been clear that the Government want to see investment in tied pubs. That is key to the success of the industry, both for pub companies and for tenants. Pubs are at the heart of our communities and our heritage. They are important to the old and the young. We want pubs to thrive. I therefore announced on Report that the Government would set out in secondary legislation how tenants and pub companies can agree a waiver of two MRO triggers in exchange for significant future investment in a pub. I would like to make it clear that the waiver will apply only to the renewal and scheduled rent review triggers for MRO. All other code protections will remain in place during the waiver period. This means that the two exceptional triggers for MRO will remain; namely, a significant price increase and an economic event which impacts on the tenant’s ability to trade. The Government will set out safeguards in the code to ensure the tenant is protected from attempts to abuse a waiver. Any attempt to avoid these safeguards could be referred to the adjudicator for arbitration and redress.
Lord Hodgson of Astley Abbotts (Con)
I am grateful to my noble friend. I hoped to get through this afternoon without having to discuss pubs yet again. When a pub is sold by one of the companies covered by the code to a company that is not covered by it—a family brewer was the example she used—who enforces the rights of the tenant against the pub company that is outside the code? At that point, as my noble friend said, it is not part of the code so how does the adjudicator make that work?
Baroness Neville-Rolfe
I thank my noble friend for that question. The answer is that this is part of the role of the adjudicator. I am very happy to talk further on the detail of how that might work. Of course, that will be the subject of full consultation.
Finally, I reiterate that the Government are committed to that full consultation on the pubs code and the other secondary legislation that is required to deliver Part 4 of the Bill. We will be keen to continue engaging with stakeholders as the secondary legislation is developed. The regulations are of course subject to the affirmative procedure and we intend to ensure that there is a chance to scrutinise this secondary legislation because of the depth of interest in it and its importance. We send the Bill back to the other place confident that we have remained true to the spirit and intention of the measures introduced there, but having made improvements that will ensure that the measures are workable and minimise unintended consequences.
Baroness Neville-Rolfe
Baroness Neville-Rolfe
Baroness Neville-Rolfe
My Lords, the amendments in this group make a number of consequential and technical changes to the Bill. I turn first to Amendments 4, 6, 12 and 13. In Committee, the Government moved a number of technical amendments about the penalties in the Bill. The majority of those related to the penalties in Parts 7 and 8. At the time, it was unclear whether changes to the fines available to magistrates in the Legal Aid, Sentencing and Punishment of Offenders Act 2012 would be implemented during this Parliament. This was because the regulations needed to accompany commencement were yet to be debated in both Houses of Parliament and a number of the amendments were designed to ensure that the penalties worked in either event. As noble Lords may be aware, Section 85 of LASPO came into force on 12 March. As a result, there is no longer an upper limit on fines in the magistrates’ courts. My amendments therefore remove the changes we made in relation to these fines, as they are no longer necessary.
I now turn to Amendments 14 to 16. Noble Lords will be aware that the Deregulation Bill has recently been read in this House for a third time, and yesterday this House considered and agreed amendments made to it in the other place. These technical amendments are therefore required so that the Schedule 9 amendments are based on the text of the Insolvency Act after amendment by the Deregulation Bill.
Finally, I turn to Amendments 7 to 9. Our penalty measure in Clause 150 provides for full and prompt payment of employment tribunal awards. This will reassure claimants that, should they be successful at a tribunal, they will receive the money that they are owed. Clause 150(5) already amends the Employment Tribunals Act 1996 to provide that the affirmative procedure applies to regulations made under the new provisions. However, it does not also remove them from the category of instruments that are subject to negative procedure. Amendments 7 to 9 correct this.
I hope noble Lords will welcome these various amendments and give them the House’s support.
Lord Stevenson of Balmacara (Lab)
My Lords, it says in the Companion very clearly that Third Readings are mainly used for tidying up complicated parts of Bills that perhaps have eluded the draftsman or indeed are subject to a change in other places. The descriptions as made by the Minister clearly fulfil all aspects of that and we have no wish to enter into them.
I must say that I was slightly confused by the insertion and then removal and then the reinsertion but in a different way of the Legal Aid, Sentencing and Punishment of Offenders Act provision. However, the Minister has explained the reason for that in a private meeting and we are very happy with the provisions now.
Baroness Neville-Rolfe
“( ) Regulations under this section must not specify a regulatory function of the Commission for Equality and Human Rights.”
Baroness Neville-Rolfe
My Lords, we debated on Report whether the Equality and Human Rights Commission should be excluded from the small business appeals champion in the Bill. I committed to consider the question. Amendment 5 now delivers an exclusion. The Government have always maintained that the EHRC is a very special case and should not be subject to the duty to appoint a champion. We considered that an exemption in secondary legislation would be sufficient, but noble Lords were concerned about this and the potential implication for the EHRC’s “A” status as a national human rights institution. The Government believe that there is only a very small risk here, but we have listened to noble Lords and agreed to eliminate the risk altogether with this amendment, which I know from the debate will be welcomed across the House. I beg to move.
Lord Deben (Con)
My Lords, I thank my noble friend very much for this concession. I entirely agree with her that nobody in this House thought that the Government were not going to do this. We understood that there was no malice aforethought in any sense at all, but it is surprising how people can make malice if they can find a way of doing it, and many people were suggesting that, in some way, the Government were taking control over this independent body, which would be unacceptable internationally. That is why we made the point, and I, for one, am very pleased that the Government have accepted it. I thank my noble friend for the courteous way in which she has dealt with this and, indeed, the detailed answer that she has given us.
Lord Stevenson of Balmacara
My Lords, this is a strange moment because exactly the same arguments and debates—indeed the same personnel—debated much the same amendment in the Deregulation Bill, as the Minister has explained. The result on that occasion was that the EHRC was not excluded from the Deregulation Bill. In a sense, the points made by the noble Lord, Lord Deben, are entirely correct. I think that we as a House are convinced that the Government do not wish any ill on the EHRC and wish to see its “A” status preserved. We have excluded it from this Bill—which had a small but important adjunct of policy which bit on the EHRC—but we have not excluded it from the Deregulation Bill, which covers a much larger area. Obviously the Minister has skills way beyond those with which she came into this House—and there were many when she arrived. She has gained in strength and capacity. She has been able to do the impossible in going round the magic circle of Cabinet committees in a record-breaking time and I congratulate her on this amendment.
Baroness Neville-Rolfe
Baroness Neville-Rolfe
“and in subsection (3)(b) for “regulations” substitute “any other regulations”.
Lord Newby
“( ) The first regulations under section 154(1)—
(a) if made by the Treasury, are subject to affirmative resolution procedure;(b) if made by the Scottish Ministers, are subject to the affirmative procedure.”
Lord Newby (LD)
My Lords, Amendments 10 and 11 relate to the public sector exit payment provisions and deliver the commitment I made on Report to make these powers subject to the affirmative procedure on their first use. This was in light of a further report by the Delegated Powers and Regulatory Reform Committee and we are grateful for the committee’s scrutiny of the Bill.
This first use will be the substantive one to establish the exit payment recovery regime. The regulations will contain full details of the government subsectors, the types of exit payments included, the circumstances in which recovery is mandated and the amount to be recovered. They will also set out the duties upon the persons and employers involved to retain and communicate information and facilitate the repayment.
Amendment 11 allows for changes to this first set of regulations to be made by the negative resolution procedure. These subsequent regulations will contain the minor and technical changes which will be aimed solely at ensuring that the regime remains up to date and fit for purpose. For example, changes will be required to reflect any new public body that is created or closed. I beg to move.
Lord Stevenson of Balmacara
My Lords, this is very much a technical issue. The amendment responds to the recommendations by the DPRR Committee and satisfies in full that committee’s concerns. When the Minister introduced the amendment just a few seconds ago, he did not refer to the supplementary memorandum by BIS which was circulated recently by the committee relating to whether or not the Delegated Powers and Regulatory Reform Committee had in some way impinged on the powers of the Scottish Parliament on this matter. Can he add a few words just to make sure that the record is clear on that?
Lord Newby
Baroness Neville-Rolfe
Baroness Neville-Rolfe
Baroness Neville-Rolfe
Lord Stevenson of Balmacara
My Lords, perhaps I may take this opportunity to thank the Minister for the way in which she has led this long and incredibly complex Bill over the past few months. She has been exemplary in offering meetings and has made sure that we have been fully briefed by officials, for which we are very grateful. Whenever debates have raised issues that she felt needed further consideration, she has written to us, thus carrying on a practice started by her predecessor; while he was pretty good at it, she has been exemplary and has won hands down in that race.
We said at the beginning of the Bill that we would like to work closely with her if we could because the Bill was in the right place in what it was trying to achieve and there were many things on which we could agree. Indeed, we felt that in some senses it could have gone further. I hope the Minister agrees that that has proved to be of considerable benefit to the process of getting the Bill to the position it is in now.
I want to make sure that recognition is duly paid to my team, my noble friends Lord Mendelsohn, Lord Mitchell, Lord Young, Lady Hayter and Lady Jones, who have all had to appear at various times during the passage of the Bill because it covered so many different aspects of the Government’s work. We also had the innovation of having a Back-Bench liaison Peer, my noble friend Lord Watson of Invergowrie. As well as taking a particular interest in the PSC register, he also worked very hard to make sure that Back-Benchers were fully involved. That helped to stimulate the debates and get us through the work. We have also benefited from a very hard-working legislative assistant, Nicola Jayawickreme, our former apprentice in our office at the end of the corridor, who has grown in stature and confidence as this legislation has progressed. So apprenticeships do work.
Having spent a lot of time in areas that perhaps we did not expect to when the Bill was first introduced, and having become expert in the intricacies of how pub companies and pub tenancies work and the implications of various activities in that area, as well as lots more, let us say “Cheers” to this Bill as we wish it on its way.
Lord Stoneham of Droxford (LD)
My Lords, I endorse the words of the noble Lord, Lord Stevenson, by thanking the noble Baroness, Lady Neville-Rolfe, for her unfailing courtesy and competence throughout the transaction of the Bill. I also thank the noble Lords, Lord Mendelsohn and Lord Stevenson, for their efforts to improve the Bill and to work with all of us who have been engaged on it over the past few weeks. I thank my noble friend Lady Janke, who has been assisting me on these Benches. I particularly thank all the officials who have dealt with our replies and the detail of queries that we have had on the Bill throughout the past few weeks.
Lord Wills (Lab)
My Lords, I briefly add my congratulations and thanks to the Minister and all her officials for their unfailing help and courtesy in the area that I was especially interested in. I set up and ran a small business throughout the 1980s and 1990s, so I had a particular interest in this Bill. There were many areas where I felt that I might have made a useful contribution. Nevertheless, it is a good Bill and I felt that I should focus my efforts on one area: the protection of whistleblowers. The Bill includes significant improvements in such protections. Again, I thank the Minister particularly for the constructive and thorough way in which she has engaged with those complex legal issues and managed to achieve significant progress.
However, there is still more that could be done. This is a rare legislative opportunity. There are still glaring gaps in protection for whistleblowers and I think the House will agree that those courageous individuals who blow the whistle on their employers, often at considerable detriment to themselves and their families, deserve all the protection that Parliament can give them. When the next scandal in protecting the public happens—as I am afraid it will, unfortunately—and when the inevitable inquiry finds out that more could have been done to encourage whistleblowing, all of us may have cause to regret that we did not do more on this occasion. However, this is a good Bill, which does a huge amount for small business. I welcome it and wish it all the best in its progress on to the statute book.
Lord Deben
My Lords, as a representative of the rebellious tendency on this Bill, I thank my noble friend for the considerable improvements to the Bill as a result. It has been an example of the House of Lords at its very best. We now have something that will make a difference in a lot of areas and which has removed some of the things that might have made a difference in the wrong way. We owe a great deal to the Minister responsible because, as the noble Lord, Lord Stevenson, said, she has achieved things that many others have not.
Baroness Neville-Rolfe
My Lords, I thank noble Lords for their warm and gracious words and put on record my thanks to everyone who has played a role in supporting the rapid passage of this sizeable Bill through our House. I start by thanking the Lord Speaker and all Deputy Speakers who have facilitated our proceedings, as well as the clerks, the doorkeepers and our skilful reporters in Hansard. As other noble Lords have done, I thank the excellent, hard-working, never-complaining members of the Bill team and officials from the 12 departments who have supported our debates.
This is a wide-ranging Bill. We have considered it from A to Z: right from access to finance through to zero-hours contracts and beyond. We even mentioned Gibraltar and fish and chip shops. I thank all noble Lords for their contributions to our debates and for the detailed scrutiny they have given the Bill. Having benefited from the expertise for which this House is renowned, the Bill now returns to the other place much improved.
We have heard a range of expert voices from the opposition Benches, helped by their excellent apprentice. I am grateful to noble Lords, particularly the noble Lords, Lord Stevenson and Lord Mendelsohn, and the noble Baroness, Lady Hayter, who are in their places, and the noble Lords, Lord Young of Norwood Green, Lord Mitchell, Lord Grantchester and Lord Watson, and the noble Baronesses, Lady Jones. I thank them for their constructive, but challenging, approach and for working with me and my officials outside the Chamber.
We have added new provisions on equal pay and on whistleblowing. I thank the noble Lord, Lord Wills, for mentioning that and for the stand he has taken in that area. We have reached agreement on the vital pubs measures in a form that is workable to deliver the protections that tied tenants need. I also thank my noble friend Lord Hodgson for providing the perspective of the pub investor so eloquently. Although there has been a lot of passion on either side of the debate, I am glad for the drinkers among us that it was mild-mannered and that nobody has been left feeling too bitter.
Finally, I thank my noble friends Lord Popat, Lord Newby, Lord Nash and Lady Verma, who have so expertly assisted me at the Dispatch Box, as well as my many noble friends who have supported the Bill from the government Benches, especially my noble friend Lord Stoneham, who has attended every day and made the most excellent contributions. I also thank my noble friends Lord Borwick, Lady Harding and Lady Mobarik, who gave us the strength of their business experience on this, their maiden Bill, and my noble friends Lord Lee, Lord Flight, Lord Ridley, Lord Phillips, Lord Freeman, Lord Deben—and his rebellious tendency—and Lord Young of Graffham, who was the inspiration for our public procurement measures.
It is now vital that this Bill proceeds to Royal Assent swiftly so that we can start to reap the benefits for small businesses. It will open up new opportunities for small businesses to innovate, compete and secure finance—to create jobs, to grow and to export. As we call last orders on the Bill, I am sure that is something all noble Lords will want to toast.
Corporation Tax (Northern Ireland) Bill
(9 years, 9 months ago)
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The Parliamentary Under-Secretary of State, Wales Office (Baroness Randerson) (LD)
My Lords, it is very appropriate that we are discussing this Bill on St Patrick’s Day. I take this opportunity to wish noble Lords a happy St Patrick’s Day.
I shall start by highlighting the history behind the policy enshrined in this Bill. Since 2010, the UK Government and Northern Ireland Executive have shared a common objective to rebalance the Northern Ireland economy away from overdependence on the public sector and to drive faster economic growth. In 2011 this Government published a consultation document Rebalancing the Northern Ireland Economy. Among other things, the consultation considered the possibility of devolving corporation tax powers to the Executive and Assembly. Responses to that consultation from the business community and Northern Ireland political parties nearly unanimously supported the devolution of corporation tax.
After considerable work on the detail and technical work needed to make this measure possible, this Bill was introduced in the Commons on 8 January. The proposals will allow the Northern Ireland Executive and the Northern Ireland Assembly to set a different rate of corporation tax from the rest of the UK for most types of trading profits arising in Northern Ireland. The tax base, including reliefs and exemptions, will remain under the control of the UK Government. The earliest financial year for which Northern Ireland could set its own rate is 2017. This will allow time for businesses and agents to become familiar with the new rules.
Lord Forsyth of Drumlean (Con)
Can my noble friend tell me why this Bill—unlike for example the measures that gave income tax powers to the Scottish Parliament—has been certified as a money Bill and therefore all its stages have to be taken at once?
Baroness Randerson
I understand the noble Lord’s point, and indeed there are clearly constitutional issues in relation to this Bill, but it has been certified as a money Bill by the Speaker of the other place. It is important to bear in mind that unlike the other legislation to which my noble friend refers, this is a simple measure that deals entirely with one issue. I am sure my noble friend will agree it is a highly technical Bill and therefore akin to many other money Bills this House deals with.
I will go briefly over the aim of this policy and the key measures within this Bill. Northern Ireland has a unique economic position within the UK. It shares a land border with the very low corporation tax environment of the Republic of Ireland. It is more dependent on the public sector, with around 30% working there, compared with about 20% in the rest of the UK. Economic prosperity—GVA per capita—is persistently some 20% below the UK average, and has been for a number of decades and it has to deal with the challenging legacy of the Troubles.
Devolving corporation tax recognises these unique challenges. The Northern Ireland regime has been carefully designed to enable the Executive to encourage genuine investment that will create jobs and growth, while minimising opportunities for avoidance and profit shifting. It balances this with the need to keep the costs of a reduced rate proportionate, both for the Executive and in relation to any additional administrative burdens for businesses.
The design of the regime builds on the principles agreed in 2012 by the Joint Ministerial Working Group which included Ministers from HM Treasury, the Northern Ireland Office and the Northern Ireland Executive. Companies trading in Northern Ireland will attract a Northern Ireland rate on their qualifying trading profits only. Companies will continue to pay the UK rate on their profits from non-trading activities which do not generate jobs or economic growth in the same way.
The rules are designed to deter businesses from seeking to exploit, through profit shifting and avoidance, a rate differential between Northern Ireland and the rest of the UK. The regime will not provide opportunities for brass-plating. Because they offer significant scope for profit shifting without the benefits of bringing substantial new jobs, the regime does not extend to profits from financial trading activity, such as lending and reinsurance. However, the policy recognises the genuine growth and employment potential for Northern Ireland offered by back-office functions, so companies with excluded profits from certain financial trades may make a one-off election to bring a notional profit attributable to the back-office functions of those excluded trades within the Northern Ireland rate.
To reduce the administrative burdens for SMEs, a special regime exists for them. A simple in-out test will mean that the majority of the companies will be spared the burden and cost of apportioning profits. More than 97% of SMEs operating in Northern Ireland meet the 75% employment test threshold and will benefit from the Northern Ireland regime.
Although this measure should go a long way in helping the Executive to encourage genuine investment that will create jobs and growth, the Government have been clear that devolving corporation tax is not an end in itself. For the full potential benefit of corporation tax devolution to be recognised, there are a number of other areas of reform that need to be addressed, such as education, skills and infrastructure.
The Stormont House agreement set out that the progress of this Bill through Parliament would proceed in parallel with implementation of key measures to deliver sustainable finances. These include agreeing and delivering a 2015-16 budget that works; progressing the Welfare Reform Bill in the Assembly; and taking the steps required to put the Executive’s finances on a stable footing for the long term. The Northern Ireland Executive agreed their budget for 2015-16, passing their Budget Bill on 24 February, and the Welfare Reform Bill also passed through further consideration stage of the Assembly on the 24 February. Sinn Fein has since withdrawn its support of the Welfare Reform Bill through its final stage in the Assembly. There can be no doubt that this decision was a setback, and the Secretary of State for Northern Ireland chaired a meeting of the party leaders last week in an attempt to help them to resolve the situation. The party leaders have since held further talks, and the Secretary of State proposes to convene another meeting with them later this week.
Changes to the welfare system in Northern Ireland were a key part of the Stormont House agreement and, as the Secretary of State has made clear, it remains pivotal that all aspects of the agreement are implemented. In simple terms, the Executive’s budget for 2015-16 does not balance without progress on these important issues. The Stormont House agreement was a major step forward and, although there has been good progress since the beginning of year, there were bound to be bumps in the road. The Government remain determined to implement the agreement and propose to continue with the progress of the corporation tax legislation through this House. The legislation contains a commencement clause, and commencement will not take place until the conditions set out in the Stormont House agreement have been met and changes to the welfare system in Northern Ireland have been implemented. This means the devolved power will be “switched on” for the planned start date of April 2017 only if the Executive are delivering their side of the agreement, including achieving sustainable public finances.
The unique challenges faced by Northern Ireland have been recognised by all parties. This Bill will allow the Northern Ireland Executive greater power to rebalance the economy towards a stronger private sector, boosting employment, growth and the standard of living in Northern Ireland, with benefits for the wider UK.
I therefore hope that noble Lords will give this Bill a Second Reading.
Lord McAvoy (Lab)
My Lords, the Labour Opposition welcome and support the Bill and will do everything we can to facilitate its passage. However, that does not mean that we are not looking for further answers to questions that were asked in the House of Commons.
The Minister mentioned action to prevent “brass-plating”, as it has become known. We would like a bit more detail on how that would be stopped. She mentioned rebalancing the Northern Ireland economy. Concerns were expressed in the other place by the honourable Margaret Ritchie about regional imbalance within Northern Ireland, so that issue needs to be addressed.
Before I go any further, I should indicate again that we fully support the Government in looking to the parties in the Northern Ireland Assembly to implement the Stormont agreement. That is part of the deal, and we support the Government in insisting that the Stormont House agreement be implemented.
Some concerns remain that we would like to probe a little further. When government Ministers were asked about the effect of the devolution of corporation tax on the block grant, there was no real response to that. I merely repeat the question that was asked in another place: why were no models done? For example, if corporation tax was set at level X, what would be the effect on the block grant? I do not think that is too demanding a question to ask. Models should have been drawn up so that folk could have a better grasp of what will transpire in this area.
I share the sober assessment that this measure will not solve Northern Ireland’s economic problems or provide the necessary rebalancing of its economy. However, it should be implemented to try to rebalance the economy, as the Minister mentioned.
I want to spend a few minutes on the trade-off between a reduction in corporation tax and spending cuts. The impact of this legislation will need careful managing to ensure that it does not benefit only already wealthy people at the top and does not further perpetuate existing income inequality in Northern Ireland. This should not become a rich man’s Bill.
The importance of funding education in Northern Ireland cannot be overstated. Without adequate investment in education and apprenticeships, jobs and productivity will never increase. If Northern Ireland reduces its corporation tax rate to that of the Republic of Ireland, it will lose at least £300 million from its block grant. That figure was given by the government Minister in the other place. I believe in devolution and giving the Stormont Assembly responsibility for running its affairs, but that agreement should contain safeguards to make sure that there is no dramatic effect on the services that have been mentioned. The devolution of corporation tax—
Lord Forsyth of Drumlean
How can the noble Lord say that he supports the Bill and at the same time say that there should be no dramatic effect, when the effect of the Bill will be to reduce the amount of tax paid by profitable businesses if corporation tax was equalised, as he said, by between £300 million and £350 million, which would be money not available for spending on public services? So the necessity is that there will be less money for public services and more money in the pockets of profitable businesses.
Lord McAvoy
There is a bit of role reversal going on here. It is me who is supposed to attack the capitalists, not the noble Lord or the Minister. I am starting to feel a bit dizzy.
That is the balance that it is hoped to be reached. The noble Lord shakes his head. I would say to him, “O ye of little faith”. There will be a vested interest for Stormont Ministers to make sure that they balance extra corporation tax against a reduction in the block grant. I fully agree that one has to be very careful here so that this does not result in less money for services but we have been assured that there will be no dramatic impact, and I am always willing to listen to government Ministers. The noble Lord, Lord Newby, is looking a bit puzzled. I hope that he will comment on that point.
Has there been any study or consideration—perhaps the noble Lord, Lord Forsyth of Drumlean, is right—of how the volatility of corporation tax might impact on Northern Ireland’s economy? That is a valid concern. While devolution is devolution, we are devolving the power and are therefore looking for some kind of guarantee in this matter. We hope that its devolution goes ahead in 2017, but a potential stumbling block is that Northern Ireland’s finances must be on a stable footing. It concerns us that we do not know the precise fiscal conditionality required before the Government devolve this power. Can they make any estimate of the resulting decrease in the block grant? There are various calculations, but I would like the Treasury people to have looked at that.
I repeat, in case of doubt, that we support the Bill. In the other place, highly contentious remarks were made to the effect that Labour had done a U-turn because it had previously attacked the devolution of corporation tax. That is quite untrue. We have expressed legitimate concerns, but if anyone wishes to pursue that point, perhaps they could turn to the minutes of the Public Bill Committee, where Nic Dakin asked the Secretary of State for Northern Ireland whether she had seen comment by the Institute for Fiscal Studies that,
“Corporation tax is not a good candidate for devolution”?
The Secretary of State replied that there were risks. The Labour Opposition are not using scare tactics but asking legitimate questions. This process is not the be-all and end-all but could and should be a helpful tool for Northern Ireland.
Briefly on the background to all this, Laurence Robertson, chair of the Northern Ireland Select Committee in the other place, indicated that when the committee was in the United States of America recently it watched violent scenes on the streets of Belfast and Northern Ireland, involving fires and smoke-bombs. That is the biggest turn-off when trying to attract industry into Northern Ireland. There is a two-way street here: devolution is coming from this place, after consideration, but there also has to be a payback, if you like, by people trying to work together—hard as that may be because the past is always there. The damage being done by those scenes is quite substantial.
We hope that this is a contribution to further periods of peace and stability in Northern Ireland. Going back in history, I think that great credit is due to Sir John Major for initiating this process and to Tony Blair and his team for pursuing it. It is to be hoped that the devolution of corporation tax will be a further measure along the road to peace and stability in Northern Ireland.
Lord Hay of Ballyore (DUP) (Maiden Speech)
My Lords, I welcome the opportunity to make my first contribution in this House on this hugely important Bill. When I first started my political career some 40 years ago, I could never imagine the opportunities I would have. Serving for seven years as Speaker of the Northern Ireland Assembly was an incredible privilege, but to join your Lordships’ House is an incredible further honour of which I am proud but very humbled.
I appreciate the welcome and advice I have received from noble Lords on all sides of the House, not least from my two sponsors, the noble Lord, Lord Morrow, of Clogher Valley, and the noble Lord, Lord Browne of Belmont, two very hard-working Peers in this House. That needs to go on record. I also want to thank all of the staff who have done so much to welcome and support me in the House. I appreciate how important the work of parliamentary staff is to making the institution operate smoothly.
It is a great delight to join this place with Ballyore in my title. The townland of Ballyore and the village of Newbuildings gave me my first start in politics. The strong support I have received over the years certainly makes it close to my heart and I am glad to bring it with me symbolically to this House. Being a proud representative of the great city of Londonderry for four decades—a city close to the border with the Republic of Ireland—certainly made this debate on the devolution of corporation tax to Northern Ireland an obvious choice for my first contribution in your Lordships’ House.
I want also to put on record my thanks to the joint ministerial working group formed in October 2011 which did quite a bit of the detailed work on this Bill. It reported in October 2012 and I know of some of the hard, detailed work that was involved.
I know that there have been some concerns about how this Bill will fit into the delicate balance of constitutional arrangements in the United Kingdom at this time. However, we need to remember that the whole purpose of devolution is to recognise the differing circumstances of the regions and to allow decision-making to take account of those local differences. It is hard to imagine circumstances more different than being the only region of the United Kingdom to have a land border with another nation, let alone a nation with a much lower tax rate.
The economy of Northern Ireland also has the additional challenge of overcoming the legacy of decades of conflict and all that came with it. In this context we have performed well over recent years given all the difficulties that Northern Ireland has had. For example, in 2013-14 we had a record year of investment in Northern Ireland. Nearly 11,000 new jobs were promoted, 23 first-time investors came in, and month upon month unemployment figures have dropped. Northern Ireland has attracted more foreign investment than any other part of the United Kingdom.
We all recognise that corporation tax alone will not address the economic challenges that face Northern Ireland, but it is a very important lever for the Northern Ireland Executive to have to address the imbalances within our economy. Once the principle of the devolution of corporation tax has been agreed, it is for the administration at Stormont to examine the detail and agree the arrangements. Of course there will be difficult judgments to make and there will be major issues to take account of before the long-term benefits are seen in Northern Ireland.
Significant changes of this nature and significant returns seldom come without a level of risk. I would not seek to deny that the Assembly has had great difficulties in recent days and it is frustrating at times that the level and speed of progress made in this mandate of the Assembly was not as many would like to see. However, I do not so easily dismiss the distance we have travelled in the context of the problems we have had to overcome. No one in this House or in the other place would seek to pretend that government is easy, especially in Northern Ireland. Add to these factors the additional legacy of issues that we face in Northern Ireland, and perhaps fair-minded people will acknowledge that the situation we find ourselves in today bears no comparison to what we might have imagined 15 or 20 years ago.
There are many issues that Northern Ireland politicians still have to deal with, whether they are about the past or flags and parades. There are so many issues on which they have to try to reach agreement. They are difficult issues for politicians in Northern Ireland to deal with. We would all hope that we can implement the Stormont House agreement for the people of Northern Ireland so that once again, both politically and economically, we can all move forward. I would hope that sooner rather than later the issue of welfare reform can be resolved because, as the Minister has said, it is part of an overall agreement. It is not a matter of taking it in slices, whether it be welfare reform or the issue of corporation tax. The Stormont House agreement was a package. There are still some issues to be resolved, but I am hopeful that they can be resolved.
Lord Alderdice (LD)
My Lords, it is a great pleasure to follow the noble Lord, Lord Hay of Ballyore. I have been looking forward to his maiden speech for some time. He succeeded me as Speaker of the Northern Ireland Assembly, and when it was announced in August last year that he would be coming to your Lordships’ House, I thought, “That is wonderful”. It has taken quite a while, but that is because he has had something of a scare. Sometimes when people are appointed to your Lordships’ House they say, “My goodness, I was so surprised that I nearly had a heart attack”. The noble Lord took that further than most people, which set him back a bit, so it is wonderful to see him in this House and to hear him speak.
Colleagues will know of the noble Lord’s long and distinguished public service in Northern Ireland. He was elected to Londonderry City Council in 1981, became deputy mayor of the city in 1992 and mayor in 1993. He was elected to the Northern Ireland Assembly just after the formation of the Belfast agreement in 1998 and went on to be appointed Speaker in 2007. He served for some seven years until the latter part of last year. He has done a lot of other things as well. He was a member of the Northern Ireland Policing Board, the Northern Ireland Housing Council and the Londonderry port authority. He has held many distinguished positions, but what noble Lords may not necessarily know about—because it is not the kind of thing that is recorded in Wikipedia, Dod’s or whatever—is the kind of work that the noble Lord has done quietly and privately but most significantly, especially in the city of Londonderry. There have been many difficulties, but as a member of the Orange Order and of the Apprentice Boys of Derry, quietly and behind the scenes he has forged remarkable friendships. He has demonstrated real leadership and—I make no criticism of his party here—he was prepared to go out in front of his party on occasion to lead it on to developing relationships with people in the nationalist and republican community which later would become an everyday matter. He was out in front and doing these things in a quiet and thoughtful way.
Consider his experience in the Northern Ireland Assembly. I know, from talking to members of all political parties, staff in the Speaker’s office and staff in the clerking department, that he is held in great affection and regarded with great appreciation for the quiet, thoughtful work that he does. This House will find that he will continue that kind of public service here. He is a man of great courtesy and thoughtfulness, but also a man of real determination to make things better for his community.
One of the other distinctive things about him, which makes St Patrick’s Day a particularly appropriate day for him to come here, is that he is an Irish citizen. He was born in Milford, in County Donegal. One does not necessarily associate noble Lords from the Democratic Unionist Party with Irish citizens, although one never knows what the future may hold. For him, it is a very distinctive feature, and he comes here on St Patrick’s Day as an Irish citizen.
Of course, this is an important day for the Corporation Tax (Northern Ireland) Bill as well. The noble Lord, Lord Hay, knows, because of his experience on both sides of the border, that the relationship between north and south was one of the important strands that we were trying to address in the Belfast agreement. One of the economic dilemmas we have faced is that corporation tax on the other side of the land frontier is much lower than in Northern Ireland. It has been one of the great successes that led to the Celtic Tiger, with its positive and difficult sides, but it is an important challenge for us economically in Northern Ireland.
My noble friend raised some questions as to whether this was just a money Bill or whether there were other elements to it and whether the Speaker of the other place had gone a little far in his certification of the Bill. As a former Speaker speaking just after a former Speaker, I do not think the noble Lord would expect me to question what the Speaker in another place would say, but there is more to the Bill than simply the question of money. No one, I think, would believe that the Bill on its own will address all the economic problems of Northern Ireland—far from it—but there is an important principle here. There are those in Northern Ireland who seek better relations with the Republic of Ireland economically, politically, socially and otherwise. It is very important that nationalists and republicans have it put to them that it is possible to move to greater tax harmony north and south of the border, but there are economic realities if you do that.
In Scotland, which my noble friend comes from, the Scots Nats have for years been claiming they wanted more powers, but they never used the income tax powers that they were given in the legislation of devolution. Had they not been given them, they would of course have complained. Here is the opportunity for nationalist and republican politicians, along with Unionist, Democratic Unionist and Alliance politicians, to face up to the political and economic challenges of instituting a corporation tax rate that is closer to that of the Republic of Ireland and different from that of the rest of the United Kingdom.
This is where we move from institutions of power sharing to the reality of responsibility sharing. We saw the dilemma of that just before Christmas last year, when the issue of welfare came forward, with all its social and financial implications. It was a real hurdle for people in the nationalist and republican communities to overcome.
Lord Forsyth of Drumlean
I am most grateful to my noble friend. I apologise for interrupting him, but as he has mentioned the Scottish position, I am, unusually for me, defending the Scottish Nationalists. The reason that the tartan tax powers were never used, by way of explanation for them, was that they could only set the rate. They could not change the allowances. This is precisely the position in the Bill, which allows Northern Ireland only to set the rate, while the allowances and all the other conditions are set centrally. Does it not have the same problem that prevented the Scots from doing so?
Lord Alderdice
No, it is not. I think it is the same problem, but I do not think that is the reason the Scottish Nationalists did not go down that road. I think the reason was they like to eat their cake and have it. They liked the possibility of being able to complain that they do not have the power to do things, but then, when they have the power, but there is an actual cost to doing it, they do not do it. I think we will find exactly the same thing in Northern Ireland. We had this dilemma over the Stormont House agreement. Nationalists and republicans signed up for the agreement and knew perfectly well that the sums did not add up. Then, when there came to be a bit of pressure and people asked, “Well, how does this actually work out?”, they backed off from it, and now they will find themselves having to move forward. The truth is that the peace process is less like riding a bicycle and more like playing an accordion, where people move backwards and forwards instead of straightforwardly. That is the reality of politics.
The Bill does not devolve corporation tax; it makes it possible for the devolution of corporation tax to take place—if there is responsible, political and economic governance in Northern Ireland, if there is a responsible budget that adds up, if parties then look at it and want the power, and if they then decide to implement it. In fairness, the world has changed economically over the last number of years and corporation tax in the Republic of Ireland may not stay at its current level, but in a sense those are secondary issues. This is about people having power to act responsibly and a responsibility to share that power in a serious fashion, taking into account all the dilemmas that are present.
On this St Patrick’s Day, when we share our patron saint as we share the piece of territory and the politics of the island, with different perspectives and different views but nevertheless with a sense of vision and hope for the future, with all the difficulties and dilemmas that we have, this is an opportunity to challenge my colleagues at home to use the power and responsibility that are being offered to take us forward. I hope that none of us here or there will be found wanting in that regard.
Lord Trimble (Con)
My Lords, it is a pleasure to follow the two previous speakers. Perhaps I may first say to the noble Lord, Lord Hay, how much we enjoyed his maiden speech and how pleased we are to see him here. I shall not try to emulate the achievement of the noble Lord, Lord Alderdice, in going through the noble Lord’s history, but I want to pick out the reference that was made to the noble Lord’s contribution to resolving some of the communal differences within Londonderry. To underline a point that flows almost from what the noble Lord was able to achieve, it is fair to say that the members of the loyal orders in Londonderry have always had a more realistic and more sober approach to problems than people in other parts of Northern Ireland, particularly in and around Belfast, who sometimes did not seem to understand what life was like outside.
Perhaps I may also say how much I appreciated the remainder of the speech of the noble Lord, Lord Alderdice, which focused on taking responsibility—and I agree with everything that he said in that regard. It will indeed be fascinating to see what impact that has on people, although what is happening at the moment does not encourage one to be sanguine about the matter.
The Minister said in introducing the Bill that she would go back into history, but she went back just to 2010. My own recollection of this issue goes back a bit further, perhaps another dozen years, and I shall reflect a little on that. Shortly after finding myself in office, I had a discussion with our finance people about corporation tax—the issue was being raised by businessmen in those days; indeed, even earlier—and I received from the officials I spoke to a very clear answer: that they did not think that the issue was important. They said that while the Republic had the advantage of being able to say, “Our corporation tax is so low”, they could put together a package in Northern Ireland which was just as good and just as competitive as what was available in the south. Much of that package was financial, too, in terms of providing facilities and premises at low rates or with rental and rate holidays, so there were substantial and even more focused benefits and assistance available in that way.
The second argument which the officials gave me for why this was not an important matter was the state aid issue. They said that if this was implemented it would be ruled in Brussels as being state aid. I am deep into the history here. This was before the Azores case and the issue of state aid was a complete block until jurisprudence in the European Union moved as a result of that case to enable people to contemplate it. However, that has consequences because, in framing this, we have to give attention not just to what we would like to do, but also to what Europe will require to be done. The third reason why I was not excited about this is broader and did not flow from anything said to me by the officials, who are strictly neutral in political terms. It flowed from my politics: I am a unionist and believe in the United Kingdom. Faced with this, one’s instinct is that we should act in accordance with what exists elsewhere. Furthermore, on the downside, if we go for a particular advantage for Northern Ireland this will give rise to resentment in other parts of the United Kingdom. That will happen in this case too and has already done in that the matter has been raised with regard to Wales and Scotland. I held that reservation quite strongly 17 years ago but I hold it less so today. When you look at the constitutional mayhem going on around us, it is a bit difficult to dig in for a purely unionist position when there are so few people in office—and elsewhere—who are paying any attention to that position or, indeed, the interests of the United Kingdom as a whole.
I leave my history behind at this point. I will not go on to the detail of the Bill. It is very focused, which is good, and I hope that all its technicalities will operate smoothly as and when it comes into effect. I am sure that if there are any technical problems they will be dealt with, but there are still some major issues which one has to have regard to. This is not a magic bullet. It may or may not be very beneficial but it is wrong to think that it will cure problems by itself. Some of the points raised by the noble Lord, Lord McAvoy, are appropriate here. Going back to the Azores case, if this was implemented there would have to be very significant reductions in the block grant to Northern Ireland to satisfy Europe. We cannot get round this—as used to happen so often with the issue of the Barnett formula—by having a private deal with the Treasury that perhaps nobody knew very much about. This is a European issue which will have to be dealt with very effectively. When it comes into operation there will be a significant reduction, against the background of the last few years when the Treasury has been withholding significant sums from the block grant because of failure to deal with welfare and other issues.
The reduction is difficult to quantify. We will not know until the time comes and there will, no doubt, be a bit of an argument about it. It might not be as bad as it could be, bearing in mind that corporation tax nationally comes down to 20% next year. Coming down from 30% to 12.5% or 10% would be a very huge reduction in the block grant. A reduction from 20% to 12.5% or 10% would not be quite so bad. So the problem may not be as big as it might be. On the question of it not being a magic bullet, we have to bear in mind that corporation tax is not the chief determinant of investment: there are other factors as well. In the briefing paper produced for us, there is a reference to the Varney report in which it was said that:
“In the most recent survey”—
at the time the report was produced in 2007—
“the level of corporate taxation was ranked sixth in importance as a criteria for investment location, behind transport and logistic infrastructure, labour costs, telecoms infrastructure”.
Those were regarded by businessmen as more important than the issue of corporation tax, which underlines the need to be a little bit cautious about it.
We frequently refer to the benefit that the Republic of Ireland has received from its low corporation tax but we should remember that that benefit did not come immediately. It had corporation tax at a low rate for a long period without it coming through in increased FDI. That happened only in the late 1980s after the low tax rate had been in operation for over a decade, I think, before any significant benefits started to roll through.
The helpful note that has been produced for us by the Library has on page 8 a nice little summary from the OECD of its survey on Ireland. Referring to when the low rate of corporation tax started to pay off, it says:
“That began in 1987, with the fiscal and monetary consolidation that aimed at bringing the deficit down”.
It also refers to:
“The social partnership arrangements, which delivered tax cuts in return for wage restraint”.
The paragraph concludes:
“Alongside the tax cuts, expenditure restraint was also important”.
I find it quite interesting that this started to pay off once the Republic started to have sensible financial and fiscal arrangements. We hope we are on the way to sensible fiscal arrangements but we have not quite got there yet. I might come back to that later.
There is another general issue. We hope that the reduction in corporation tax is going to provide investment and that investment will then pay off in increased employment. If this is going to happen on a large scale, there will have to be some capacity available. Here is where the references that were made to rebalancing the economy become crucial. It has been the case for a long time that the public sector in Northern Ireland is far too big. The figure that was given was that it provides for 30% of employment. If you look at gross domestic product, it is nearer 70%. This is not healthy. This does not provide for a good economy. If we are going to hope for private investment leading to employment, we need to have people available for that. You are going to have to find ways to shrink the public sector if this is going to be successful. If you are not taking measures to shrink the public sector, you will quickly run into problems in terms of not attracting people to come and do business because there are not likely to be sufficient skilled people there to meet the demands of business.
We cannot keep putting this issue behind us or pretending that we can avoid dealing with it. We have known for decades of the need to deal with the large public sector. It is something that we tried to make a start on when Mark Durkan and I negotiated the programme for reform and reinvestment 16 years ago. Unfortunately, when direct rule returned in 2002, the officials told the incoming Ministers that the whole thing had been wound up and nothing further needed to be done. That was very far from the truth. Lots more needed to be done and many of the things that we were planning or thinking of doing still have not been done. I know that the parties in the Executive have a lot on their plate at the moment but I want to remind them that they really have to tackle the issue of a public sector that is far too big.
One advantage of reducing the size of the public sector can be seen in the recent expansion of employment in Wales, which was particularly high in the recent figures. Part of the reason for that was the cuts in the public sector. There were not so many juicy, well paid jobs in the public sector and consequently more people started thinking about starting their own businesses. Of course, it is from new small businesses that most employment will be generated. I hope that we see something done on that front.
Finally, I want to come back to something that was implicit—and explicit—in some of the things I have said, and that is the implications for elsewhere in the United Kingdom. If this is carried into practice—and, indeed, even before that—there will be pressure from Wales and Scotland for similar powers. I find it very difficult to see how the Government will be able to resist that. It is undesirable because it will mean that different parts of the country will be in competition in terms of tax and investment, although to an extent that happens already, certainly on the investment side.
One of the merits of the Bill is the way that it is closely focused on being available to companies that are genuinely regional and where there is a genuine employment. The provisions for keeping out the “brass plate” will limit the extent to which there is too much competition between regions, if this becomes available elsewhere. So I think that the Bill, in the way it is drafted, is possibly better suited to be followed in Wales and Scotland than, perhaps, earlier proceedings were. However, that leaves the problem of the English regions. That is a huge problem that should not be avoided. People in England will not be happy if they feel they are being unfairly treated. There is too much danger of that and too much feeling to that effect already in existence, and we should not feed it any further. We should be thinking more about it. The simple way is to encourage the Chancellor of the Exchequer to accelerate his programme of national corporation tax reductions, and we might end up—the noble Lord, Lord Alderdice, thought that this might never come into operation—with it never coming into operation because the corporation tax has been reduced so far throughout the United Kingdom as a whole that there is no need for it. That would be a very happy result.
Baroness Blood (Lab)
My Lords, before I speak about the Bill, I would like to say what a pleasure it is to see the noble Lord, Lord Hay, here in the Chamber and to have listened to his maiden speech. I have known the noble Lord and seen his work for Northern Ireland over many years, especially in his home area of Londonderry and, more recently, as Speaker of the Assembly. It is a real pleasure to see him here this afternoon.
Corporation tax, I must admit, is not an area of work that I would normally speak about, as finance is not my strongest point. Suffice it to say, however, that I am concerned that the Bill before us is unproven territory. Many people back in Northern Ireland—and indeed in your Lordships’ House—have very different opinions on it and its value. My concern is that, if it becomes law in 2017, the block grant would be affected by money being taken out of it before any of the benefits would be seen from changes in corporation tax. It is almost like being asked to pay for your dinner before you have seen the menu.
I, like all my fellow Peers in this House, am not opposed to anything that would bring jobs, especially to Northern Ireland. Indeed, in my work in Northern Ireland over many years, I have believed that getting employment—especially for young people—is the answer to a number of problems, such as getting people off benefit. A big goal for me is getting jobs for young people, to take them away from the draw of paramilitaries. A lot of this work has been done through community development and social economy, but my problem in relation to this Bill, as I have already said, is that the block grant would be affected immediately.
Those of us in this Chamber who come from Northern Ireland are aware that we are already struggling to work within a very tight budget. For example, Sure Start, with which I am involved in Northern Ireland, has this year been informed that its budget will be cut by 4.5% to 5%. In my own area, that means a cut of almost £35,000, which means two jobs. Education—a very vital component for getting people into work—is also being cut. As we have seen every night in our local news and in our newspapers, schools are closing and having to pay off teachers and so on and so forth. Many community groups among which I work have been told that their grants will either be cut or, in some cases, done away with altogether. I am worried about this because this work is vital in Northern Ireland at this stage of the peace process.
With all this in mind, will the Minister clarify some points? Is there a rough idea of how much will be taken out of the block grant? I know that it depends on what rate is set: we have heard figures from as little as £150 million to £400 million a year, so I would like that to be clarified. Can she give us an assurance that education and health will be safeguarded, even with these cuts, in 2017? Finally, there is something that I do not fully understand—perhaps it has already been discussed here. Why will building societies and credit unions be unable to take advantage of corporation tax? Is there a legal reason for that or something else? I fail to understand why these organisations would be exempt, given the vital work that they do in a small place such as Northern Ireland.
Lord Shipley (LD)
My Lords, I, too, congratulate the noble Lord, Lord Hay of Ballyore, on his excellent maiden speech. I strongly welcome the opportunity to speak in this debate. Quite often, matters relating to only Northern Ireland, Scotland and Wales come to your Lordships’ House and it is important that we put them into a UK context. I agree with my noble friend Lord Trimble. These matters relate to the integrity of the UK as a united kingdom.
To be clear at the outset, I fully support this Bill. It is the right thing to do. As my noble friend Lord Alderdice said, it is about responsibilities as much as powers. I welcome the fact that the responsibility for setting a level of corporation tax can be given to the Northern Ireland Executive and Assembly. The reason I support the Bill is that Northern Ireland has a land border with the Republic of Ireland. That seems crucial when considering powers over corporation tax. I accept, too, that the land border is also relevant in considering other taxes such as air passenger duty; I have no difficulty with APD being a devolved matter for Northern Ireland. Of course, in all matters of devolved taxation, it would be for Northern Ireland to decide the level, and if there is no need to reduce a tax level or if that proves to cost too much, then the Northern Ireland Assembly would not have to do that. It is all about the responsibility that it carries.
I want to concentrate on two issues in my remaining few minutes. First, there is the principle of no detriment to other parts of the United Kingdom. Secondly, there is the need to understand better than I think we do what is happening in a constitutional and financial sense across the various parts of the United Kingdom.
In terms of this Bill, I read the debate in the House of Commons and do not wish to revisit the points raised there, except to say that great care must be taken in relation to the inward investment consequences of any lowering of the rate of corporation tax and of any consequences which might be thought to distort competition with the rest of the UK. However, I am satisfied by the evidence given by Ernst & Young on corporation tax. It said—I took this from the Library Note—that it is actually sixth in a list of factors determining where companies invest. Transport and logistic infrastructure, labour costs, telecoms infrastructure, potential for productivity increases and the legislative and regulatory environment are all said to be more important. It may not be necessary to worry too much about the practical consequences of devolution as long as we have structures in place that can assess the impact of a lower corporation tax rate on competition, inward investment and all aspects of potential profit shifting from the rest of the UK to Northern Ireland.
One possibility—my noble friend Lord Trimble talked about this—of the devolution of the powers to Northern Ireland is that Scotland or Wales may want the same powers over corporation tax. That is more likely to be the case in Scotland, but it is rightly still a reserved matter in Scotland. As both Scotland and Wales share a land border with England, the wishes of England in relation to corporation tax in Scotland and Wales must be part of any further debate on that. In my view, England’s agreement must be sought on any devolution of corporation tax rates for Scotland and Wales.
I said that there are two issues I want to concentrate on. First, there is the no-detriment principle. I want to raise the question of air passenger duty. In the case of APD, I understand that there is no detriment to the rest of the UK in Northern Ireland having the power to reduce APD—there is no land border with the rest of the UK. But there clearly would be a detriment in the case of Wales and Scotland, where a land border means that passengers can move very easily across them. In Scotland, the power to vary APD is being devolved. It is a critical issue for those parts of England close to Scotland—or to Wales, should it get APD powers—where the viability of services could be at stake. The reason for that is this: just a small movement of passengers from one airport across a land border to another can make a crucial difference to the viability of some existing air services. This can matter. My point on there being no detriment is that it needs to be taken very seriously because it matters to the integrity of the United Kingdom. I noted that, in 2012, it was a key part of the Scotland Act. It is less obvious to me today that the importance of no detriment is fully understood. In the case of the devolution of APD powers to Scotland, I do not think that it is fully understood.
A second aspect of no detriment is that those parts of the UK that secure the right to lower what hitherto has been a standard national tax should make up the loss to the rest of the UK. We have discussed that in this debate. I hope we will ensure that the fiscal consequences of this are understood, agreed and then properly applied. I make it clear that I support all that happening, but it does have to happen.
That takes me to the block grant. Under the Bill, the Northern Ireland Executive and Assembly’s budget will be reduced to make up for the lost income to the Treasury. That seems to me to be the right approach, but it begs another question: is the block grant right in the first place? I ask this because there are stark differences in the amounts that each part of the UK receives in its public spending. Treasury figures for 2013-14 published last November show that Northern Ireland has per capita spending of £10,961. To be clear, that sum may be entirely justified. However, the part of the United Kingdom that receives the lowest amount is the East of England, with £7,950. That is a per capita difference of £3,000. In addition, Scotland and Wales get more per capita than any part of England, including London. As we move towards devolving more powers over taxation, should we not also understand better than we do why there are such very wide discrepancies in these public spending figures? I think that we simply must, as we devolve more and more.
My final point relates to the legacy paper recently published by the All-Party Parliamentary Group on Reform, Decentralisation and Devolution. It says that:
“Amidst the accelerating devolution of power, it will be important to have regard to those functions that must be retained partially or wholly at the UK centre, if it is to remain a cohesive state”.
It concludes by recommending that a constitutional convention should be established to ensure that,
“the process of reform will be open, inclusive and stands the best chance of securing a UK wide settlement, fit for the long term”.
That would be, it says,
“in addition to the implementation of commitments to transfer powers across the UK”.
Therefore, what is planned now would continue. Such a convention would operate independently of government and would include members of the public as well as political parties, local authorities and the nations and regions of the UK. I think that, in the context of this Bill and many of the debates and discussions that we have had, and no doubt will have in the future, the proposal to establish such a convention is very wise. I hope that the next Government will be able to give such an initiative their full support. I say that because I believe that it matters to the future integrity of the United Kingdom.
Lord Empey (UUP)
My Lords, I, too, congratulate the noble Lord, Lord Hay of Ballyore, on his maiden speech. As a speaker, he was followed by his predecessor as Speaker, the noble Lord, Lord Alderdice. Both of them exude an air of bonhomie and so on in this Chamber, but do not be fooled: I have seen them in action in the big chair and have often been at the receiving end of a tongue-lashing.
The earliest request that I can recall for corporation tax-varying powers to be transferred to Stormont was, I believe, made in 1983, when the late Ulster Unionist Assembly Member for South Belfast, Edgar Graham, believed that it would be a tool to help the Northern Ireland economy. Sadly, Edgar was assassinated later that year in the grounds of Queen’s University Belfast by the IRA. In those days, the rate of corporation tax levied was 38%, having fallen from a peak of 52%.
Since the early 1980s, there have been repeated calls for the rate to become a devolved matter, and the request has appeared in a number of election manifestos in recent years, including some of those presented to the electorate in 2010. Following the 2013 economic pact between the Northern Ireland Executive and Her Majesty’s Government, a timeline was established for reaching a decision. The Chancellor’s Autumn Statement in 2014 signalled the Government’s intention to proceed with devolution subject to Stormont agreeing a budget for 2015-16 and settling the welfare reform issue—and hasn’t that gone well?
There is widespread, but not universal, support for this measure. In addition to the five executive parties in Northern Ireland, Her Majesty’s Government and the Opposition, the consultation conducted in 2011 produced 700 responses, which were overwhelmingly in favour. At 87 pages, the Bill is a very complicated and technical measure, as the noble Baroness, Lady Blood, pointed out. It has to be to avoid the trap of brass-plating and other avoidance measures which all Members in this House wish to guard against, quite rightly.
The devolution of the rate-setting powers is controversial in the wider UK context, however, as has already been referred to. Both the Calman commission and the Holtham commission, looking at Scotland and Wales respectively, came up with slightly different approaches. Calman said it would not be appropriate for Scotland, while in the Welsh case, by recommending discussions with Westminster, the commission felt that its devolution in Wales could introduce budget volatility—I think we understand that.
The case in Northern Ireland has always been different, as the noble Lord, Lord Shipley, has just pointed out. The existence of the land border with the Irish Republic, which has the lowest corporation tax rate in Europe, differentiates the Province from the rest of the United Kingdom. That said, things are changing. First, the national rate has changed, as mentioned, from 28% at the beginning of this Parliament to 20% next year. This alone makes this measure less significant than it once might have been, but of course, what rate this Government might set could be raised by subsequent Governments over time.
Superimposed over all this is the wider question of where power actually resides in the United Kingdom as a whole. This measure is inevitably going to be seen in this context. In mitigation, it is a proposal that has been on the table for many years and was not dreamed up overnight like some of the other constitutional changes that have been brought before your Lordships’ House in recent weeks. I think this is either the fourth or the fifth legislative proposal to come before us in the last 12 months that devolves more power to the home nations. We really do need a joined-up approach to these matters, but that is an argument I suspect we will return to in the new Parliament.
The whole objective of seeking this power is to try and make Northern Ireland a more attractive place to do business and make it more attractive for foreign direct, as well as indigenous, investment. We all know, however, that tax rates, as the noble Lord, Lord Trimble, has said, are but one of a number of conditions that investors examine when making their decisions. Labour supply and skill levels in particular rate even more highly than tax rates, and other factors such as language, lifestyle, transport, broadband and proximity to markets are frequently seen as more significant.
That said, my view is that everything that can be done to help should be done, and even if this is merely a marginal consideration, it is worth trying. We know there will be a consequential reduction in available funds from London, but the tax can be varied in different ways and not necessarily all at once, thus easing the burden in the reduction of public spending. It also has to be said that, with uncertainty surrounding the situation in Scotland—who knows what might happen there in the future—we could be faced with lower corporation tax rates to our east as well as to our south.
The noble Baroness the Minister has confirmed the Statement made by the Government after the Stormont House agreement that devolution of the tax would happen only in the event of agreement being reached on a balanced budget and the Welfare Reform Bill, and that is very welcome. I sincerely hope that that is the Government’s position, because if it is not and it is going to move and vary, we are in for a very rough ride.
These are important considerations, but while I support this Bill and am a strong supporter of devolution, I regret to say that I do not believe that the current leadership in the Northern Ireland Executive is capable of dealing effectively with these powers at present. For the first time since 1921, the Stormont Assembly has failed to balance its budget and was only saved from default by the offer of a Wonga-style loan of £100 million from the DEL reserve to be repaid in the following year. How could this be?
Sinn Fein and others say that the problems have been caused by Tory cuts. There is an argument about public expenditure levels, but a devolved Administration have to live within their own means, and policies pursued by Stormont have to be adjusted according to the amount they raise and spend themselves, augmented very substantially by the Barnett formula and consequential in-year adjustments. The NI Executive were informed of their budget allocations for the four years to 2014-15 in October 2010. When Barnett consequentials are taken into account, Northern Ireland did better than anywhere else in the UK. Reductions of 2.1%, 0.7%, 0.7% and 2% respectively were imposed over the four-year period. This did not include the additional £200 million which was provided to assist the PSNI.
Given the huge national deficit and the fact that the UK continues to borrow nearly £2 billion per week, the reductions to Stormont’s budget have to be seen in the context of the reductions imposed on Whitehall departments. The Department for Communities and Local Government has suffered a reduction of 25%, for example, and this has had a huge effect on local government services. Stormont has, fortunately, not been exposed to such cuts. I know that the Labour Party has indicated a commitment to reduce the deficit, albeit at a different rate, and I hope that the noble Lord, Lord McAvoy, on behalf of the Opposition, will state that it is their policy to continue to follow that path but that there will not be a buy-out policy to help Stormont every time it runs into difficulties. I hope that that will be the Opposition’s position.
Stormont was informed of its budget allocation for 2015-16 in June 2013. In other words, the Executive have had full knowledge of their available budget for almost five years. What happened? Did the Executive cut their coat according to their cloth? No, they did not. No meaningful action was taken until a crisis budget was mooted last year. All of a sudden, departments were asked to make in-year cuts, which are the least effective, most difficult and wasteful. Then a political crisis was manufactured over the welfare issue, even though it had been known about for four years.
Instead of planning gradual reductions in personnel in the Civil Service and other public bodies, things were left to the last minute and a crash-landing proposal to reduce the public sector by thousands was produced as a result of the Stormont House process. Many civil servants will leave in the next financial year, not on a planned and carefully prepared basis, but in a panic with expensive pay-offs, the funds for which will have to be borrowed and repaid over subsequent years. At the beginning of the financial year, Stormont’s borrowing was £200 million, but if the Stormont House process is fully implemented that will rise to £1.8 billion. Not only that, but a much overdue reduction in departments is being planned in parallel with this process. Can you imagine the utter chaos that these measures will create? Having amalgamated public bodies myself, I am sure it will take three years until departments settle down and rebalance the skill levels.
The finances of the Northern Ireland Executive have been disastrously mismanaged. The Executive have been seen to be incapable of operating within their means, and they have failed to plan ahead despite knowing their financial envelope for years in advance. It is a mystery to me that any Minister of Finance and Personnel who has presided over such chaos and mayhem can still remain in office. The antics leading up to the Stormont House process resulted in the humiliation of the people of Northern Ireland in front of not only the rest of the UK but the wider world as well. The begging-bowl strategy has sent a terrible message to investors at home and abroad alike.
As things stand today, devolution under the existing leadership is not working properly. Financial mismanagement, the squandering of millions of pounds on failed initiatives, such as the Education and Skills Authority, and enormous delays in implementing reforms are a sad testimony to the way things have gone. From being a major success story for Northern Ireland, we are now disinvesting in higher education. Only this week, it was announced that the primary modern language programme, introduced in 2007 to support primary schools to teach another language, was being scrapped. Two weeks ago, the same Minister announced £l million for an Irish-medium school for 14 pupils when all advice, even from that sector, advised against it. The continuing domination of our politics by arguments over flags, parades and the Irish language is deeply depressing.
The vision I and many noble Lords had for Stormont when we sought to restore devolution has not been realised. My noble friend Lord Trimble famously said that because one had a past did not mean that one could not have a future. That was in the context of being prepared to share power with republicans and others. We foresaw Stormont moving to a place where the political landscape would be dominated by how we would use our new powers to develop and grow our economy after years of terrorism, where we would tailor policies to the specific needs of our local community and not rely on hand-me-downs from Whitehall, which were largely London-centric under direct rule, where we could develop the accountable partnership-led Administration envisaged in the Belfast agreement and ratified in the referendum of 1998, where working with our partners in the rest of the United Kingdom and the Republic of Ireland would give us the opportunity to concentrate on making things better for the post-Troubles generations and remove the deprivation in those areas which had suffered most from the trauma of 30 years of conflict, and where we could try to bring some solace and support to the many victims of terror.
That vision has not been realised, but that does not mean that we should not persevere until it is. This Bill could make a marginal but, I believe, positive contribution to the Northern Ireland economy in the long term, and on that basis I support it, but I must say to the Government that if they continue to buy off Sinn Fein threats, either with money or by turning a blind eye to their related activities, no amount of tinkering will do any good. I urge Ministers to back those who are genuinely prepared to work for the good of all our citizens, who want real partnership working in Belfast, and stop rewarding those whose long-term intentions are inconsistent with a strong, peaceful and prosperous future for the people of Northern Ireland within the United Kingdom.
Lord Forsyth of Drumlean
My Lords, I hesitate to intervene in a debate on a Bill which is exclusively concerned with Northern Ireland. I do so because I am opposed to the Bill because I do not believe that it is a unionist measure. Indeed, in the Second Reading debate in the other place on 27 January, the Secretary of State, Theresa Villiers, in describing the proposed regime, which is different for small businesses and large businesses, said:
“Larger businesses will need to divide their profits between Northern Ireland and Great Britain, as they do now between the UK and other countries”.—[Official Report, Commons, 27/1/15; col. 744.]
The very fact that she should use phraseology like that goes to the heart of this Bill and to why it is thoroughly undesirable.
I realise that it is perhaps a little rude to be critical of a legislative provision for Northern Ireland on St Patrick’s Day, but on St Andrew’s Day we had the policy of further, not-thought-through devolution to Scotland, on Burns Night, we got the draft clauses which were subsequently amended and which do not work and on St David’s Day, we got votes for 16 year-olds as part of this continuing package of piecemeal dismantling of our constitution and our United Kingdom. All I can say is: thank goodness St George’s Day will be during the election campaign and there will be no opportunity to come along with further measures that relate to England.
Obviously there is great support from people who have a distinguished record of representing Northern Irish interests but I am genuinely puzzled as to what the point of this Bill is. Apart from it being called the Corporation Tax (Northern Ireland) Bill and the Speaker of the House of Commons having certified it as a money Bill, I can think of no reason why it should be a money Bill other than it enables the Government to rush it through Parliament as part of the deal they made for a balanced budget in Northern Ireland and for agreement to welfare reforms which are now being reneged on. Indeed, my noble friend said from the Dispatch Box in introducing this Bill that the Government have no intention of implementing it unless the deal they agreed, which is the reason this Bill is being rushed through the House, is actually met. This is a very shoddy way in which to go about major constitutional reform.
A number of things are being said, such as the Republic of Ireland benefiting because of its lower corporation tax regime. It is true that the corporation tax regime for some revenues is 12.5% but it is 25% for revenue that is not allowed. The reason this Bill takes 87 pages to allow Stormont to set the rate of corporation tax and prevent it from setting or changing any of the allowances is because it adds huge complexity to the tax system. Back in 2005 the then shadow Chancellor asked me to do a tax commission report. We laboured for a year and were charged with having a simpler, flatter, fairer, lower tax system. This is the antithesis of that. There are pages and pages explaining how dredging, films or a whole range of other activities will be affected and how large companies have to decide which of their profits have been earned as a direct result of Northern Ireland. I declare an interest as a director of a bank and an insurance company. Financial services are not allowed to take advantage of this although I think that if you can certify that 70% of the back-office activity is in Northern Ireland it is allowed, but only as a one-off option. What about call centres and things of that kind? The Bill creates huge complexity, which may very well tempt people to go to Scotland where they do not have to have two sets of accounts rather than Northern Ireland. All of this is being done in order to give Stormont the opportunity to set a different corporation tax rate. We assume, if it is about tax competition, that that rate would be set closer to the level of the Republic of Ireland for trading activities at 12.5%. According to the Government the cost of that will be £325 million. My noble friend Lord Shipley talked about distortions in air passenger duty. I think I am right in saying that Stormont already has the power to set air passenger duty but does not because it would cost £50 million to do so. Yet here we have something that could cost—
Lord Empey
The air passenger duty issue was designed to enable the link between Belfast International Airport and New York to survive. It has been applied only to that route because it is the only direct route from Northern Ireland to the United States. No attempt has been made to alter domestic air passenger duty.
Lord Forsyth of Drumlean
I understand that. I was making the point, perhaps wrongly, that one reason why it has not been done is that it would result in a reduction in the block grant—the point made so eloquently by the noble Baroness, Lady Blood. I think that my noble friend Lord Alderdice earlier referred to the position in Scotland, where the Scottish Parliament allowed its income tax raising powers to desist. They were never used. The reason they were never used was that using them would have resulted in a corresponding reduction in the block grant. It is not terribly electorally smart to tell people that you are going to put their income tax rate up by 3p and, in return, you are going to have the block grant—which is already very generous because of the Barnett formula—reduced by exactly the same amount, so you ask people to pay more tax in order to stay where they are. Exactly the same applies here, unless you believe that a reduction in corporation tax will result in more revenue. I do believe that that is the case, but I would prefer to see this Government, who have made fantastic progress in reducing the rate of corporation tax for the United Kingdom as a whole down to 20p for the next financial year, continue in that way. If we think that there is such a huge problem in tax competition from the Republic of Ireland, the answer to that is to reduce our corporation tax rates nearer those of the Republic of Ireland. But we do not do that because the cost would mean that we would have to make cuts in other public services, such as health and education. Exactly the same applies to Stormont.
Lord Alderdice
I am very grateful to my noble friend for giving way. The problem that I have found is that these changes are not made because they do not work for the Treasury here in London, and it regards the value for people in Northern Ireland to be far too small an issue, one that does not get any attention paid to it. That is the reason. The reason for the air passenger duty with respect to the United States is because it is so easy for people to go across the border and to fly out of Dublin. The whole point is that there is a land border. If Scotland was to leave the United Kingdom, I think that you would find that a lot of those kinds of changes became relevant. But it is very important to understand that the situation in Northern Ireland is quite different from that in Scotland, because it is so small, does not have a large financial industry and has a land border. Those are the many reasons why read-across to Scotland does not work, with due deference to my noble friend.
Lord Forsyth of Drumlean
I think that the argument about the land border is overemphasised. I happen to know that people fly from Scotland to Dublin to go on international flights because the flights from Dublin are priced by the airlines at a very much lower rate. That has nothing whatever to do with air passenger duty or taxation and everything to do with the view of the commercial airlines of what the market will bear for their fares. It is a very simple thing to hop on an aeroplane—there are about six or seven a day out of Edinburgh and as many out of Glasgow—to go to Dublin and then to fly to wherever you want to go, to Hong Kong or the United States or wherever. So I do not think that that argument holds water; but perhaps that is a mixed metaphor, because my noble friend is arguing that it is about a land border.
I am totally opposed to giving air passenger duty powers to the Scottish Parliament because it will have a catastrophic effect on Newcastle and the rest of the north of England. Already the amount that we pay in taxes is very considerable. I am arguing that as a United Kingdom we should have a unitary tax system and that this tinkering is absolutely inimical to maintaining a United Kingdom. If as a United Kingdom we believe that reducing corporation tax will result in more revenue and business development, that should be the policy for the United Kingdom.
The noble Lord, Lord McAvoy, chided me for attacking capitalism when it was his job. I was merely pointing out to him the inconsistency of his position. If he supports this Bill and argues that he is in favour of these reductions in corporation tax to help business expand and grow, he cannot at the same time satisfy the noble Baroness, Lady Blood, in her concern about the impact—even if you believe, as I believe, that cutting the top rate of tax from 50% to 45% has resulted in revenues going up by £8.5 billion. I believe that tax cuts can have a dynamic effect. Similarly, when the Liberal Democrats insisted on putting up capital gains tax from 18% to 29%, what happened? The revenue went down by several billion pounds. My noble friend nods; I apologise for not being very positive. However, even if you believe that that is not the case, there is a time lag, and in between times you do not have the money and you have to take that money away from public services. The noble Baroness made that point. I do not think that will be particularly popular and it seems a very strange approach to a situation where people cannot agree on balancing the budget and on meeting their obligations as it is. So I think this Bill is a deal and a piece of constitutional tinkering which is misguided in its approach.
As a Scot, I am worried because I have not heard a single argument here today, other than there is a land border, which will enable me to fend off the devo-max brigade in Scotland and the nationalists who are now running rampant in the polls. The latest poll has them on 55%. That has all been caused by raising expectations and confusing two things—that is, confusing more powers with more money. Everyone in this Chamber knows that having more powers will actually mean less money, but it is being sold to the voters—I suspect that it may well have been sold in this way in Northern Ireland—that if their parliament has more powers, they will have better education and health services and better everything else. However, that is a fantasy. When people wake up to the fact that this is a misguided fantasy, they will blame London and our United Kingdom will be fractured. Therefore, I am very disappointed by this Bill.
However, I agree with my noble friends Lord Alderdice and Lord Trimble on the importance of stimulating the private sector. Scotland also has too large a public sector and we need to encourage business, but corporation tax is paid only by profitable businesses and businesses which are generating capital for investment. However, lots of businesses are struggling. If you want to encourage businesses and cut taxes—that is a priority—why not deal with business rates and levels of national insurance, as I hope my right honourable friend the Chancellor will tomorrow? Corporation tax is a very odd choice indeed.
For all that is said about the success of the tiger economy in the Republic of Ireland, corporation tax receipts went up so dramatically in the Republic when the rates were low because lots of businesses operating in the United Kingdom repatriated their profits to the Republic. According to leaks that have emerged before the Budget, the Chancellor says that he will take action against the Amazons and others who organise their affairs so that they pay tax in low corporation tax countries. The Government seem to be trying to have it both ways.
By the way, no one has mentioned the impact of all this on the Barnett formula. The Labour leader in Scotland is saying that if people vote nationalist, they will lose Barnett. If you continue to devolve more and more tax-raising powers to the constituent parts of the United Kingdom, by definition you will erode and lose Barnett. As was pointed out in the earlier part of the debate, we also have to think about why there is such a disparity in grant to the constituent parts of the United Kingdom. Therefore, as we go down this road, we must move towards a more needs-based system of funding which again will put pressure on Northern Ireland and the public services. So I am with the noble Lord, Lord McAvoy, in arguing that we need a constitutional convention and we need to look at these things as a whole and not on a bit-by-bit basis. Does the noble Lord wish to intervene?
Lord McAvoy
Very briefly. The noble Lord has made an excellent case. If he cares to cross the Floor, we will always find room for him.
Lord Forsyth of Drumlean
I suggest to the noble Lord that the Labour Party in Scotland is in enough trouble without me adding to its difficulties.
Lord McKenzie of Luton (Lab)
My Lords, it is a pleasure to follow the noble Lord, Lord Forsyth. It is certainly safer than preceding him in a debate. I start by congratulating the noble Lord, Lord Hay of Ballyore, on his impressive maiden speech. The noble Lord clearly brings vast experience, which will serve us well in this House. It was with a degree of hesitation that I was going to speak in this debate because it looked as though most of those speaking had a long-standing commitment to this cause. I feel a bit more relaxed, having heard the contribution of the noble Lord, Lord Forsyth.
I do not propose to dwell on the historical or constitutional context of the Bill, other than to say that I am happy to follow my party’s lead, as my noble friends on the Front Bench have and will outline. We know that the Northern Ireland economy has underperformed in comparison with the rest of the UK, with some rebalancing of the economy to bolster the private sector being overdue, and reducing corporation tax for Northern Ireland would be one component of a package. The tax rate has a particular significance, given the sharing of a land border with the Republic, which has worked hard to retain its 12.5% rate.
My starting point and first observation, which other noble Lords have made, is that addressing the seemingly straightforward proposition of devolving the rate of corporation tax to Northern Ireland requires some 87 pages of highly technical legislation, albeit encompassing just six clauses and two schedules. This reflects in part the complexity of our corporation tax system, as well as the arrangements necessary to address state aid requirements. I do not argue that this complexity is unnecessary—that is for purposes of the Bill; I accept that it probably is necessary, although there are consequences of this complexity, which I will speak to shortly.
The proposition to devolve corporation tax and the implicit understanding that it would involve a reduction from the current rate, resulting in a boost to foreign or domestic investment, are perhaps not unreasonable. However, as other noble Lords have said—the noble Lords, Lord Trimble and Lord Empey, in particular—we should recognise that it is not necessary in all circumstances to determine the issue of where investment is undertaken. Investors looking to invest in the territory will have a range of requirements, not all the same. The transport infrastructure may be the most important issue for some; for others it may be availability of manufacturing or office space, and the cost of that. I have known housing for expatriate executives and proximity of international schools also to feature. The availability of a locally skilled workforce may be crucial.
Taxation is not just a matter of corporation tax. Particularly for smaller enterprises, the issue may be the personal income tax regime, and especially how international tax protection packages are treated—typically a feature of arrangements for employees seconded by an overseas investor. As for corporation tax, as our briefing identifies, it is not only the nominal rate of tax which is important; it is the effective rate, taking account of the variety of available reliefs, offsets and credits. The extent of these is illustrated by the detailed legislation included in the Bill to make them fit the devolved system. As well as defining a qualifying trade, the Bill covers variously the treatment of losses, intangible credits and debits, R&D credits, expenditure on land remediation, film tax relief and more besides. Obviously these other levers, as the Minister acknowledged, are not to be devolved.
Another point to bear in mind in all this is how any tax levied in Northern Ireland would be treated from the perspective of a foreign investor. Are the overseas profits untaxed at parent company level, or is the tax otherwise creditable against home country taxes on one basis or another, and when do they apply? The overseas effective rate may be more significant in the former, rather than the latter, case. We were advised at our briefing, which the Minister was kind enough to organise, that the UK’s double tax treaties would continue to apply to a Northern Ireland company, as defined; and this is obviously important. The Minister might just say whether the Government consider that any corporation tax levied at the NI rate on the uplift on back-office expenses brought within the regime would generally be creditable, given that the tax is based on deemed, rather than actual, profits. There is a potential multiplicity of factors which influence the attractiveness of the territory for inward investment. I have no doubt the Assembly is well aware of this but none of it negates the potential benefit of a devolved rate of corporation tax, which provides a strong opportunity to make a statement about Northern Ireland being open for business in a big way and hungry for investment. It is symbolic of a determination to have a business-friendly environment.
Of course, alongside the complexities of the tax legislation there is the necessity to work out the requirements of the block grant adjustment, to which a number of noble Lords have spoken, so that the arrangements do not fall foul of state aid provisions. This involves calculations of tax initially forgone by HMRC by direct and behavioural means—presumably that is at the 20% rate—as well as how a deduction should grow over time. We are told that much work is going on in this regard, particularly to be able to make the judgment of whether or not, for the purposes of the Stormont House agreement, the Executive are able to demonstrate that their finances are on a sustainable footing for the long term.
Can the Minister confirm my understanding that the starting adjustment to the block grant is to take the profits which are going to be taxable at the Northern Ireland rate at a 20% rate as its mechanism, so on day one you are balancing tax through Northern Ireland at possibly a 12.5% rate against a reduction in the block grant at the 20% rate? As I understand it, that is how it is intended to work. How that adjustment is changed thereafter is the particular focus of some work.
Any tax system which has complexity, new definitions and concepts, especially with differential tax rates involved, will inevitably attract the attention of the tax avoidance industry. Doubtless as we speak, countless accountants and lawyers are sharpening their metaphorical pencils to see what tax advantage may be gained when the arrangements are put into effect. In introducing the Bill, the noble Baroness said that we have dealt with the issue of brass-plate companies. That is only one potential part of tax avoidance; other mechanisms will doubtless be brought to bear.
The soundness of definitions around Northern Ireland company, Northern Ireland employee and Northern Ireland profits and losses, for example, are fundamental. For SMEs, as we know, a company will be a Northern Ireland company if at least 75% of its staff time and costs relate to work carried out in Northern Ireland. This is a novel approach for the UK. However, is it correct that this means that up to 25% of employee effort outside Northern Ireland can effectively qualify for the Northern Ireland rate? If so, what will be the overall consequences of this? In theory, this presumably means that this extra tax will be collected and retained by the Northern Ireland Executive but there will be an additional adjustment to the block grant. We were told that on introduction 97% of SMEs will qualify under this test.
A parallel point arises more generally should tax avoiders get away with organising income to be subject to the Northern Ireland rate with economic activity still remaining outside Northern Ireland. In those circumstances, who is bearing the risk of the overall tax forgone? Presumably it would depend upon when this all took place. Will it feature in the initial adjustment of the block grant and how the growth of the initial deduction is to proceed? If the reality is that Northern Ireland bears the risk of tax avoidance, who is going to bear the cost of compliance and making sure that effort is made to tackle that avoidance? Does that rest with the Treasury more generally or with the Northern Ireland Executive?
It is noted that the test for SMEs and staff time is a per company one and on the face of it there is a risk that, within a group, arrangements will be made to have split contracts. How is it proposed to address this? The provisions for identifying the Northern Ireland profits and losses of a large company follow a tried and tested route and adopt the principles that are attributable to a permanent establishment. Nevertheless, this approach can give rise to disputes, although unlike the international situation, the revenue authorities will be seeing both sides of the equation. Internal royalties and interest payable by the Northern Ireland regional establishment are to be ignored, but again this is only intra a single company. It does not seem to look at the wider group context.
I will not speculate about what might happen in the future should corporation tax ever be devolved to Scotland. There could be a three-way tussle to work out to which establishment profits are to be attributable across three territories. We know also that a number of international companies organise their affairs to avoid UK tax and try to sustain that on the basis that they can presumably argue that they do not have a permanent establishment in the UK. Indeed, it would be ironic if the wider avoidance measures now being taken by the Government caused them to seek the shelter of a permanent establishment in Northern Ireland.
Time does not permit me to go into this more. It is a pity that we are denied the opportunity of at least a detailed Committee process on this Bill. I do not argue that so much from a constitutional point of view, just that it would be good fun to get into some of the detail of these provisions. However, I accept that we must acknowledge the position of the elected House. This is an important and, I believe, ground-breaking measure which we hope will have the opportunity to be implemented and prove a stimulus to the economy of Northern Ireland.
Lord Bew (CB)
My Lords, as I wish to say some cautious and possibly even sceptical things about the Bill, and the project of the Bill, I think in all fairness that I should begin by reminding the House of exactly why it has been brought forward by the Minister today. In his fine maiden speech, the noble Lord, Lord Hay, alluded to some of this. He, like Mr Mark Durkan in the other place, will be aware that in their own constituencies there are people who are working just over the land border for companies which are paying a very low rate of corporation tax. The land border is actually a real and perceptive issue in explaining why the Northern Ireland Assembly has decided to go down this road. There is, I think, a certain pride in the Northern Ireland Assembly that one thing has been done to address the old dependence of the Northern Ireland economy on the state; one move has been made that makes a gesture towards acknowledging the problem, and it is the decision of all the parties to ask for this power. I must say that there is an immediate difficulty: expectations are raised. The Northern Ireland Assembly may possibly find that the expectations raised by this will be somewhat disappointed. That is something which has to be borne in mind.
The Minister referred in her opening speech to the ways in which the project is now covered in the fog and ambiguities relating to the recent crisis of the Stormont House agreement, and I agree with her absolutely. However, even in the months leading up to the Stormont House agreement—and here I mention the “Wonga loan” referred to by the noble Lord, Lord Empey—it was clear that there was a difficulty in Northern Ireland about the public debate. It was very striking that in the days before the Prime Minister arrived it was considered to be the height of local patriotism by large sections of the Assembly to rattle the begging bowl as loudly as possible. No respect or attention was paid to such factors as a needs basis, and here I would mention the north-east of England or the West Midlands. Actually, if we had a block grant on that basis, on the face of it, Northern Ireland would really face significant reductions.
I say this not because I do not believe in the union and the necessity within the union for regions that are less well-off to be looked after in both the good times and the bad times. I was struck last Thursday in your Lordships’ House by a debate in which the noble Lord, Lord Shipley, spoke about the 70th anniversary of Dresden. He spoke as somebody whose father had been an air raid warden in Coventry on the night of one of the worst bombings. A number of other British cities were mentioned as having suffered the bombing. Actually, Belfast was the city that lost almost 1,000 people in one night, the second heaviest loss of life as a result of German attacks.
The union means that you are there in good times and in bad times, and that is the great attraction of the idea. I absolutely accept the argument that Northern Ireland has required and has received special and generous treatment from the Treasury in recent times, but there is a problem with devolution. As I am sitting beside the noble Baroness, Lady O’Neill, I cannot help thinking about her kinsman’s autobiography. Terence O’Neill, later Lord O’Neill of the Maine, discussed some of these issues. He explains in his autobiography that he could not convey, even to well educated people within Northern Ireland, that Northern Ireland, even in 1968, was subsidised by the Treasury. He had to take that into account in his relationship with the British Government.
One of the most remarkable achievements of devolution in Northern Ireland was to move away from the Government of Ireland Act, which set up an unsustainable basis for the funding of Northern Ireland, and replace it with the principle of parity. It was the achievement least understood by the population at large. That is the paradox of Northern Irish devolution. Devolution is again having that effect internally. The population does not seem to understand. The public debate is not sufficiently informed by the realities of the relationship to the Treasury.
There is a second ambiguity at the moment which was not alluded to by the Minister in her opening speech. That is the situation regarding future developments with respect to corporation tax. The Chancellor has spoken recently about the possibility of UK corporation tax going to 15%. The Republic’s corporation tax is now 12.5%. In real terms, the Republic’s corporation tax, because of devices known as the “double Irish”, is something like 3% to 4%. That is the clue to so much of the attraction of inward investment which has kept that economy afloat, but it is actually a remarkably low effective corporation tax.
By the way, this House has seen an unusual amount of capitalist knocking for the House of Lords this afternoon, but I would like to add my two-pennyworth. One of the implications of the discussion we have had is that the Varney report referred to, originally produced in the Treasury, said that corporation tax was not the decisive factor in the decision of companies to employ, and there were other factors, and it was really only number six. Actually, this Bill is impossible without the assumption that this polling, or this word from our capitalist class, is a lie. It is based on the assumption that they are simply not telling the truth about why they behave as they do, and that actually they follow the low rate of corporation tax. The experience of the Irish economy is the key thing, and all the other things that they talk about as vitally important are not really that important. They might fill in a form and say that, but look at how they behave. That is my little bit added to the unusual wave of anti-capitalist rhetoric sweeping the House of Lords this afternoon. This legislation is tacitly based on the fact that what companies tell us about their behaviour with respect to corporation tax is not the full truth—to put it as simply as that.
If the Treasury achieves the aim of getting 15%, and if the unusual mechanisms known as the “double Irish”—which pushed Irish corporation tax down to 3% or 4%, or so it is reported—are now coming under attack from the United Kingdom Government, the European Union and the United States Government, is it not reasonable to think that, two years down the road—in effect, this legislation has a two-year stay on it—the level of corporation tax in the United Kingdom may not be that much removed from the real corporation tax levels of the Irish Republic? The legislation is driven by a keen desire on the part of the Government and the Assembly to show that something can be done to attempt to rebalance the Northern Irish economy. We all have to respect that. However, it may be the case that, two years from now, it might not have quite the meaning it seems to have today.
I conclude with one technical point which came up in the debate in the other place. There was unanimity across a number of the Northern Irish parties—the SDLP, Lady Sylvia Hermon, the Alliance Party and some in the Democratic Unionist Party—about those companies entitled to come within the ambit of eligibility for lower rates of corporation tax. Essentially, the point was made that credit unions and mutual societies had a case to be included and were not an example of potential brass-plating. I have campaigned with Mr Mark Durkan in the other place for the credit unions of Northern Ireland. They are racy of the soil and are used by as many as 30% of population. It does not seem to me that mutual societies and credit unions are an example of possible brass-plate abuse. If we are going ahead, I think that there is a case—certainly, it was argued across a number of the parties—for looking at the categories that might be included within the ambit of the legislation.
Lord Lexden (Con)
My Lords, the noble Lord, Lord Bew, is an old friend from academic life and it is good to follow him. It is good, too, to have an opportunity to congratulate the noble Lord, Lord Hay of Ballyore, on his maiden speech. It is clear that he was a faithful and dedicated servant of the Northern Ireland Assembly, just like his predecessor, my noble friend Lord Alderdice.
I share the hope that has been widely expressed in this debate that the Bill before us will assist the progress of Northern Ireland and help secure its longer-term prosperity. The important measure of devolution for which the Bill makes provision has not, like some other measures of devolution, been conceived in undue haste or brought forward with insufficient preliminary work. The case for devolving the rate of corporation tax in Northern Ireland was advocated powerfully in Ulster Unionist circles in the 1980s, as my noble friend Lord Empey has told us. It was taken up enthusiastically by my right honourable friend Owen Paterson when he was Conservative shadow Secretary of State for Northern Ireland before the last election. A commitment to action was included in the Conservative Party’s 2010 manifesto and in the manifesto of the Ulster Unionist Party then led by my noble friend Lord Empey. Indeed, it was the subject of discussion between the two parties as part of the work that was done with the aim of creating an enduring partnership between them. I regret that that aim was not in the end successfully accomplished. Ulster’s position in the United Kingdom would have been strengthened by such a partnership.
After the election, the coalition made clear in its Programme for Government that it would,
“work to bring Northern Ireland back into the mainstream of UK politics”—
a commitment to lift all true unionist hearts. In the course of doing so, it would examine,
“potential mechanisms for changing the corporation tax rate in Northern Ireland”.
That examination began exactly four years ago with the publication of a government consultation document stressing the overwhelming need to rebalance the Northern Ireland economy by increasing the size of its private sector, which over several generations had shrunk so alarmingly.
From 2011 onwards, I inquired about the progress of the Government’s work through a number of Oral and Written Questions. There is little doubt, I think, that the announcement of the Government’s decision was delayed to avoid discussion of it during the Scottish referendum campaign of last year. The decision was finally made known in the Chancellor’s Autumn Statement last December, and I welcomed it in the debate on the Statement which took place in this House. It is important to remember that the Bill implements clear commitments that have been given to the people of Northern Ireland. It would have been extremely regrettable if a measure so long in gestation and enjoying such widespread support in Northern Ireland had not been carried into law before the election.
We are all extremely conscious of the acute difficulties that have arisen within the Northern Ireland Executive. It is obvious that they must be resolved if the scene is to be set successfully for the transfer of power over the main corporation tax rate to the Executive in 2017, the target date. I express my admiration for the tenacity and determination with which my right honourable friend the Secretary of State for Northern Ireland continues to work with the political parties in the Province to try and overcome the severe problems. Her predecessor, my right honourable friend Owen Paterson, pressed the case for the devolution of corporation tax with immense fervour. The arguments which he and many others made have been accepted widely, if not universally, in Northern Ireland. In these circumstances, it would be tragic if political instability in Northern Ireland should, at the final hour, deprive the Province of the prospect of benefits which so many economic experts predict and which so many business men and women hope to deliver.
When the Chancellor announced the Government’s decision in favour of devolution, in his last Autumn Statement, the Northern Ireland Chamber of Commerce and Industry declared that,
“our politicians must grasp this opportunity”.
There is no doubt that that is exactly what Northern Ireland politicians, as a whole, wish to do. I hope that, with the assistance of my right honourable friend the Secretary of State for Northern Ireland, they will be able to make that wish a reality and then go on to deal successfully with the challenges that will at once arise, most notably through the reduction of Northern Ireland’s block grant, which has rightly featured prominently in this debate.
This is a money Bill but, as a number of noble Lords have stressed, it has significant constitutional implications. It adds a new element to the unbalanced and asymmetrical arrangements that characterise the United Kingdom’s three devolved settlements and create resentment in undevolved England. The justification, as we all know and has been stressed often in this debate, is the existence of a low rate of corporation tax in Northern Ireland’s neighbour, the Republic of Ireland, with which it competes for international investment. Will the greater imbalance that this measure will introduce within the devolved settlements be accepted on all sides in Wales and Scotland? As we have heard, it is clear that it will not. Nationalist politicians in Scotland and Wales have said that what Northern Ireland has, they must have too. How will the main British parties react? That is the question to which we now need to know the answer.
This Bill has been conceived in the best interests of Northern Ireland and could serve those very well indeed. However, at the same time, it could add to the United Kingdom’s constitutional instability which, sadly, is so marked a feature of life in our country today.
Lord Browne of Belmont (DUP)
My Lords, I congratulate my noble friend Lord Hay of Ballyore on an excellent maiden speech. During his long public service, he has continually sought to achieve consensus between the two communities in Northern Ireland and he has had a great deal of success in that. His fair-mindedness, negotiating skills and ability to remain calm when faced with adversity will enable him to make a useful contribution in this House.
I wholeheartedly support the Bill and it is fitting that it will complete its parliamentary stages on St Patrick’s Day. I am not suggesting that we will be celebrating the Bill in 1,000 years’ time, but it has the potential to transform Northern Ireland’s economy in the long term and to ensure a level of prosperity that the Province has not enjoyed before. Although today is the end of the parliamentary process, this is far from the end of the corporation tax story. To quote Sir Winston Churchill,
“this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning”.
Indeed, what a long beginning this has been. The campaign for the devolution of corporation tax for Northern Ireland in its present form dates back a decade. I thank the business groups that have supported the campaign to build a political consensus on this issue for many years. Their work helped to build support for corporation tax devolution not just among Northern Ireland’s politicians but among key Northern Ireland Office and Treasury Ministers. That support proved invaluable when difficult times came.
I pay particular tribute to Northern Ireland’s First Minister, Peter Robinson, who played a very significant role in championing this cause in the Northern Ireland Assembly. I also thank the present Government for taking the initiative on this and responding to the united political call from the Northern Ireland parties. I am sure that at times it would have been easier to accept the Treasury orthodoxy on such matters rather than to take a new policy initiative. Despite any doubts that it may have had, the same Treasury did not hesitate to commit itself to drawing up the Bill. I know that the policy of corporation tax devolution has not been enthusiastically supported by the Labour Party but I must acknowledge its role in ensuring the Bill’s smooth passage through Parliament.
Strictly speaking, the Bill does not devolve corporation tax powers to the Northern Ireland Assembly but allows the Assembly to set the Northern Ireland rate of corporation tax, with every other aspect of the regime remaining the responsibility of Her Majesty’s Revenue and Customs. That is why I think that those who have some concerns about the Bill on constitutional grounds are wrong. The Bill does not in any way undermine the union between Great Britain and Northern Ireland. Indeed, if this policy proves to be a success, it will mean that Northern Ireland will make an increased contribution to the United Kingdom economy. That can only be good for Northern Ireland in particular and for the United Kingdom as a whole.
There are others who argue that Northern Ireland will not reap the rewards of a lower rate of corporation tax but will pay too heavy a price in the reduction of public expenditure. Time does not allow for a comprehensive rebuttal of this argument but I will briefly make the following observations.
First, most economists agree that a reduction in the corporate tax rate is one of the most effective policy tools to achieve a rebalancing of the Northern Ireland economy towards the private sector, which in my view is an essential prerequisite for future economic prosperity. Convincing evidence is provided in a recent study by Ulster University’s Northern Ireland Centre for Economic Policy, which has estimated that the lowering of the corporation tax rate to 12.5% from April 2017 would result in the creation of 37,500 additional jobs by 2033. In simple terms, that means more jobs and better jobs. It means more money circulating in the local economy, and a higher standard of living and a better quality of life for everyone in Northern Ireland. In the longer term, it means that we have the capacity to fund public services at the level many of us would wish to see.
A lower rate of corporation tax is good not just for foreign direct investment but for our indigenous businesses. While a reduced level of corporation tax for Northern Ireland is not in itself a panacea for all our problems, the Bill as drafted provides useful safeguards on several technical issues. The separate arrangements for large companies and SMEs and the exclusion of profits from investment and certain other activities seem eminently sensible. This should discourage tax avoidance through brass-plating and encourage employment-creating trading activities and foreign direct investment.
Secondly, the experience of the Republic of Ireland would indicate that a lower level of corporation tax has been one of the key drivers of its economic success. It is no coincidence that, even at their lowest economic ebb, this is the one policy that the Republic of Ireland’s Government have refused to give up.
Thirdly, it must be recognised that this policy will involve difficult decisions about reductions in public expenditure. In my view, the Northern Ireland Executive will have to prioritise interdepartmental discussions to arrive at a budget agreement to facilitate the earliest possible implementation of the rate cut.
I do not pretend that significant issues and challenges do not remain, both in terms of agreeing all the final details and in relation to the other measures that the Northern Ireland Executive will have to put in place to ensure that the policy is a success. I am confident, however, that these challenges can be overcome.
After today, the next phase is the rollout of this power: it will pass to the Northern Ireland Executive to take forward. We now need the Executive to agree what the Northern Ireland corporation tax rate should be, from when it should apply and over what period it should remain in force. In these areas, with some compromise on all sides, I believe that agreement can be reached.
My party’s preference would have been for a 10% corporation tax rate, but it is prepared to go along with the emerging consensus that the rate should be 12.5%. The earliest possible date for the introduction of this rate is April 2017. Given that we have waited so long for this power, the rate should be introduced as soon as possible after that date. A quick decision will enable Invest Northern Ireland to go out and sell the policy to those investors for whom a low headline rate—
Lord Trimble
I thank the noble Lord for giving way. He is talking about the desire to have quick decisions on this. Did I miss something? Did I miss him saying when the implementation of the Stormont House agreement would be sorted out through fully providing for welfare reform and implementing it? I did not hear that.
Lord Browne of Belmont
I am saying that this cannot be implemented until all these things are sorted out.
Finally, I hope that there will be a political consensus that the lower corporation tax is not merely a short-term experiment but a policy that will be in place for many years. That is what is needed to give the long-term confidence to businesses and investors that Northern Ireland is the place to do business. The Bill will provide a sound basis for the development of a productive economy fit to survive in the very competitive global economy. It is a good example of positive co-operation between the Northern Ireland Executive and the Westminster Government and I trust that it will be one of many in the coming years.
Lord Davies of Oldham (Lab)
My Lords, this has been a fascinating debate, in which two obvious problems with the Bill have been identified that might not have been entirely anticipated. They broadened the debate to such an extent that I sympathise with the Minister responding to it. The breadth that has developed is obvious enough. First, questions have been directed to points of such substantial detail that we want answers this evening because this is a money Bill and we have no chance to press the issues any further. Therefore, I hope that the noble Lord—I know how scrupulous he is in observing time limits when he is winding up—will indulge himself sufficiently to respond to those very detailed points, one of which I will refer to in a moment, so that we can make as much progress as we can before we pass the Bill, defined as it is as a money Bill, by taking all its stages after Second Reading.
The second aspect that has broadened things was raised by the noble Lord, Lord Forsyth. He was not alone in this respect, although he probably presented the most challenging dimension on it. The noble Lord, Lord Shipley, accurately reflected this as well. They said that the Bill raises issues relating to devolution powers and the position of the United Kingdom.
I am absolutely delighted to welcome the contribution of the noble Lord, Lord Forsyth, on the prospects of a convention immediately after the election. He has only to vote Labour and he will help with that. Unfortunately, he is not allowed to but perhaps he can persuade the other members of his family to vote Labour to ensure that we have a convention after the election.
The noble Lord, Lord Shipley, also identified in his very useful contribution that there are real issues at stake here. I do not doubt that the noble Lord, Lord Newby, will be somewhat reluctant to indulge in that part of the debate to a very large extent. However, it is clear that this is a further step towards devolution, which is welcomed on all sides. We heard in all speeches—and know from the deliberations in Northern Ireland, particularly in the business community—that people are in favour of this measure. Of course, as the noble Lord, Lord Bew, indicated, that might be on the basis of a fairly limited perspective on what the implications are for devolution and the position of the United Kingdom as a whole—the interaction of the parts. We heard some very challenging contributions today. It is a great pity that we are able to raise them only in the context of a Second Reading debate that concludes very shortly.
Of course, we support the Bill and will give every assistance to its progressing satisfactorily. However, we have anxieties about it. Noble Lords raised the question of the trade-off between this and the block grant. Extending wider than that, there is the whole question of devolution arrangements as well. The Barnett formula came into the debate, too. We have anxieties on those issues and the Minister must recognise that when the Bill goes through, the hoped-for increase in revenue in due course will be balanced against the block grant. I hope he will appreciate that this has considerable ramifications for the Northern Ireland public.
My noble friend Lady Blood emphasised the fact that loss of resources for government might crucially affect the amount that the Government are able to invest in, for example, training and education. These are clearly issues of great importance to making a strategy for increasing the private sector’s capacity to compete successfully. Reference was made to the days of the Republic of Ireland tiger, but it was not just the business rate taxation that was crucial to Ireland. A great deal was made of that, of course. As the noble Lord, Lord Forsyth, reflected, certain companies hived themselves off to the Republic to take advantage of that, but other factors at play also made the Republic attractive at that time. Northern Ireland has a clearly important task to fulfil in matching up in certain respects.
That is why we are concerned about the effect of this. The Government have made it clear that there is a delaying timetable for the implementation of this measure. It is dependent on the Northern Ireland community, particularly the Assembly at Stormont, reaching an agreement that gives the Government confidence that there is fiscal security in the economy, and gives strength to that economy. Two years is a pretty short timetable to make that demand—it is a pretty substantial demand as well. The Minister must flesh out what his tests are for this demand being met before corporation tax reduction powers are vested in Northern Ireland.
None of us regards corporation tax as a panacea. It can play its part, and we are aware of the strength of opinion in the business community that it will help, but it is not a panacea for the economy; much more substantial improvements need to be made as far as the Northern Ireland economy is concerned. Therefore, the only thing I can say to the Government is that I understand their need for delay—they want to get the Bill through before this Parliament concludes and so they built in the delay before implementation—but delay is no friend in circumstances where things are not improving as rapidly as one would hope.
I hope the Minister will address these issues and at least have a shot at the broader constitutional problems.
Lord Forsyth of Drumlean
I wonder whether the noble Lord, Lord Davies, can help me by answering the question that I put to his noble friend Lord McAvoy. I am just a bit puzzled. Of course the business community welcomes the Bill, because profitable businesses will pay less tax at the expense of the resources that are available for public services. Why is the Labour Party supporting such a measure?
Lord Davies of Oldham
My Lords, we see that there is support in Northern Ireland for the Bill, which will give some chance of rebalancing the economy to a certain extent. We are in favour of that, but recognise that the development of the Northern Ireland economy, as with all the other parts of the United Kingdom, will depend on much more fundamental issues than the rate of corporation tax. That is why we regard this as a marginal Bill in these terms. However, it would be fruitless of us to object to it, although I accept his point about why we did not address ourselves to other issues, rather than the reduction of corporation tax. He will know, because he is so well informed on Labour Party policy, that we propose to increase the corporation tax rate for the rest of the United Kingdom, with the specific objective of reducing business rates for small and medium-sized businesses. We think that is a quicker and more effective way of giving stimulus to the business community. There we are: on two areas of policy, the noble Lord, Lord Forsyth, and I are in full agreement. I did not expect to say that this evening.
Lord Forsyth of Drumlean
If it is the policy of the noble Lord, Lord Davies, that it is better to reduce business rates and that that should be applied to the rest of the United Kingdom, why is it not his policy to do that in Northern Ireland? If he believes that that is the right approach, why is he proposing something that he rejects as being the right approach in the rest of the United Kingdom?
Lord Davies of Oldham
My Lords, has the noble Lord not noticed that I am speaking from the opposition Benches? We are not in a position where we can implement our policies at present. It is only a matter of a short delay, as the noble Lord, Lord Forsyth, will readily appreciate. But at this stage, the Government put Bills before us and this is the Bill we have. I have only two alternatives: to reject the Bill whatever its benefits, or to accept it but state that we can do better. That is exactly what I have argued.
Lord Empey
My Lords, I am sorry to have to interrupt this job interview for the best anti-capitalist speaker in the House, but will the noble Lord, Lord Davies, clarify one thing? I am assuming that the Opposition support the Stormont House agreement. That agreement has subsequently been ratted on by one of the parties to the it. It appears to some of us that the reason they are doing that is the hope that, after the election, were there to be a change of Government, the noble Lord’s party would be more readily prepared to put more money into the Stormont House process. Therefore, they are holding out in the hope that that might happen. Will the noble Lord clarify that that is not the Opposition’s position and that the Labour Party stands over the Stormont House agreement as it was dealt with at the end of December?
Lord Davies of Oldham
Is the noble Lord seriously asking me to clarify conjecture about why people have acted as they have done in Northern Ireland thus far? The Government have said that this will need to be resolved because the reason for delaying implementation of this measure is to give us time for that to be done. We will obviously take considerable advantage of such time when we come to power.
Lord Newby (LD)
My Lords, perhaps surprisingly, it was with a certain amount of affection that I looked at the possibility of speaking in this debate today because the first Question I answered from the Dispatch Box, nearly two and half years ago, was about the devolution of corporation tax to Northern Ireland. It was one of the most frightening experiences of my life. Despite that affection, I am not sure that I can share the worry, or sadness, of the noble Lord, Lord McKenzie, that we will miss the fun of Committee. There are many adjectives I could think of that would describe a Committee stage on this Bill, but I am afraid I am not sure that “fun” would be near the top of my list. Perhaps that shows a lack of imagination.
I am delighted to be able to congratulate the noble Lord, Lord Hay of Ballyore, on his excellent maiden speech. He brings with him a formidable reputation as someone who has been able to persuade people, in a quiet, effective way, to work together for the good of the community at large. It is clear that these qualities are still needed in Northern Ireland today, just as they ever were. Those qualities are going to be needed if we are going to see the kind of economic development that everybody who has spoken on the Bill wishes to see in Northern Ireland.
The noble Lord, Lord Bew, I think, stressed the key issue and the key difference that has characterised the debate today, which is one of expectation. Some in Northern Ireland have very high expectations for the Bill, while others, in your Lordships’ House, have very low expectations. There is very clearly, in this Chamber at least, no agreement on that. At one end of the spectrum we have the noble Lord, Lord Forsyth, and at the other, the noble Lord, Lord Browne of Belmont, but it is quite telling that the greatest enthusiasts for this legislation are those in Northern Ireland who, on a daily basis, are grappling with how to make the economy stronger. The political parties and the business community are extremely keen on this. To respond to the noble Lord, Lord Davies of Oldham, on whether we should do this or business rates, the business community have said that this is what they want. It is in response to a combination of the strength of feeling in the business community and of that in the political parties that the Government have entertained this measure.
Whatever view you take about the desirability of doing this, there is clearly a huge amount of uncertainty about what the outcome will be: there are many variables that we cannot possibly bottom out at this point, several years before it comes into force. However, for the rest of my time, I will deal with some of the concerns noble Lords have raised and clarify some of the issues which are clearly uppermost in people’s minds.
The noble Lord, Lord McAvoy, began by expressing the hope that there would not be brass-plating—companies just having a brass plate in Northern Ireland and doing business elsewhere. The rules in the Bill contain many features to protect against avoidance. In addition to the exclusion of investment income, the main one is the adoption of rules for large companies which are based on existing international principles. Pure brass-plating simply will not be possible because the rules require a physical presence in Northern Ireland and, more fundamentally, a calculation of Northern Ireland’s trading profits, as if the company were a stand-alone entity, so that concern should not be too great.
A number of noble Lords, starting with the noble Lord, Lord McAvoy, asked about the modelling of the impact of the different rates. The example that the Government have set is on the basis of a 12.5% rate of corporation tax in Northern Ireland, assuming a 20% UK rate. This is expected to be £325 million in 2019-20, which will be the first steady state year if implementation takes place in April 2017 and if the rate in Northern Ireland from April 2017 is 12.5%. Obviously, the Executive will have the power to consider the impact of setting the rate. The UK Government will continue to work with them on the detail of the block grant deduction.
The noble Lord’s question on modelling led into his second question about the impact on overall income for the Executive and what that could mean in terms of levels of public expenditure. This is a key question that the Executive will have to decide, but one way in which they might decide to progress—I am not saying that they will do this—rather than going through a very big change in one year, is to reduce the rate over a number of years, as we have done in the UK, so that you set a direction of travel, with a rate of 12.5% as the end-point. It would not be necessary to implement it all from year one. The reason why we have spread it over a number of years here is that it spreads the cost, while at the same time giving companies that are investing the UK a sense of where they are going to be in a few years’ time.
The other point in terms of how the Executive will be able to manage a potentially big reduction in their income is that the impact does not all come in in one go. Even if you were to reduce the rate to 12.5% from day one, the impact on the Executive’s budget would rise from £120 million in 2017-18 to £280 million in 2018-19, and then get to the steady state level of £325 million in 2019-20. So, in any view, you will have a phasing in.
My noble friend Lord Trimble pointed out that the Varney report suggested that there was a raft of other things just as important as this tax change for the viability and strength of the Northern Ireland economy, including the labour market, telecommunications and transport; obviously, that is true. We have, as a Government, been helping the development of high-speed broadband and the transport infrastructure in Northern Ireland. But if anybody thinks that we are going to get the full benefit of a reduction of corporation tax while standing still on all these other very important issues, they are clearly incorrect.
I believe that my noble friend Lord Trimble was the first to raise the issue of how the rest of the UK would see this change—a point very eloquently developed by my noble friend Lord Forsyth. As far as Scotland and Wales are concerned, the Smith commission did not recommend devolution of corporation tax, nor did the Silk commission in Wales. The suggestion that there will inevitably be the same kind of pressure from Scotland and Wales as there has been from Northern Ireland is not really borne out by the experience of the views of the political parties in those parts of the United Kingdom.
Lord Alderdice
I shall press my noble friend a little. There is a huge focus on what happens if this is introduced and all the modelling and so on. I emphasise to him that part of the purpose of this is so that those people who want to take Northern Ireland out of the United Kingdom and who want to harmonise the arrangements with the rest of the island are, by the device of this Bill, made to face the real political and economic consequences of any such process. The likelihood is that, whether because things would change or not, they will look at the situation, add up the sums and discover that going down this road is not what they want to undertake. This is a completely different thing from the situation in Scotland or Wales where there is not another country that people want to be part of that is a comparator or competitor. If Northern Ireland has this power and decides not to use it, that is a very strong pilot exercise to say to people in Scotland and Wales that there is no point in going down this road because it is not actually a serious economic goer. I want to emphasise that there is a political dimension to this in terms of Northern Ireland that is quite separate from any of the economic debate which has formed a large part of this debate.
Lord Forsyth of Drumlean
No, it is not accepted. My noble friend said that by giving more powers to Northern Ireland, and with it more responsibility, the case for breaking away from the United Kingdom will be blunted. That is precisely the argument which has been used by the Government in Scotland, where we gave more powers after we had won a referendum on independence, and the result is that the nationalists have surged. My noble friend says that no one in Scotland is crying out for corporation tax powers, but the Scottish nationalists are crying out for devo-max. In the past six months, they have gone up to 55% in the opinion polls, and the Labour Party, which has advocated more powers on the same argument as my noble friend has put, is facing annihilation. Can we not learn the lesson that by giving more powers to constituent parts of the United Kingdom, we break the unitary state which is the United Kingdom and give succour to those who wish to smash it up? When my noble friend says that Scotland is not like Ireland because there is no other country it can be, yes there is. It can be Scotland as an independent country outside the United Kingdom. That is the threat.
Lord Newby
I am not sure that is a threat in respect of Northern Ireland. I disagree with the noble Lord about both the principle of devolution and its effect. The SNP is at 55% in the polls today but, if I were a betting man, I would say that it will not be at 55% in the polls in 10 years’ time when we have seen how it manages taking responsibility for Scotland’s own income. It seems to me that one of the great weaknesses about the current settlement in Scotland is that the Scots Nats or the Government in Scotland wait to get a cheque from England but, however big it is, it is not big enough, and they do not have the responsibility for raising the money themselves. Now, they will have significantly greater responsibly for raising the money, and that will mean that they have to take more responsibility. I think that is wholly beneficial. I just disagree with the noble Lord, I am afraid.
The noble Baroness, Lady Blood, asked about building societies and credit unions. The effect and the design of the scheme is that in order to attract genuine economic activity, some mobile trades and activities are excluded, including lending and investing. The rules in respect of lending and investing do not distinguish between types of entity, so banks and building societies are treated on the same basis for that purpose. In respect of credit unions, the Northern Ireland corporation tax regime applies only to trading activity in order to encourage genuine employment. The income from the loans that credit unions make to their members is not currently taxed as trading income, so credit unions do not pay corporation tax on that income. Given those special rules already in place, this income from loans will remain outside the Northern Ireland corporation tax rules. Perversely, to bring the profits within the trading income rules, and so within the Northern Ireland regime, would likely result in them paying more tax. I do not think that credit unions are being disadvantaged by this.
Lord Trimble
I am going slightly off the noble Lord’s point on credit unions and back a little bit. I think it is a mistake to rule out financial services. Northern Ireland missed out completely on the changes that have taken place in financial services in the United Kingdom over the last 20 years. We do not have a significant financial service sector at all, yet that sector is much more profitable than nearly all the other sectors of economic activity in the United Kingdom. You are keeping the most valuable service sector, in which we do not have any significant representation, away from us. If you want to rebalance the Northern Ireland economy that really ought to be up at the top of the list.
Lord Newby
I am afraid that the Government have not taken that view in the way they have produced this. They have thought about it and decided that they did not want to go down that route.
The noble Lord, Lord Shipley, talked about the broader impact of the measure and of APD on the rest of the UK. I agree with him—he will not be surprised to know—in that these things need to be dealt with under a constitutional convention. Nobody could claim that the devolution picture across the UK is anything other than rather piecemeal and the time is long overdue for us to try to bring a bit more coherence to it, not least in terms of the English question.
The noble Lord, Lord Empey, talked about the necessity for the parties in Northern Ireland to agree on the budget reduction. Everybody agrees that the budget reductions should have been embarked on earlier, but the process has now started and we are determined to encourage and support the Executive in the future as they grapple with these issues. We are totally clear that the Executive must balance the budget and, to do that, welfare reform must go ahead.
The noble Lord, Lord Forsyth, ranged widely over our constitutional issues and problems. He did not mention that Yorkshire Day is in the middle of the Summer Recess and therefore I will be denied the possibility of getting a big set of powers devolved to Yorkshire, for which I am extremely sorry—but we cannot have everything. I think the noble Lord’s characterisation of the extent to which this would complicate the system and make life difficult for businesses was slightly overdone. The rules we are introducing for larger companies are based on existing OECD principles which companies already operate. As he pointed out, the design seeks to retain coherence within the corporation tax regime as whole. Only one variable is being affected and the whole system is being administered by HMRC, with which all the companies already have relationships.
The noble Lord, Lord McKenzie, asked a number of detailed questions, some of which I hope I can deal with. He asked whether the notional profit attributable to back office was creditable in the rest of the UK tax computation. This notional profit forms part of the attribution of trading profits to the Northern Ireland regime, so will not feature as mainstream—to use the language of the Bill—profit; that is, non-chargeable at the UK rate.
Lord McKenzie of Luton
I am sorry, but my question was about not whether they are creditable within the UK system but whether they would be creditable to a foreign investor.
Lord Newby
I shall have to write to the noble Lord on that point, but I suspect that the answer is yes. However, I am not confident, so I shall write to him.
The noble Lord asked about whether an SME that is determined to be within the Northern Ireland regime but has 25% of its activity within the UK has all its corporation tax charged at the Northern Ireland rate. The answer is yes—all its qualifying profits will be taxed at the Northern Ireland rate. It is estimated that more than 99% of the small and medium-sized businesses affected have 100% of their trading activity in Northern Ireland. That seems rather a large figure but, even if it was slightly less than that, the amount of potential tax forgone for the UK in one guise or another is very small.
The noble Lord asked how it would work in calculating the block grant. If and when this power is in place, the Executive’s funding will consist of three elements. The Barnett formula continues to operate, so there is the Barnett-based block grant. There is then a block grant adjustment, so there is a deduction from what they would otherwise have got, to reflect the CT revenues forgone. Then you put back in the CT revenues that you are collecting. That is the principle of it. I accept that actually doing it is quite complicated, but the principles are quite clear.
Lord McKenzie of Luton
I shall not make this a dialogue, but is the consequence that on day one the deduction from the block grant would effectively be at the current mainstream corporation tax rate and the benefit at the Northern Ireland corporation tax rate? Clearly there is a differential between the two, which is why you get a substantial negative in the block grant, at least on day one.
Lord Forsyth of Drumlean
Will the Minister just elaborate on that? Let us just say for the sake of argument that it is decided to drop the corporation tax rate to 12.5% on day one. The Government have made an estimate that that would cost £325 million. Would the block grant then have £325 million deducted on day one? Is it based on the estimate? Given that we know how volatile corporation tax is from year to year, how would that work? I do not want to be rude, but it does rather feel as though the Government are introducing a Bill without knowing how it will work in practice, or how much it will cost. It does matter, for reasons that the noble Baroness, Lady Blood, pointed out in her speech.
Lord Newby
First, Northern Ireland would not lose the £325 million on day one. As I said, there is a transitional period; it takes three years before the full effects work through, because of the time that it takes to get corporation tax returns sorted out. On the second point, on how it works out, the model that is being followed closely follows the model that has been agreed with the Scottish Executive in respect of income tax for Scotland. So a lot of work has been done on that, and the principles and the practice will follow from Scotland to Northern Ireland. I am happy to write to the noble Lord about it—it is extremely technical. But I can assure him that a lot of work has been done on the issue already.
I am well over time. I just say to the noble Lord, Lord Bew, that the double Irish arrangement is coming to an end, so he is right to the extent that the rate would go up there.
As I said at the start, this is a measure that is broadly supported in Northern Ireland by the political and business community. It has raised varying expectations. The view of the Government is that it has the potential to encourage genuine investment and help Northern Ireland to become competitive, boosting the entire UK economy and the standard of living of people across Northern Ireland. But it will be for those in Northern Ireland—business and politicians alike—to ensure that, if and when the Bill comes into effect, it has the desired effect.