Grand Committee
Greater Manchester Combined Authority (Amendment) Order 2015
Lord Ahmad of Wimbledon
That the Grand Committee do consider the Greater Manchester Combined Authority (Amendment) Order 2015.
Relevant documents: 25th Report from the Joint Committee on Statutory Instruments, 29th Report from the Secondary Legislation Scrutiny Committee
The Parliamentary Under-Secretary of State, Department for Communities and Local Government (Lord Ahmad of Wimbledon) (Con)
My Lords, the draft order was laid before this House on 25 February. It makes vital changes to enhance the leadership capacity of the Greater Manchester Combined Authority in order to promote economic growth and support Greater Manchester in delivering the devolution agreement made with the Government in November last year. As I will discuss with the Council of Europe when I address it tomorrow, the Greater Manchester devolution agreement is part of the Government’s plan to create a northern powerhouse. The agreement will see Greater Manchester having significant additional powers over, for example, transport, housing, planning and policing. These proposals will build on the success to date of Greater Manchester by creating a powerful devolved administration with strong political leadership that can drive through policies to stimulate economic growth and plan strategically across the city, as well as nationally and internationally.
With such powers, it is essential that there is within Greater Manchester leadership which is clearly and directly accountable to the people of Greater Manchester. A central tenet of the devolution agreement is that by 2017 there will be for Greater Manchester a mayor directly elected by the people, but this needs primary legislation. To enhance leadership capacity in the mean time, Greater Manchester leaders have asked us to enable them to appoint an additional board member who will chair the combined authority. This is exactly what the order does.
The draft order amends the 2011 order which established the Greater Manchester Combined Authority. It enables the combined authority to advertise, shortlist and ultimately appoint an additional board member who will chair the authority for a maximum of two years. This person, the interim mayor, will not exercise any functions individually. He or she will have one vote, and no casting vote—exactly the same as the other 10 board members. To be eligible to be appointed as the interim mayor, a candidate must be a resident of Greater Manchester and already hold an elected position; that is, they must have some form of democratic mandate and accountability to residents. This could be as an existing councillor or local authority mayor, Member of Parliament or the police and crime commissioner. The order also sets out the process for resignation and termination, and how the interim mayor’s allowances will be set. Additionally, all the existing arrangements for overview and scrutiny of the combined authority will continue to apply.
We have laid this draft order after following the statutory process for making changes to a combined authority as set out in the Local Democracy, Economic Development and Construction Act 2009. Crucially, it is a bottom-up process. The first steps must be taken by the councils and the combined authority. The Greater Manchester Combined Authority has, as the statute requires, requested this change through undertaking a governance review and preparing an appropriate scheme, and as the statute also requires, the Government have consulted on the proposed change. Having done so, my right honourable friend the Secretary of State for Communities and Local Government is satisfied that if these changes are made, the statutory conditions for such an order will have been met.
In short, making these changes is likely to improve: first, the exercise of statutory functions relating to transport in the area; secondly, the effectiveness and efficiency of transport in the area; thirdly, the exercise of statutory functions relating to economic development and regeneration in the area; and fourthly, the economic conditions in the area. The Government have also had regard to the need to reflect the identities and interests of local communities and to secure effective and convenient local government.
In conclusion, this draft order will enable the Greater Manchester Combined Authority, an already effective combined authority, to enhance further its leadership capacity in order to deliver effectively the additional powers within the devolution agreement and to help drive growth in Greater Manchester and across the north as part of the Government’s vision for a northern powerhouse. Making this change is what the civic leaders of Greater Manchester want in order to help them to do what councils across the country should be doing: promoting economic growth; that is, putting the promotion of economic growth at the heart of all they do. This is a priority for them and it is a priority for the Government. I commend the draft order to the Committee.
Lord McKenzie of Luton (Lab)
My Lords, I thank the Minister for introducing this order and wish him well with his address to the Council of Europe tomorrow. The order, as we have heard, covers a narrow but very important point concerning the governance of the Greater Manchester Combined Authority. By way of background, we note that on 3 November 2014 the combined authorities endorsed the devolution agreement negotiated with the Government which sets out the new powers and new responsibilities to be transferred but alongside governance changes which will eventually lead to a directly elected mayor being introduced.
Of course this is all part of the northern powerhouse, in recent times seemingly and belatedly so beloved of the Chancellor, with the agreement on an elected mayor referred to in glowing terms in the Budget speech—a new promise for the combined authority to be able to keep 100% of the additional growth in local business rates. We are thoroughly supportive of the Greater Manchester Combined Authority, which was created under legislation of the previous Labour Government, and acknowledge the innovative approach of the authority and its 10 constituent members. Indeed, the briefing note provided by the authority correctly asserts that Greater Manchester has been at the forefront of the debate about fiscal and functional devolution for some time. It states that greater devolution has been a cross-party objective for many years. The stated ambition is to develop a new “place-based” partnership with government over the lifetime of the next Parliament to influence, if not control, all public spending in Greater Manchester.
The thrust of all of this sits full square with our position of wanting, across the piece, to transfer some £30 billion of funding over five years from central to local government to resource transport, skills, employment support, housing and business support. But our ambition is not just to empower cities such as Manchester; it is to empower all parts of England that are prepared to join together in city and county regions. Unlike this Government, we would not give with one hand and take with the other by hitting the most vulnerable communities with the largest cuts.
It is understood that, under the 3 November 2014 agreement, the powers and functions of individual authorities will be retained by them but the combined authority will be strengthened through the transfer of existing powers and functions from central government. Perhaps the Minister will confirm that those cover transport, skills, business support, housing, planning, public service reform and health and social care. A set of governance protocols for the combined authority have been developed to reflect this, which widens and strengthens participation among local members. This has been built on to develop the agreed revised GM model which introduces a directly elected mayor as the chair and 11th member of the combined authority. There will be a cabinet of leaders with clear portfolio responsibilities.
It is understood that the plan is for an elected mayor to take responsibility for the newly gained powers in respect of planning, transport, housing and policing. Perhaps the Minister will confirm that that is so. We are influenced in our acceptance of the model by the fact that the combined authority has itself signed up to it. Clearly, this is all dependent on further primary legislation, which will fall to the new Parliament. It will be known shortly to which party or parties this opportunity will fall. However, so far as primary legislation is concerned, can the Minister say—assuming it fell to his party—what would be proposed in terms of consultation in advance of that legislation? Would the primary legislation require a referendum to approve the creation of an elected mayor? If so, what would happen if a referendum rejected the concept? It has been rejected in the past. Would there be an endless succession of interim appointed mayors? Where would such a rejection leave the devolution agreement?
The deal entered into between the combined authority and the Government is ground-breaking and the issues of governance are clearly an integral part of the negotiations and the agreement. However, can the Minister say whether other forms of additional governance capacity and chairing were considered apart from the elected mayor and the interim arrangements?
How will the interim mayor be held to account? Other members of the combined authority are leaders in their individual authorities, it is understood. An interim mayor may have to initially have held an elected post, but presumably it can be relinquished subsequently, and in any event it may not be the appropriate channel for judging performance.
Finally, the Secondary Legislation Scrutiny Committee of your Lordships’ House has drawn attention to the paucity of the consultation which has taken place in respect of this order. It points out that albeit the order is concerned with an interim appointment, the powers involved are potentially wide. How do the Government respond to that criticism? However, as indicated at the start, we support this order.
Lord Bradley (Lab)
My Lords, as the Secondary Legislation Scrutiny Committee pointed out on this interim order for the appointed mayor, there were barely three weeks of consultation, and the only people who effectively were consulted were business representatives and local councils. Although it was on the website, there was very little public involvement in the discussions and the decisions that were subsequently taken. It is essential that, under the forthcoming primary legislation, there is full consultation. Can the Minister give an absolute assurance on the length and depth of that consultation with the public in Greater Manchester? What timetable does he envisage for that primary legislation? If we are to move towards an ultimately elected position, the two-year time period might be shortened in that process.
Lord Ahmad of Wimbledon
My Lords, I thank the noble Lords, Lord McKenzie and Lord Bradley, for their contributions. I welcome the support across the Committee for the way that we are moving forward with Greater Manchester. Various questions were raised and I shall try to answer all of them.
The noble Lord, Lord McKenzie, asked what powers the Greater Manchester Combined Authority will receive. To give a bit more detail on some of the issues over which it will have control, they include: control of apprenticeship grants for employers; power to reshape and restructure the further education provision within Greater Manchester; control of an expanding Working Well pilot with central government funding linked to good performance; the opportunity to be a joint commissioner with the Department for Work and Pensions for the next phase of the Work Programme; and the GMCA and Greater Manchester clinical commissioning groups will be invited to develop a business plan for the integration of health and social care across the area based on the control of existing health and social care budgets.
The elected mayor of Greater Manchester will receive greater responsibility for a devolved and consolidated transport budget with a multiyear settlement to be agreed at the next spending review, for a franchised bus service, for integrating smart ticketing across all local modes of transport and for exploring on an urgent basis further opportunities for devolving rail stations across the Greater Manchester area. The elected mayor will also receive powers for strategic planning, including the power to create a statutory spatial framework for Greater Manchester; control of a new £300 million housing investment fund; control of a reformed earn-back deal with the current envelope of £300 million a year for 30 years; and incorporate the role and responsibilities of the Greater Manchester police and crime commissioner.
Lord Bradley
Perhaps I may clarify what the Minister was saying about consultation on the primary legislation. He seemed to be saying that there would be an evaluation of it in 2019. My question was whether there would be consultation with the public on the primary legislation to be introduced early in the new Parliament.
Lord Ahmad of Wimbledon
My understanding is that, as the deal has been done on laying the primary legislation, it will proceed in the next Parliament. That has already been negotiated between the Government and the leaders, so there are no plans for additional consultation on the primary legislation.
Local Authorities (Prohibition of Charging Residents to Deposit Household Waste) Order 2015
Lord Ahmad of Wimbledon
That the Grand Committee do consider the Local Authorities (Prohibition of Charging Residents to Deposit Household Waste) Order 2015.
Relevant documents: 25th Report from the Joint Committee on Statutory Instruments, 29th Report from the Secondary Legislation Scrutiny Committee
The Parliamentary Under-Secretary of State, Department for Communities and Local Government (Lord Ahmad of Wimbledon) (Con)
My Lords, the draft order was laid before this House on 25 February. It prohibits local authorities in England charging their residents to enter into or exit from household waste recycling centres or deposit household waste or recycling at such centres. The order reinforces the principle that such centres—also known as civic amenity sites or tips—should be provided free to use by the general public or local residents in the area.
From provisions previously contained in the Civic Amenities Act 1967 to the current provisions in the Environmental Protection Act 1990, Parliament has required local authorities to provide free-to-use household waste recycling centres for their residents to dispose of household waste. The Government’s 2011 waste review supported that principle and the order reaffirms the status quo.
The order has been brought before this House because the Government know that some councils have introduced, or plan to introduce, such charges and we are seriously concerned that they will inconvenience residents, make recycling harder and increase fly-tipping and backyard burning.
The Government understand that in the Republic of Ireland, which has a series of charges on household waste disposal, the domestic burning of household rubbish is the biggest single source of toxic dioxin emissions into the air. Such pollution crosses local authority boundaries, creating a wider harm to the public good.
The councils in England introducing this “tip tax” appear to consider the household waste recycling centres in question as additional to those required to be provided without charge under the Environmental Protection Act 1990 and offer them as a discretionary service—one that councils have power but not a duty to provide.
The Localism Act 2011 gave councils in England the general power of competence. This enables them to do anything an individual might do, other than that which is specifically prohibited by law. As such, in the absence of specific limitations, councils can set up discretionary services and charge for their use.
The Localism Act also gave the Secretary of State the power to make an order restricting what a council may do under the general power of competence, recognising that there were occasions where that would be appropriate. The provisions in the Localism Act operate side-by-side with those in the Local Government Act 2003, which also enable councils to charge for discretionary services, and the Government have adopted a belt and braces approach. A separate order made under the negative resolution procedure prohibiting councils from using the 2003 Act to introduce similar charges will come into force on 6 April. Drafts of both orders were provided as part of the public consultation that the Government ran for four weeks earlier this year.
I now turn to the concerns of the Secondary Legislation Scrutiny Committee regarding the length of time given for responses to the consultation and the argument that the order will lead to centres closing. Although acknowledging that a four-week consultation could result in a limited response, I do not consider that that occurred. Thirteen respondents felt that four weeks was insufficient, but the quality of responses demonstrates that providing detailed input was possible in the time available.
I reject the committee’s assertion that the judgment of the Government on the timing of the consultation was self-serving. The Government carefully considered all responses in taking their decision on whether to introduce the order. They have also been mindful of the views of affected residents. Norfolk County Council plans to introduce charges at nine of its 20 centres. Respondents opposed that when the county council consulted on its proposal, citing concerns about fly-tipping and the unfairness of charging for a service that they believe is paid for through council tax.
The Government do not want centres to close as a result of the order. Sites already making such charges will have until April 2020 to make alternative arrangements. The Government invited views on how centres at risk of closure can stay open without councils resorting to charging. Respondents provided a number of useful, sensible ideas. It will be for councils to determine the necessary blend of these and other effective measures to make such centres more cost-effective. Hampshire County Council argues that many sites are not viable for its area and that if this order is implemented it will have no option but to consider site closures, resulting in increased fly-tipping and thus imperfectly achieving the policy objective of environmental protection. However, I cannot agree that the “charge or close” scenario is inevitable. For example, Northamptonshire County Council has asked residents for views on how its household waste recycling centres could be run more efficiently. Options included entry charges and site closures, but residents were opposed. Using feedback, the council refined its plans and alternative measures are being put in place to significantly reduce costs.
The Government encourage councils to innovate and confidently use their general power of competence to act for their communities, and in their own financial interest to generate efficiencies and savings. However, having regard to the Government’s clearly expressed policy of free-to-use centres for residents, householders deserving a comprehensive waste and recycling service paid for by council tax, concerns that charges will not benefit local communities and the consultation responses, the Government consider it appropriate to prevent councils using the general power of competence in these particular circumstances. I therefore commend the order to the Committee.
Lord McKenzie of Luton (Lab)
My Lords, I thank the Minister for his introduction of this order. More particularly, I thank the House of Lords Secondary Legislation Scrutiny Committee, whose diligence in this case has been particularly helpful in getting a better understanding of what is going on here.
We are supportive of the principle that household waste recycling centres should be free to use, as charging could lead to an increase in fly-tipping and damage to the environment, but I am bound to say that this order seems to be central government micro-managing gone mad. Just a few years ago we legislated to give local authorities freedom because we believed that they have the competence and desire to do the right thing for their communities; but here we are now, snatching that freedom away. Can the Minister confirm that so far only one authority, the Somerset Waste Partnership, has actually introduced a charge? A few others are thinking about doing so, but as things stand, only one authority would be eligible to take advantage of the grandfathering provisions through to 2020. If it is not just that one authority, can the Minister tell us which other authorities are involved?
The Secondary Legislation Scrutiny Committee has criticised the consultation process as being too short, at only four weeks. Although it stated that the period should be six weeks minimum, it argues that in this case, given the intervention in local authority powers, it should be longer. Despite what the Minister said, it points out that one in five respondents criticised the period allowed for responses. Why do the Government consider it so vital to press on with this order in these circumstances and not take a pause? It is hardly a matter of national security.
There is further criticism, which we endorse, about the consideration of the responses. Just over half opposed the change. Not only was the opposition anti-localist, but there was a clear consensus about the measure being counterproductive—that is, that it would lead to closures of household waste recycling centres, with consequent increases in fly-tipping.
Consultation has elicited certain suggestions, as we have heard, for ways of avoiding site closures, but considerable doubt has been cast on the effectiveness of those, including by Hampshire County Council, which has been referred to. What detailed work have the Government undertaken to assess the viability of these alternatives? What specific models have they developed to assist authorities to avoid closure in the short to medium-term, and what assurance can the Minister give that actual closures of sites will be avoided? Why are the Government so dismissive of the points made by Hampshire County Council?
Lord Beecham (Lab)
My Lords, I warmly endorse my noble friend’s critique of this—what I can only describe as—peculiar order. I spent some time on Friday with children in a primary school in my ward who were engaged on a litter-pick on the adjoining council estate. That was quite interesting, and quite a worthwhile project from the point of view of encouraging children to take an interest in their environment and, we hope, for their parents to avoid depositing the litter there in the first place. It was also striking that, at the same time, the council in Newcastle—I declare my interest as a member of the local authority—which is meant to charge for the collection of bulky refuse from properties, had arranged a day on which it would pick up items from that estate without such a charge. I saw a full lorry-load being carted away, and more to come besides. So there is clearly an issue around these matters. However, for the Government to assume the power to dictate to local authorities on an issue like this, given the amounts of money involved, seems ludicrous.
There are some questions that I would like to raise. In the first place, what is meant by a “resident” for the purpose of the order? Would that include not merely householders or individuals but also, for example, businesses or organisations, to which my noble friend has referred? How is the council supposed to validate the provenance of those coming to take advantage of this free disposal? They might not even, for example, be a resident of the immediate local authority. Would a resident of Kent be empowered to cross the border into Hampshire and deposit something there, or does it have to be a resident of the individual local authority and, if so, as I say, would that be confined to individuals or could they be corporate?
The second question is: where does this process stop? As I have indicated, my local authority charges, I think, £15 for taking away bulky refuse. That is not a vast figure, perhaps, to most of us, but it is quite a burden on a family household on a very low income. I am in fact going to look into the efficacy of the charge, because there is certainly a good deal of refuse being disposed of otherwise than by paying for it to be taken away. Is the next step for the Government to say that there should not be a charge for bulky refuse collection? In principle, if they are going to take this sort of measure, there would appear to be no logical reason why they should not do that.
Then, of course, there are other enormous contrasts. Now, every resident in many areas will pay effectively 20% council tax because of the way that the Government have changed the council tax support system. People who have been paying nothing now have to pay—or are supposed to pay; certainly not all of them are paying—council tax at that level. Although they can deposit their refuse for nothing, assuming they can get it to the disposal area, they are required to make a significant contribution to their council tax, whereas previously they were exempt from so doing. Is this not a complete inconsistency in the Government’s approach? It is lamentable that the Government—particularly the Secretary of State, who proclaims his belief in localism—should descend to the detailed management of services such as this.
The noble Lord is, of course, not to blame for the Secretary of State’s curious ventures into these areas, and I am not expecting the noble Lord to give too full a defence of what has happened. I am sure that, privately, he would share my view—although I am not for a moment expecting him to confirm it—that this is a ludicrous contrast to all the protestations about localism and democracy which we constantly hear and to which we will return in respect of some other orders this afternoon. They are what I trust will be a final flourish on the Secretary of State’s part. Hopefully he, if not the whole of the rest of the Government, will move on to pastures new in a few weeks’ time. Then we might restore some sense in what local democracy is actually supposed to be about—that is, local decision-making, responsible to the local electorate and not to Whitehall.
Lord Ahmad of Wimbledon
My Lords, I am grateful to the noble Lords, Lord McKenzie and Lord Beecham, for their contributions. Various questions have been raised, which I will seek to answer in turn.
The noble Lord, Lord McKenzie, asked how many local authorities had introduced, or planned to introduce, these charges. He is right to mention Somerset Waste Partnership. This team, as noble Lords may know, manages waste and recycling services for Mendip, Sedgemoor, South Somerset and West Somerset District Councils, Taunton Deane Borough Council and Somerset County Council, which has a £2 entry charge at two of its sites, at least. Norfolk County Council has plans to introduce such a £2 charge at nine of its 20 household waste recycling centres from April 2016. Dorset Waste Partnership—which manages the waste and recycling services for all of Dorset’s district councils and Dorset County Council—is currently consulting on introducing such charging for entry to one or more of its household waste recycling centres. As to whether the Government’s response was excessive, given that there is just one such charge currently and others are planned, three counties are involved, and I have listed some of the areas covered by those counties. That means that a sizeable number of council tax-paying residents will be affected. It is our view that other county councils will consult on introducing charges in due course. Hampshire County Council is clearly of the view that the opportunity to charge remains in place.
Lord McKenzie of Luton
The specific focus on numbers was to do with the number of authorities, partnership arrangements or whatever which would be protected by the grandfathering provisions—that is, those which have got a charge at the moment and which they can keep until 2020. Does that apply only to those which have it as of today? What about those which are in the process of thinking about it—or might be encouraged to think about it depending on the Minister’s answer?
Lord Ahmad of Wimbledon
It will be only the one which is currently in place, which is Somerset. Grandfathering, as I remember from my life in financial services, was often applicable only to those in situ, much to the annoyance of those who had to sit exams. That is a well founded principle.
The noble Lord, Lord McKenzie, asked about local authorities being able to charge for non-household waste or to charge users who are not residents within the local authority area where the site is located. The noble Lord, Lord Beecham, asked, in his own charming way, what is a resident. I am sure that he knows the answer already. As he knows from his own experience, a resident of a local authority is one who lives within the council’s boundary in which the centre is sited. I can give him a practical example of how this was measured from my time in a local authority. After much hard campaigning in my ward I had managed to open a recycling centre, but this was quickly closed by the then Labour council when the authority changed hands. People from my borough tried to go into neighbouring Wandsworth sites but they had to show a local council tax bill at the entrance before gaining entry. Of course, as a Merton resident, I was unable to avail myself of the excellent facilities in the Conservative council next door. However, on a more general point, there are means available to local authorities to ensure that only residents use the sites and not non-residents.
The noble Lord also asked about business waste. The Government recognise that many local authorities charge household waste recycling centres for the deposit of non-household waste, such as car tyres, and/or for users who are not resident in the local area.
Lord Beecham
Perhaps I may go back to the point the noble Lord made about residents. To take the example I gave, if a good citizen of Kent crossed the border into Hampshire, or a good citizen or otherwise of Merton went to Wandsworth, would it be in order for the receiving centre to make a charge to that person?
Lord Ahmad of Wimbledon
That would be for the local authority. If it is not charging its own residents, that applies through this order. However, if someone who is not a resident of that locality and within the remit of that council, it is up to the local authority whether it exercises a charge. This is akin to business charges. Different local authorities have different ways of charging business users.
I was delighted to hear that the noble Lord, Lord Beecham, took part in community clear-up day. He referred to my right honourable friend Eric Pickles and his initiatives. I am sure Mr Pickles will be delighted to know that the noble Lord took part in the community clear-up day in his area. Of course, last Saturday, 21 March, was the first time we have had a national clear-up day. I was delighted that schoolchildren, residents, community groups and charity groups up and down the country played their part in ensuring that we had a good national clear-up day.
The noble Lord, Lord McKenzie, also asked whether charging could lead to the closure of costly household waste recycling sites. We take the view that it should not. The Government have asked respondents to the consultation paper about how household waste recycling centres at risk of closure can stay open without local authorities resorting to charging their residents. There are other ways to consider rather than charging local residents and we do not agree that the scenario of charge or close is inevitable. It is for individual authorities to determine the necessary blend of other measures to make centres at risk of closure more cost effective.
There are two reports from the sector. Local Partnerships’ report on Yorkshire and Humber Local authorities in 2015 demonstrated savings of up to £300,000 per authority through, for example, more effective charging for commercial waste, which I have already mentioned, and a sensible and flexible opening hours regime.
A 2015 report by the Chartered Institution of Wastes Management highlights many opportunities for further savings to be made; for example, centres diverting reusable and repairable materials from landfill. As I said, the consultation asked for alternatives to charges for centres at risk of closure.
Lord McKenzie of Luton
One can understand that there may well be alternatives in some authorities to introducing charging other than closure, but the Government seem to be saying that local authorities can do pretty much anything other than closure. We know that some authorities are already restricting hours, which makes the facility less accessible and it more likely that fly-tipping will take place. Why do the Government say that local authorities can do what they want in all those areas but not simply introduce a charge if that were the one effective way to keep a facility open? That is not logical in any way, shape or form.
Lord Ahmad of Wimbledon
Again, I know from my experience that when you look at the usage of such amenity sites from local residents, it often falls on weekends rather than during the week, so there is a sensible and practical way of managing hours. Contrary to what the noble Lords, Lord McKenzie and Lord Beecham, said, the Government believe in localism. That is why we introduced the Localism Act.
The noble Lord laughs. The point is that this Government have done a great deal for localism in empowering local people in community rights debates, and so on and so forth. Unless there are other specific questions, I believe that I have answered the questions raised and I once again commend the order—
Lord McKenzie of Luton
Before the noble Lord sits down, I should make clear that we want to reflect further on this. I do not say that we will, but we may well want to move a Motion of Regret or other sort when the Motion is reported to the House. It is right to put the Government on notice that that is a possibility given where we are in the timetable. We cannot conclude that here.
Lord Ahmad of Wimbledon
Hansard will have recorded the noble Lord’s comments. I cannot let the final comment pass. The noble Lord, Lord Beecham, talked about whoever it is in power post 7 May. I of course look forward to standing where I am and addressing further concerns that he may have post 7 May. I commend the Motion.
Council Tax and Non-Domestic Rating (Powers of Entry: Safeguards) (England) Order 2015
Lord Ahmad of Wimbledon
That the Grand Committee do consider the Council Tax and Non-Domestic Rating (Powers of Entry: Safeguards) (England) Order 2015.
Relevant document: 25th Report from the Joint Committee on Statutory Instruments
The Parliamentary Under-Secretary of State, Department for Communities and Local Government (Lord Ahmad of Wimbledon) (Con)
My Lords, the order was laid before this House on 27 February and I beg to move that it be approved. The Government are committed to protecting individuals and businesses from unnecessary intrusion into their homes and business premises by public bodies. It is essential that powers of entry, as with any enforcement power, achieve the right balance between the need to enforce the law and ensure public protection and the need to provide sufficient safeguards and rights to individuals. That is why I am delighted to inform the Committee that the Government have clamped down on the overuse and abuse of snooping, with more than 300 powers of entry already being abolished. We have also stopped spy cars and bin snoopers. However, some powers of entry are important and reasonable, such as the need for council tax and business rate inspectors to enter a property to value it. We now propose to introduce three additional safeguards for individuals and businesses through the draft order.
The main change is that the draft order, using powers under the Protection of Freedoms Act 2012, would change the law so that officials from the Valuation Office Agency, an agency of Her Majesty’s Revenue & Customs, should no longer have an automatic power of entry into homes and businesses to value them for council tax and business rates. We are proposing to amend the Valuation Office Agency’s powers of entry so that where consent to enter is not given, listing and valuation officers will have to seek the authority of the First-tier Tribunal before they can exercise their statutory entry power. The vast majority of inspections will continue to happen with consent. However, where consent is not given, it will be for the First-tier Tribunal to judge whether the inspection is needed.
Secondly, when listing or valuation officers exercise their power, if the property’s occupier obstructs them the occupier can be prosecuted and fined. We propose, through this draft order, that the fine level for council tax be reduced and aligned with business rates to level 1 of the standard scale. This is currently £200. The third and final change is that the period for written notices sent by listing officers and valuation officers in advance of inspecting a business property to business ratepayers following First-tier Tribunal authorisation is increased and aligned with that for council tax, to three working days.
These changes, if they are approved, will ensure that private and family life is respected at all times. They will ensure that the privacy of citizens’ homes and businesses is protected, while allowing the Valuation Office Agency to meet its statutory functions and enabling listing officers and valuation officers to fulfil their statutory valuation duties.
In drawing up our proposals, we listened to representations from a range of sectors. We had a total of 23 responses from local authorities, the Valuation Tribunal for England, the Institute of Revenues, Rating and Valuation, Big Brother Watch, a member of the Royal Institution of Chartered Surveyors and the Rating Surveyors Association, and from members of the public. The majority agreed that the proposals set out in the consultation document sufficiently protect the privacy and rights of homeowners and businesses. There was no significant disagreement with the principle of requiring that listing and valuation officers should be made to seek the authority of the tribunal before exercising their power of entry. There were mixed views on whether to reduce the fine level for council tax and align it with business rates, to level 1 of the standard scale. The majority agreed with aligning the period for written notices sent by listing officers and valuation officers in advance of a visit to council tax payers and business ratepayers to three working days. Based on the details of the order, I commend it to the committee.
Lord Kennedy of Southwark (Lab)
My Lords, I do not have too many comments to make in respect of this order. When I looked at the order, I noticed the reference to the Protection of Freedoms Act. This Government seem to like some grand titles for Acts. I think also of the SARAH Bill, which my noble friend Lord Beecham did for the Opposition.
There is a lot of florid language in this order. As the noble Lord, Lord Ahmad, outlined, it ensures that when officials want to get entry to a property, if they have not been allowed it they have to seek the permission of the First-tier Tribunal. I have no particular issue with that. However, I saw that no impact assessment was done on this provision. Who will bear the costs of these actions? I hope that it will not be the taxpayer or the council tax payer. Why was no impact assessment done? Is it because in reality there will be a relatively small number of cases? That would be very useful.
Will the Minister also comment a bit more on the consultation? I read it and thought it was a bit more mixed than the Minister may have outlined. Also, who were consulted? I saw that Big Brother Watch is mentioned here, but what other groups were consulted? It would be quite nice to have a list of the organisations. I assume that local authorities were included. What concern did Big Brother Watch have? It stuck out on the list. I would appreciate some answers to those questions.
Lord Beecham (Lab)
My Lords, in following my noble friend and in relation to the costs which he raised, there seem to be a couple of questions. First, what is the cost assumed to be nationally of any applications that would be made to the First-tier Tribunal and how many cases is it estimated will take place? My noble friend asked upon whom the cost would fall, but would that depend on the outcome of an application or just fall upon the relevant authority? If so, would that then become part of the new burdens doctrine and would it be funded by the department itself?
I have another question. What we are talking about here appears to be valuation for council tax purposes but what about, for example, the bedroom tax? It will presumably be necessary to inspect a property to see how many residents there are and what the position is in relation to allegedly spare rooms. There is already quite a lot of controversy, for example, about rooms adapted for disability purposes within a property. That would presumably require some kind of inspection. Is it proposed that there would have to be an application under these provisions for an inspection by a valuation officer or some other official to determine whether it is appropriate to levy the bedroom tax? I cannot quite remember the more dignified name that the Government choose to give it. Is the euphemism deployed the “supplementary room”?
Lord Beecham
That is right. Yes, it is the spare room subsidy, a wonderful euphemism. In establishing whether that applies, an inspection would presumably often be required but is that covered by these provisions? It would be interesting to know.
Lord True (Con)
My Lords, if I may intervene, noble Lords opposite do not need to feel that they have to object to every regulation that comes here. I have no particular difficulty with this order, as to give three working days is highly sensible. Indeed, most of what is in it is highly desirable.
I intervene briefly only to say that, as we have discussed on other occasions, this is part of a lot of stuff now coming out from the department. As we look forward to the next Parliament, I would put in a plea to whoever is in control of it. I agree with my noble friend and I sincerely hope that it is him, because he is a highly respected and experienced colleague from local government. After the election, however, I hope that there will be a restraining hand laid on those who want to uninvent the general power of competence or assert the principle that Whitehall knows better than local authorities about a range of things, from how votes should be conducted in council meetings to how an individual high street should be regulated. At this last stage in the Parliament I put in a plea before both parties, although I hope that my own will form the next Government, for that message to be heeded. However, I hope that we can approve these regulations. They are highly welcome and I thank my noble friend for bringing them forward.
Lord Ahmad of Wimbledon
My Lords, I thank all noble Lords for their questions, comments and general support for what the Government are proposing. I first thank my noble friend Lord True for his very kind remarks and, as a general point, I take on board what he said about powers of competence. From this Government’s perspective, the whole essence has been an increased focus on localism. He raises his points well and I am sure that both my party and others will listen to his comments with great interest as we move forward, post 7 May.
Turning to the specific questions from other noble Lords, the noble Lord, Lord Kennedy, raised the issue of the impact assessment for this change. The proposed policy changes do not actually fall within the scope of the reducing regulation committee, and so they do not need an impact assessment for this purpose. We do not anticipate any impact on the private or voluntary sector in this regard. A question was also raised about the costs associated with the order. As my noble friend Lord True pointed out, with most inspections there is an allowance of three working days and they will still happen by consent. There will be no significant increase in costs, as new costs for First-tier Tribunals will be paid by DCLG.
The noble Lord, Lord Kennedy, asked about consultation and whom we consulted. I listed a number of organisations and all the consultation details are available on the government website, GOV.UK. This includes all the statutory consultees I mentioned earlier.
Lord Kennedy of Southwark
I am sorry to interrupt the noble Lord. Would it be possible to send me a list of the organisations consulted other than the obvious ones such as local authorities? It would be helpful to me if he could do that.
Lord Ahmad of Wimbledon
I am quite happy to send the noble Lord the list of the statutory consultees, although the whole idea of putting it on the website is to open it up to whoever wishes to comment. However, if the noble Lord is asking specifically about the statutory consultees, I am quite happy to send him the list.
I am delighted that the noble Lord, Lord Beecham, referred to the spare room subsidy by its correct name. Just by way of clarification, that is not assessed by the Valuation Office Agency and, as such, this order will not apply. I believe that I have answered the questions that were raised.
Lord Kennedy of Southwark
I just want to say that obviously we have great respect for the noble Lord. I think that all Members here have served on local authorities in the past. Certainly, the noble Lord, Lord True, leads a council; my noble friend Lord Beecham has led a council; and I was deputy leader of a council many years ago and went back on to Lewisham council last year. Of course, I hope that we get back in May and that the position will be reversed. However, whatever happens, I have great respect for the noble Lord.
Lord Beecham
I hasten to add my agreement to that. However, with respect, the noble Lord has not answered a couple of the questions that I put to him. What will be the cost of the use of the valuation service and who will bear that cost? Will it be the local authority or the householder, or, to put it another way, the occupier of the property? In that event, would the cost apply only if he objected and the objection was overruled?
Lord Ahmad of Wimbledon
Just so that I am clear, this is if a request is made to enter a property and the request is refused. I am just clarifying the nature of the noble Lord’s question.
Lord Beecham
An application has to be made to the First-tier Tribunal and there must be a cost for the application to that tribunal. Who bears the cost of the tribunal hearing?
Lord Ahmad of Wimbledon
I think that I have already alluded to the administrative costs, which I said the DCLG would pay. The House will have an opportunity to see the full details of how the First-tier Tribunal will operate when the MoJ tribunal regulations are brought forward. They will include full, detailed costs.
Legislative Reform (Community Governance Reviews) Order 2014
Lord Ahmad of Wimbledon
That the Grand Committee do consider the Legislative Reform (Community Governance Reviews) Order 2014.
Relevant document: 15th Report from the Delegated Powers and Regulatory Reform Committee
The Parliamentary Under-Secretary of State, Department for Communities and Local Government (Lord Ahmad of Wimbledon) (Con)
My Lords, the order before us today will make amendments to the Local Government and Public Involvement in Health Act 2007. The changes will make it easier to create new town and parish councils by improving the community governance review procedure.
Town and parish councils are a valuable part of our democracy and an important component of our vision for localism. Parish councils provide communities with a democratically accountable voice and a structure for taking community action. The Localism Act 2011 gives parish councils a range of powers, including neighbourhood planning, and we want to see parish councils take on a greater service delivery role for their local communities.
Many local communities clearly have a passion for placing power at a more localised level. However, the prospect of embarking on a lengthy process to realise that goal has discouraged many communities which wish to live in a parished area from exploring this opportunity. We are committed to working with local communities, councils at all levels, and representative bodies across the sector to explore measures to remove the obstacles that stifle the potential which exists for creating more new town and parish councils.
The legislation governing the community governance review procedure requires that every principal council conducts a review as it gives consideration to whether to create a new town or parish council. The proposals which I set out today will improve the experience for local communities, which will be better placed to achieve their vision of local governance at the grassroots level.
The draft legislative reform order was laid before Parliament on 11 December 2014 under the affirmative resolution procedure. The Delegated Powers and Regulatory Reform Committee scrutinised the order on 21 January 2015 and raised it to the super-affirmative procedure. The chair of the committee, my noble friend Lady Thomas of Winchester, invited the Department for Communities and Local Government to submit further information. I am pleased that following the submission of further details, the committee confirmed its satisfaction that the order now meets the tests set out in the 2006 Act. I am grateful to the committee for its hard work in scrutinising this order.
Before getting into the details of the amendments to the Local Government and Public Involvement in Health Act 2007, I will briefly explain the background to these measures. In 2011, the Open Public Services White Paper set out the policy objective of making it easier to set up new town and parish councils. This reflected the growing belief among local campaigners and the local government sector that under the current legislation, the process is too burdensome and bureaucratic for local citizens.
We undertook two government public consultations to consider these proposals. The first consultation was conducted from October 2012 until January 2013 and sought views on a wide range of measures to improve the governance review procedure, including the three specific measures set out in the proposals today. It has been particularly insightful to listen to the views of bodies such as the National Association of Local Councils, the Society of Local Council Clerks and the Local Government Association and to learn from the first-hand experiences of new and established town and parish councils which have gone through the review process. Respondents to the consultation were broadly in support of the three measures proposed. As a result, the Department for Communities and Local Government decided to proceed with plans to introduce the three key legislative measures.
In the second public consultation, conducted between March 2014 and May 2014, we gave specific consideration to the use of a legislative reform order as the mechanism for introducing the proposals. All those who responded to the consultation fully supported the specific use of the LRO. Today, I am asking noble Lords to support the introduction of measures that will help to deliver on the commitment first made in 2011. Introducing these changes will benefit local communities by giving them a greater say in how their local neighbourhood should be governed.
In summary, the new measures will, first, reduce the percentage of local government electors required to sign a community governance petition that will trigger a community governance review from 10% to 7.5%. This change will enable local campaigners to obtain the required number of the local electorates’ support more quickly, allowing for the voice of communities to be heard and for the review to be triggered within a shorter timeframe. Secondly, it will reduce the period allowed for the relevant local authority to conclude a community governance review from 12 months from the date the review begins to 12 months from the date of receipt of the petition or application. Introducing a clearly defined timeline will significantly reduce the financial and administrative burden currently being placed on local communities. It will also help local communities to campaign more effectively by reducing the costs associated with delivering local campaigns, including the cost of producing leaflets, circulating campaign material and hosting meetings.
Thirdly, it will allow those neighbourhood forums which have a neighbourhood development plan that has passed a referendum to trigger a community governance review without the need for a petition. This significant change recognises the important role that neighbourhood forums play in our local communities. The membership of forums reflects the different people who live in a local area. Allowing forums which have already received support for their plans through a referendum to trigger a review will avoid duplication and acknowledge the extensive work that they undertake to engage the wider community in the discussions about forming a new council. These three measures will foster collaborative working between local authorities and campaigners, and lead to greater local democracy.
In summing up, I emphasise that the proposed amendments to the legislation will be invaluable for local communities. The changes unlock the barriers within the current legislation, which will enable local citizens to realise the benefits to be gained from living in an area represented by a town or parish council. We are seeking to complete the process of parliamentary scrutiny and to bring these changes into force as soon as possible. I beg to move.
Lord Kennedy of Southwark (Lab)
My Lords, as the noble Lord, Lord Ahmad of Wimbledon, outlined, this legislative reform order makes it easier to set up new town and parish councils. At present, a local authority or local campaigners petition the local authority to create a new town or parish council. A petition must meet the threshold of signatures to instigate a review. The local authority must then set the terms of reference, including the geographical area the review will cover. The review is completed within 12 months, and the final decision rests with the principal council.
A number of changes are proposed in this order, and it would be useful if the Minister will comment further on them, including the decision to reduce the proportion of people signing the petition to 7.5% and the consequent reductions in the other thresholds. Did the department consider the practicalities of having a percentage figure and a small, fixed figure for smaller authorities rather than the current scale?
In respect of reducing the 12-month period from when the review begins to when the petition is received, how much of a difference is there in reality? Will the Minister give the Grand Committee more evidence for the assertion that where a neighbourhood forum has been set up it can trigger a review? I am not sure how many neighbourhood forums have been set up in England. Can the Minister tell the Committee anything on that?
I am a local councillor in Lewisham in south London. I represent the ward of Crofton Park. We have just started the process of setting up a neighbourhood forum. If the forum gets off the ground, I am not clear whether we want to go the further stage and consider setting up a parish council. Setting up the forum is quite a challenge for local people.
I am aware that a new parish council in London—Queen’s Park, Westminster— was elected last May. Does the Minister have any assessment of how it is working? Particularly for London to get a parish council—the first one in 50 years—is interesting. If he has any comments on it, that would be helpful.
Lord Beecham (Lab)
I again endorse what my noble friend has said. I have no objection in principle to the order, but I am wondering about the evidence base which underpins it. I have been looking across a few local authorities and a large number of parish and town councils have been created and boundary changes made over the years. What scale of problem is being addressed in terms of failure to reach the requirements of the present legislation in the number signing petitions and subsequently voting on a proposal? Have many failed on that account? It would be interesting to know that.
For that matter, is there a view about the turnout in subsequent elections for town and parish councils? Does it differ significantly from the admittedly not wonderful turnout in local elections generally? Certainly in my, now very long, experience of local government, one used to hear of parish councils in which it was pretty difficult to gauge the turnout because there was none. People were regularly returned unopposed. It would be interesting to find out whether that is still the case. I do not think we are quite going to reach Athenian democracy by virtue of the implementation of these measures. I do not necessarily object to them, but I would like a little more knowledge of the factual background to the proposals and whether they are likely to make any significant difference.
Lord Ahmad of Wimbledon
I thank noble Lords for their general support. I suppose that I should say to the noble Lord, Lord Beecham: “You want more?”. I hope that we can provide some more evidence on this, but I am genuinely grateful for the support because I think that we are all aligned to the principle of making things easier for our communities, and the order reflects that. The noble Lord, Lord Kennedy, asked about the 7.5% threshold. We originally proposed 5% but, based on feedback that some felt that was too low, we amended the proposal to 7.5%, so that reflected the consultation.
The noble Lord, Lord Kennedy, also asked about the number of neighbourhood forums. Forums have been set up across the country. There are many in London, including one in Lewisham, I believe. They are found across all our major cities, including Liverpool, Birmingham and Bristol. The noble Lord also asked about the 12 months. We believe that the introduction of the 12-month timeline will result in a more effective decision-making process and will give people certainty about the length of time that the review will take. DCLG’s informal consultations and the 2013 formal consultation have shown that local campaigners feel that they face unnecessary burdens as a result of the bureaucracy in the current process. I am sure that all of us who have served in local government can recount many occasions when that issue has been raised by residents.
The noble Lord, Lord Kennedy, asked about the new council in Queen’s Park. The new Queen’s Park council has already delivered several community events, although these are very early days. It is important that it will reflect the views of local residents who, we feel, are better placed to take decisions and represent their area’s interests.
The noble Lord, Lord Beecham, talked about turnout, which is a very valid question to raise. As with all elections, turnout varies, but where the community understands that it has a stake, it is comparable to other tiers of local government. As a general point, I agree with the noble Lord. Having served in local government, I have always been concerned about the low turnout that we see on issues and in areas which impact communities more directly. It is incumbent on all of us from across the political spectrum to do more. I am sure that we all recall that the Scottish referendum showed that where the right message is put across and people’s interest is engaged, they turn out to vote in large numbers.
The noble Lord, Lord Beecham, also talked about the evidence base. At the moment, governance reviews can take up to 18 months. We believe that, based on that experience, the process will significantly reduce the time to give greater certainty to local projects. Part of the evidence base was the frustration that residents feel. We believe that shortening the period and reviewing the percentage will allow for quick and more efficient decisions based on local needs.
With those responses, I commend the order.
Lord Beecham
I was really looking for evidence of the failure of the present system to get the relevant numbers, not so much about the timescale, which I concede to be a problem, and it should be improved. Is there an estimate of the number of cases where people have come forward but have simply failed to get the level of support currently required, which is now to be changed? Where is the evidence that that will make a difference?
Lord Ahmad of Wimbledon
As I said earlier, if we are talking about lowering the threshold, that was reflected in the consultation where 5% was proposed. The consultation showed that reducing the threshold from 10% to 7.5% constituted a fairer reflection of what the respondents felt would be the appropriate trigger. However, we feel that lowering the threshold somewhat will allow residents to move forward more quickly.
Lord Ahmad of Wimbledon
I say to the noble Lord that all things in life are reviewed in the light of experience.
Selective Licensing of Houses (Additional Conditions) (England) Order 2015
Lord Ahmad of Wimbledon
That the Grand Committee do consider the Selective Licensing of Houses (Additional Conditions) (England) Order 2015.
Relevant documents: 26th Report from the Joint Committee on Statutory Instruments (Special attention drawn to the instrument), 30th Report from the Secondary Legislation Scrutiny Committee
The Parliamentary Under-Secretary of State, Department for Communities and Local Government (Lord Ahmad of Wimbledon) (Con)
My Lords, I beg to move that the Committee should consider the Selective Licensing of Houses (Additional Conditions) (England) Order 2015. The purpose of this order is to extend the criteria for the selective licensing of privately rented housing.
The private rented sector is an important part of the housing market, providing flexibility and allowing people to move quickly. There are now 4.4 million households who rent in England. Selective licensing was introduced by the Housing Act 2004. It enables local authorities to designate all or part of their area as subject to selective licensing. The effect of doing so is that landlords of all privately rented accommodation in the designated area must obtain a licence from the local authority. Local authorities must consult persons likely to be affected by the designation, such as landlords, tenants and other residents, before introducing a licensing scheme. A licence typically costs between £100 and £200 per year per property and is normally valid for five years. A local authority can attach conditions to the licence, such as setting a limit on the number of people who can live in the property or conditions relating to the installation of safety devices.
At present, selective licensing can be introduced only on the grounds of low housing demand and/or anti-social behaviour. We published a discussion document last year which invited views on a range of issues, including selective licensing. Many of the respondents, particularly local authorities, made it clear that further criteria needed to be added to enable local authorities to target action where it is most needed, help drive up the quality of privately rented accommodation and ensure that landlords take responsibility for the actions of their tenants. The Government agree that the current criteria for selective licensing are not wide enough and do not give local authorities enough discretion to take account of local circumstances. Subject to parliamentary approval, this order will extend the criteria for selective licensing to cover areas where there are a high number of properties in the private rented sector and the area is experiencing poor property conditions, large amounts of inward migration, a high level of deprivation or high levels of crime. In addition, the local authority must be able to show that making a designation will, when combined with other measures taken in the area, lead to an improvement in conditions or a reduction in the problem that the designation was designed to tackle.
The Housing Act 2004 provides that before introducing a selective licensing scheme a local authority must seek approval to do so from the Secretary of State. However, in March 2010 the department issued a general approval which provides that, subject to the local authority ensuring that it has complied with the statutory requirements around designation and consultation, it does not have to seek approval from the Secretary of State before introducing a selective licensing scheme and can rely on the general approval instead.
The Government believe that licensing can play an important role, particularly when it is strictly focused on discrete areas with specific problems. However, the blanket licensing approach which has been adopted by some local authorities since the general approval was issued can have major drawbacks because it impacts on all landlords. Newham Council and Barking and Dagenham Council have already introduced blanket licensing schemes which cover their entire local authority areas. Three other local authorities—Croydon, Liverpool and Waltham Forest—are also planning to do so shortly.
There is a real risk that, left unchecked, blanket licensing could proliferate, putting additional burdens on reputable landlords who are already fully compliant with their obligations. The vast majority of landlords provide a good service, and the Government do not believe it is right to impose unnecessary additional costs on them or their tenants. Such an approach, without proper justification, is disproportionate and can unfairly penalise good landlords.
The impact is reduced investment by landlords in additional rented housing and unnecessary costs which tend to be passed on to tenants through higher rents. Our specially appointed private rented sector task force has estimated that the impact of widespread licensing in London would be an £8 million reduction in investment value on the 5,000 new build-to-rent homes that the mayor wants built each year.
To address this issue, it has been decided to amend the general approval at the same time as the criteria are extended. With effect from 1 April, and subject to the criteria being extended, local authorities will have to seek confirmation from the Secretary of State for any selective licensing scheme which would cover more than 20% of their geographical area or would affect more than 20% of privately rented homes in the local authority area. All applications will be considered on a case-by-case basis. This approach will help ensure that local authorities focus their activity on areas with the worst problems while helping to ensure that they do not adversely impact on good landlords.
In its report to both Houses, the Joint Committee on Statutory Instruments made two comments which I would like to address. The first was that the draft order contained errors in the preamble, specifically that it mistakenly cited subsections (1) and (6) of Section 250 of the Housing Act 2004 as enabling powers and did not refer to a draft of the order having been laid before and approved by resolution of each House of Parliament. These drafting errors, which do not in any way affect the substance of the statutory instrument, will be corrected in the final version.
The second comment was that the proposed additional criteria were too broad and open-ended and could result in significant areas of the country being designated as subject to selective licensing. The committee therefore reported the draft order on the ground that it appears to make an unexpected use of the power in Section 80(7) of the Housing Act 2004. I would like to make the following points in response. First, local authority powers will not be open-ended. If this order is approved, we will publish guidance for local authorities which will set out how they should interpret the new criteria and the evidence base that they would need to develop to support any decision to designate an area. Secondly, widening the criteria will help local authorities target enforcement action in areas where it is most needed. This should help ensure that, overall, fewer properties are designated and that any schemes do not impact on good landlords or their tenants. Thirdly, local authorities will need to obtain confirmation from the Secretary of State of any selective licensing designation that would cover more than 20% of the authority’s geographic area or more than 20% of its privately rented stock. This requirement should help ensure that schemes are kept tightly focused and are only introduced where absolutely necessary.
I recognise that extending the criteria in this way, together with the introduction of a requirement for local authorities to obtain confirmation from the Secretary of State before introducing schemes above a certain threshold, are potentially major changes. Therefore, the Government have decided that they will undertake a review of the impact of these changes 18 months after their introduction. I am sure that that is well appreciated by the noble Lord, Lord Beecham.
The current criteria for selective licensing on the basis of low housing demand and/or anti-social behaviour are too restrictive. The Government have decided to address this by extending the criteria to cover poor property conditions, large amounts of inward migration, a high level of deprivation and high levels of crime, as I mentioned earlier. These changes will help ensure that local authorities have the right tools to target enforcement action where it is most needed. At the same time, we are amending the general approval so that in future the Secretary of State will need to confirm any licensing designation above a certain threshold. I commend this order to the Committee.
Lord Best (CB)
My Lords, I wish to raise a number of points about what is, in essence, an important initiative from the Government for improving conditions in the private rented sector. I declare interests as president of the Local Government Association and as chairman of the Council of the Property Ombudsman. I am grateful to Shelter and Crisis for their briefings, and am also drawing on some years of chairing the Private Rented Sector Policy Forum for representatives of both tenants and landlords.
The positive intention of this statutory instrument is to make it easier for local authorities to designate areas for selective licensing. Once designated, through the requirement for landlords to obtain a licence, the local authority can exercise some regulatory controls through advice and accreditation of landlords and a weeding out of those who are not “fit and proper persons”. With the extraordinary growth of the sector—which has increasingly meant replacing the purchase of properties by first-time buyers with purchase by buy-to-let landlords—it follows that some regulation of the PRS is needed.
Any of your Lordships who watched the recent “Panorama” programme about Britain’s acute housing problems will have witnessed the scenes of overcrowding, “beds in sheds”, high rents and abysmal conditions in parts of the private rented sector. Some intervention seems overdue to introduce proper standards and to weed out the exploitation to be found in what is obviously a minority of cases, but a minority that is truly terrible for the tenants involved and can ruin the credibility and reputation of the whole sector.
The problem has been that local authorities, even where existing powers should lead to intervention, have not had the resources to act. Selective licensing can buttress existing powers and, through the charging of a fee, can raise the money needed to pay for enforcement of the necessary measures. This statutory instrument helps councils wishing to go for selective licensing by sanctioning this regulatory route not just in places where there is low demand for housing and where anti-social behaviour is rife but where there are high levels of properties in poor condition or high levels of inward migration, social deprivation or crime.
I commend this policy of broadening the reach of selective licensing. However, at the same time, the Government are introducing a new restriction on the use of licensing: only in exceptional circumstances, it seems, where the Secretary of State permits it, will the local authority be able to use selective licensing to embrace more than a fifth of its area or more than a fifth of its rented properties. This would prevent the use of licensing to cover at least four-fifths of privately rented properties. The purpose of this restriction, as I understand it, is to save decent landlords the burden of form-filling and, in particular, of paying a licence fee, which could be £100 per property per annum. I want to explore whether this “one-fifth only” rule is sensible.
The CLG Select Committee did indeed find in 2013 that the process of licensing could be bureaucratic and tedious. It is hoped that a simplification of procedures is now to be expected. However, the committee also concluded that local authorities should be given more discretion over decisions on when and where licensing should be implemented.
My objections to the 20% limit are as follows. First, should it not be for councils themselves to decide on the extent of the licensing that they need? I am not sure how, in this age of devolution and localism, central government can decide which places—which streets—most need the extra protection that licensing can bring.
Secondly, councils that want to implement an authority-wide regime and not one covering just a fifth of their territory argue that unsatisfactory—indeed, unsavoury—landlords may be operating in any part of their area. The new restriction would deny councils the tools to sort out the rogues, wherever they are. After all, houses in multiple occupation—HMOs—are subject to licensing anywhere in a local authority’s area, not just in a specified one-fifth thereof.
Thirdly, economies of scale are important for a project such as this. If enforcement is to be effective, and it is not cheap, the more landlords involved the better. The Newham success story shows what can be done—I joined that borough’s enforcement team on one of its dawn raids recently at the invitation of the mayor, Sir Robin Wales—if licensing covers a whole borough, and therefore a large number of landlords. At £100 a property, significant resources can then be raised. If only a fifth of properties were to be involved, the cost to landlords would have to be much higher and/or the service would be much less effective. I note that Newham has completed well over 2,000 enforcement visits, taken dozens of landlords to court and refused licences for some notorious landlords with scores of properties, all because it has had the resources to do so.
Fourthly, I note that the DCLG’s impact assessment stresses the financial burden on landlords of this annual fee but, of course, other industries pay for their own regulation. Set against a rent of perhaps £15,000 a year in Newham, a £100 fee does not sound excessive. The suggestion that landlords will simply pass on the cost to tenants does not sound like good economic sense. It assumes that these landlords are not currently charging the maximum rent the market will bear and that they have the scope for increasing rents further. There seems to be no evidence that where councils are using selective licensing, rents have been raised accordingly. The local housing allowance would certainly not be increased for this purpose. Moreover, I presume that landlords are able to offset licence fees against tax, just like the costs of gas safety inspections or agents’ fees.
Fifthly and finally, the real impact is surely not the relatively modest annual fee but the effects of licensing on raising standards in the PRS. The fee is not money down the drain. It pays for a service, making the worst landlords fulfil their obligations. Not only do tenants benefit from the improved performance but other landlords benefit because licensing helps to drive out unfair competition from those who do not play by the rules. The Newham experience shows how the police, Home Office and Her Majesty’s Revenue & Customs can all be helped, thereby saving the taxpayer money under a number of other headings.
So I congratulate the Government on opening up more opportunities for selective licensing, strengthening the hand of local authorities to exercise greater regulatory influence over the private rented sector in their areas. However, I see the somewhat arbitrary restriction of licensing to just a fifth of areas or properties as a mistake that will unnecessarily undermine this opportunity to enhance the standards and reputation of the sector. A fallback power for the Secretary of State to intervene if a maverick local authority behaves in an eccentric way is understandable, but not a blanket blocking of local authority plans to improve tenants’ lives in this way. I am glad to hear that an impact assessment will take place in 18 months but, in the mean time, can the Minister reassure us that the Government will use their powers only to curb the autonomy of local government in extreme cases? The net effect of this statutory instrument is otherwise one good step forward but two steps back.
Lord McKenzie of Luton (Lab)
My Lords, I thank the Minister for his introduction to this order. I particularly welcome the contribution that we have just heard from the noble Lord, Lord Best, pretty much all of which we agree with.
The order itself is to be welcomed but we know that it comes attached to an administrative change to the general approval regime which will significantly curtail the opportunity to introduce selective licensing. From 1 April, local authorities will have to seek confirmation from the Secretary of State for a selective licensing scheme which covers more than 20% of their geographical area or will affect more than 20% of the privately rented homes in the local authority area. This is yet another centralising, controlling proposition from the Government, who continue to espouse the cause of localism but too often act in a contrary manner.
However, we support the arrangements for selective licensing; indeed, they were introduced under legislation of the previous Labour Government. The intent is to focus on those who show no interest in managing their properties properly, often letting to anti-social tenants who cause havoc for the local community. Licensing is a means of seeking to ensure that landlords are fit and proper persons. Can the Minister confirm that a local authority cannot simply designate an area on a whim? In particular, local authorities are currently required to consult those likely to be affected by designation and consider any representations made. Nor, if we are correct in our understanding, can the licence conditions be open-ended; they must relate to residential use of the property. Although authorities have a degree of discretion to set the precise conditions of the licence, they must include certain mandatory conditions, including the requirement to produce a “gas safe” certificate each year, keep electrical appliances and furniture in a safe condition, and keep smoke alarms in proper working order. Why on earth would the Government wish to weaken these requirements?
These matters need to be considered in the context of what is happening more generally in the private rented sector. One in five now lives in the PRS, including 1.5 million families with children, but we know that a third of the homes in the PRS do not meet decent home standards. We need to drive up standards by introducing a national register of landlords, which will make it easier for local authorities to introduce licensing schemes and ensure that tough sanctions are in place.
It is argued by the Government that selective licensing is not supposed to be a blanket arrangement, but does the Minister not accept that being more selective would be aided if there were a national register? From the information in the impact assessment, only a handful of local authorities have introduced authority-wide schemes to date—Newham, Barking and Dagenham, Enfield, Liverpool and Waltham Forest—although others are exploring the possibility. Can the Minister say specifically what problems have actually arisen in those boroughs? From the evidence we heard from the noble Lord, Lord Best, it seems that Newham, far from being a problem, has actually been a success and that progress is being made in tackling bad landlords. What evidence is there that landlords are not absorbing the cost of licensing?
It is suggested that borough-wide selective licensing can deter investors. RBS’s position is cited, but is not the whole rationale for licensing to improve areas, encourage better management of stock and tackle anti-social behaviour? Is it not the case that individual authorities are best placed to judge the impact on the extent of licensing in their areas? Why on earth would they wish to do something to impair the prospect of more investment in their housing? So far as the new thresholds are concerned, what analysis underpins the Government’s 20%/20% approach? What evidence backs up that requirement?
It is suggested that the Government will issue guidance—indeed, the Minister has confirmed that—advising local authorities to focus their efforts, in the first instance, on just the 10% most deprived local super output areas across the country. This would significantly reduce the number of PRS properties covered by a licensing scheme; one can see the tabulation at the end of the impact assessment. The Government’s emphasis seems to consider the landlord in priority to the tenants and the community.
I have one further point. Option 1 in the impact assessment sets out whether approval would be granted in schemes larger than 20%, and states that,
“local authorities must be able to demonstrate the scheme is enforceable and fully resourced”.
How will that judgment be made? Does this not mean that the most deprived areas, which are likely to have the greatest need for licensing, will struggle the most to resource that requirement? Where is the fairness in all that?
Lord Beecham (Lab)
My Lords, while welcoming, in particular, the conditions set out in the draft order as being helpful to facilitate the successful operation of licensing schemes, I respectfully adopt the—critique is perhaps too strong a word—observations of the noble Lord, Lord Best, and my noble friend Lord McKenzie in relation to the matters to which they spoke.
I have had some experience of the selective licensing regime, as I campaigned strongly for one to be created in the ward that I represent. It has been pretty successful. When I tried to persuade the local authority to extend the scheme for another, discrete, part of the ward, at that time—I am going back four or five years—it was not feasible because the Government were concerned about the size. A size factor was required, although that is probably no longer the case.
I fear that the drafting of this order contains potential problems and I should like to address my remarks to those matters. For example, paragraph 3 requires that,
“the area contains a high proportion of properties in the private rented sector”.
What on earth does that mean? Have the Government produced any guidelines or guidance, preferably in conjunction with the Local Government Association—I declare an interest as an honorary vice-president of that organisation—about the proportions they are talking about?
One or two issues of that kind are contained in paragraph 4. For example, it refers to where,
“the local housing authority considers it would be appropriate for a significant number of the properties”.
What is a significant number? The local authorities could be in danger of challenge here unless there are, again, clear guidelines.
There is also the question of the character of, rather than the number of, properties. There could be a number of three or four-storey houses in an area alongside a number of semi-detached houses or whatever, and the number of properties might not tell the whole story of the number of people involved in the appropriate lettings. I am concerned about that aspect.
Paragraph 5 states:
“The second set of conditions are … that the area has recently experienced or is experiencing an influx of migration into it”.
I have two questions about that: what is meant by “recently” and what is meant by “migration”? Migration could take a number of forms. In common parlance it is people from overseas but in an area, to take an extreme example, an influx of people from Sunderland to Newcastle might be regarded as a somewhat questionable process of migration. I do not say that I share that view but there is a question about what is meant by migration in that context.
In paragraphs 6 and 7 there are references to “a high level”. In paragraph 6 the area must be,
“suffering from a high level of deprivation”,
and in paragraph 7(a),
“from high levels of crime”.
These are potentially justiciable issues and seem very vague. It would be helpful if the department—again, in conjunction with the LGA and possibly other consultees—were to consider guidelines in that respect.
There is a reference in paragraph 7(b) to criminal activity having an impact on other households and businesses in “the area”. Does that mean in the area of the licensing scheme or in the wider area? What happens in an area adjoining where there is a licensing scheme could well depend upon or be caused by the conditions in the licensing scheme area, although the impact might be outside. Would that be taken into account? It is not clear.
Finally, there is a significant issue which certainly affects Newcastle and many other places, and that is student accommodation. Large areas of my city and, I suspect, many others are now given over to student accommodation. That is often quite problematic. In fact, I would go so far as to say that it is very problematic in some areas. I am not sure whether, as an issue, that is implicitly incorporated within these conditions or whether it becomes a discrete factor in itself. My preference would be for the latter, but is the Minister able to say whether, to adopt the present order’s words, a high proportion of student residences in an area would be a factor that could justify a licensing scheme? If not, I encourage the Minister to take a look at that issue because it impinges quite significantly on what had hitherto been ordinary residential areas. I am talking not about purpose-built student accommodation but about the conversion of existing family accommodation into student accommodation. Sometimes they are HMOs and can be controlled in that sense, but very often they are not. It seems to be an increasing problem that is likely to increase further. If at all possible, it should be brought within the framework of the scheme.
Having said that, in general, I welcome the proposals. They should assist, but some of the issues that I and others have raised need to be addressed if we are going to make the best use of the possibility of deploying the scheme in the way that the Government wish.
Lord Ahmad of Wimbledon
My Lords, I thank all noble Lords who have taken part in this debate. They all speak from great experience of local government and I appreciate their constructive suggestions and questions. I shall seek to answer all of them, or at least most of them, as I work through my response.
The noble Lord, Lord Best, talked of the 20% reference point for the Secretary of State. I assure him that it is the Government’s view that this strikes a fair balance between ensuring that schemes are focused on areas where there is a problem and, as I said in my opening remarks, which he acknowledged, do not unfairly impact on good landlords and their tenants. I assure the noble Lord and the noble Lord, Lord McKenzie, who raised a similar point about whether this is centralising the proposition if approval is required, that all applications will be considered on a case-by-case basis. If a local authority produces evidence in support of its proposition, we would expect that application to be approved.
The noble Lord, Lord Best, said that only in exceptional circumstances could licensing be used in more than 20% of properties. As I have already said, it will be considered on a case-by-case basis. There may be cases where licensing of more than 20% of the borough would be considered appropriate. Such applications would be submitted to the Secretary of State. There is sometimes a sense that just because it is submitted to the Secretary of State the answer will be no but it would be looked at on a case-by-case basis on the evidence submitted.
The noble Lord, Lord Best, was concerned that landlords may be inclined to pass on costs to tenants. In areas of high demand, it is highly likely that rents will go up. We feel that, given the scarcity of accommodation, tenants will have no choice but to accept higher charges. There is a concern we are looking to address.
The noble Lord, Lord McKenzie, said there was concern about introducing licensing on a whim. As noble Lords are aware, councils must consult tenants, residents and landlords over a 10-week period before introducing any such licensing.
Lord McKenzie of Luton
My point was not to encourage councils to introduce licensing on a whim but to make the point that they cannot do so. They have to go through a process, which is why it should be left up to them.
Lord Ahmad of Wimbledon
I agree with the noble Lord. Perhaps I should rephrase what I said. I was not for a moment suggesting that he would ever do anything on a whim; he would do things only in a careful and considered fashion. I will not comment further: following the previous five SIs I think we are on to dangerous territory. The noble Lord makes a valid point and I think that we are on the same page here, although we are perhaps looking at the issue from different angles. My suggestion is that the check and balance approach that we have adopted does not mean that when councils make an application for more than 20% of the area it will be rejected, but consideration will of course be given to the application as submitted.
The noble Lord, Lord McKenzie, also referred to the problems that have arisen and asked whether we were seeking to highlight any specific ones. The noble Lord, Lord Best, talked about his experience in Newham. Of course, the Newham scheme was introduced only in January 2013 and the other scheme that I alluded to in Barking and Dagenham was introduced only in September 20014. In answer to the noble Lord, Lord McKenzie, it is too early to make an assessment based on robust evidence, and that is why the Government are strongly inclined to ensure that we review this policy in 18 months’ time. As we move forward in this respect, both the contributions that have been made in this debate and the concerns that have been raised will, I am sure, be considered as part of that review.
The noble Lord, Lord McKenzie, also raised the issue of guidance. I think that I made the point that we will shortly be publishing guidance for local authorities on the additional criteria, and perhaps some of the questions will be answered in that. More importantly, it will set out the information that local authorities will need to give if they want to apply to the Secretary of State to confirm a particular designation.
On the evidence base, of course various consultations were carried out. Various people also gave evidence to the CLG Select Committee and perhaps I may quote one. On deterring investment, Andrew Cunningham from Grainger said at the CLG Select Committee hearing in 2013 that,
“the introduction of licensing that Newham has done is for an organisation like ourselves a very heavy stick. There is no incentive for an organisation like Grainger to invest its relatively scarce resources into a borough like Newham. There is no incentive for a landlord like us to stay there”.
That has in part also been noteworthy for the Government but, again, I emphasise that we will be reviewing the implementation in 18 months’ time.
The noble Lord, Lord Beecham, raised a series of questions on definitions—for example, the definition of a high proportion of privately rented properties. It is estimated that nationally the private rented sector makes up about 19% of the total housing stock. Therefore, where an area contains a private rented sector higher than 19%, this may be taken broadly as an indication of a high proportion of properties in the private rented sector. However, we have been very careful not to specify a particular figure which would be considered to be too high a proportion for the private rented sector, because we recognise that there may be regional differences that influence what is considered to be a high proportion of properties in this sector. Therefore, our view is that it is really for local authorities to determine what should be defined as a high proportion.
The noble Lord, Lord Beecham, also asked about high levels of crime. Again, it is for local authorities to determine whether they consider their crime levels to be high in a particular area. However, he will know as well as I do that local authorities make assessments of low-and-high crime areas across each borough of a county, and they make determinations accordingly.
The noble Lord, Lord Beecham, also asked about migration, using the example of people from Sunderland going over to Newcastle. However, it could also be people from Newcastle going over to Sunderland. I do not know what that does for football supporters but I am sure that the rivalry will be sustained. Nevertheless, the term “migration” is also left undefined, so it would take on its ordinary meaning of referring to people moving into an area from neighbouring cities in different parts of the country, as the noble Lord himself suggested, or from overseas. It is worth saying that migration can have an important impact on the supply and demand of rented accommodation and may result in a shortage of available accommodation overall. A small number of rogue landlords are known to exploit such a scheme.
Although I fully accept that the noble Lord may have sought more precise definitions, the emphasis is that we seek to keep the definitions broad to allow local and, indeed, regional interpretation. We will provide further clarification in the guidance. The final sense that I would convey is one of understanding that these are new provisions and that it is important that we review the policy in practice. I am therefore pleased that the Government have committed to the 18-month review.
Lord McKenzie of Luton
Will the Minister deal with the point that I raised about the impact assessment reference to local authorities having to demonstrate that a scheme is enforceable and fully resourced? Can he say little more about what is likely to be involved in those judgments, particularly about whether a scheme is enforceable?
Lord Ahmad of Wimbledon
I think it is as it says on the tin: can the scheme be practically applied? Each case that is presented will be among the evidence base supplied. My immediate response is: ultimately, is the scheme practical; can it work, in essence? I hope that with that response, the noble Lord and other noble Lords are assured, with the commitment that I give again that the 18-month review will attempt to address some of the concerns that have been raised. I have just received a note which states that the enforceable and practical element will also cover whether, for example, fees will cover the cost of any scheme.
Lord Beecham
My Lords, this is my last question of the noble Lord today—and probably the last thing that I will say for the duration of this Parliament, as he will be relieved to hear. I return to my question about student accommodation and whether the Government will take a particular look at that as an issue in the context of the whole area of selective licensing.
Lord Ahmad of Wimbledon
The noble Lord makes a valid point. In his question he also talked about crime, deprivation and migration. Areas with high numbers of students alone would not be covered; it would involve taking those other elements into account as well. However, I will reflect on his comments to see whether I can add anything more specific. I will hold him to the statement that this is the last question that he will raise not only today but in this Parliament.
Insolvency (Protection of Essential Supplies) Order 2015
Baroness Neville-Rolfe
That the Grand Committee do consider the Insolvency (Protection of Essential Supplies) Order 2015.
Relevant document: 23rd Report from the Joint Committee on Statutory Instruments
The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Baroness Neville-Rolfe) (Con)
My Lords, this order puts into effect a power taken in the Enterprise and Regulatory Reform Act two years ago during its passage through Parliament. I should remind noble Lords that that power was added to the Act following an amendment tabled by the noble Lord, Lord Stevenson of Balmacara. I am sorry that he has been unable to stay to see his baby come through into the statutory instrument.
The order supports the rescue of viable insolvent businesses by amending the Insolvency Act 1986 to safeguard the supply of IT and utility supply during administration and voluntary arrangements where business rescue is viable. It does this in two ways. The first is by extending the list of suppliers of goods and services that under current insolvency law are prevented from demanding payment of pre-insolvency debt as a condition of continuing to supply the business. As well as utility providers, that list will now also include the suppliers of IT goods and services, as well as intermediary providers or the on-sellers of utilities such as landlords.
As we have seen from discussions on the Consumer Rights Bill and the Small Business, Enterprise and Employment Bill, IT is now a universal tool for doing business. By ensuring the continuation of essential supplies such as IT to businesses in administration and voluntary arrangements, we estimate that creditors will benefit by around £50 million each year, and because a distressed business can continue, this also benefits the employees. Secondly, the order amends the law to prevent such suppliers from exercising contractual terms that entitle them to terminate the contract or increase charges for the supply on account of the insolvency. This amendment will ensure the continued supply of the essential service on the same terms as before the insolvency.
I recognise that prohibiting suppliers from exercising contractual rights interferes with contractual freedoms, which is why we have used the time since the power was taken two years ago to ensure that there are adequate safeguards for those suppliers which are affected. During the consultation process a number of energy providers, large and smaller, independent providers, raised concerns about the adequacy of the safeguards. We have listened to these concerns, and the safeguards included in this order strike a balance between the need to secure the supply of essential services and the need to protect the interests of suppliers. These safeguards include a right for the supplier to request a personal guarantee from the insolvency practitioner at any point in the insolvency as a condition of continuing supply. The supplier can also terminate the contract where payment for ongoing supply remains outstanding 28 days after payment is due. In the case of hardship, the supplier will be able to apply to the court for permission to terminate the contract. Suppliers have also said that early engagement with the insolvency practitioner would go a long way in helping them better to manage their supply costs. Consequently, the Government will provide guidance to insolvency practitioners urging them to make early contact with suppliers as to their future energy use.
To sum up, I believe that the benefit this measure brings in rescuing businesses makes intervention in contractual rights justifiable in those sectors where the supplies are truly essential and without which the continuation of a business would be impossible. I therefore commend this order to the Committee and I beg to move.
Lord Young of Norwood Green (Lab)
My Lords, I welcome the Minister’s introduction of the order and I can assure her that it was not a lack of interest; I had agreed to deal with this. My timing was a little belated, but I have managed to fulfil my obligation. We welcome the order. I have listened carefully to what the Minister said and it is clear that a balance has been struck between trying to ensure the continuation of businesses and the benefits that that can bring both to the employer and employees, while also ensuring that reasonable safeguards are in place. I also welcome the fact that guidance is to be issued to insolvency practitioners because obviously, in order to make this work, they need to engage as quickly as possible.
I do not have anything further to add because, as the Minister has described it, it is my noble friend Lord Stevenson of Balmacara’s baby, although I am not sure who could be classified as the midwife being called here. In any event, we welcome the successful delivery.
Companies, Partnerships and Groups (Accounts and Reports) Regulations 2015
Baroness Neville-Rolfe
That the Grand Committee do consider the Companies, Partnerships and Groups (Accounts and Reports) Regulations 2015.
Relevant document: 24th Report from the Joint Committee on Statutory Instruments
The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Baroness Neville-Rolfe) (Con)
My Lords, I beg to move the Companies, Partnerships and Groups (Accounts and Reports) Regulations 2015. These regulations complete the UK’s transposition of the new EU accounting directive 2013/34. The aim of this directive is to modernise long-standing requirements set out in the fourth and seventh company law directives. The directive reflects the Commission’s better regulation programme and builds on the EU’s “Think Small First” initiative.
The micros directive has already allowed us to relieve burdens for the very smallest companies. The accounting directive now provides an opportunity further to simplify the UK’s small company regime. This will help those companies to get on with running and growing their businesses rather than dealing with administration. The UK’s accounting regime is, I am glad to say, well regarded. In negotiations, we worked hard to ensure that this remains the case. In particular, we secured options allowing us to continue using the UK’s most common balance sheet format and to increase flexibility with a harmonised small company regime. This included securing the ability to require small companies to provide key information on matters such as arrangements not included in the balance sheet, post-balance sheet events and certain related party transactions. I am sure noble Lords will agree that this information is key to a proper understanding of a company’s accounts.
We have worked closely with the accounting sector and national regulatory bodies throughout this process from the earliest negotiations through to the implementation phase. We are grateful for the contributions made by accounting professionals and the UK’s chartered accountancy bodies. They include, to mention a few, the ICAEW, the ACCA, the ACA, the Financial Reporting Council and firms such as Baker Tilly and Deloitte, and the Charity Commission, as well as my own team, who have been working on the directive for four years.
I am aware that the regulations may strike noble Lords as a complex instrument. This is because they largely amend existing domestic legislation on financial reporting; that is, they amend the Companies Act 2006 as well as the supporting regulations which set out the frameworks for small companies, medium-sized and large companies. Marked-up versions of the affected legislation have been lodged in the Libraries of both Houses.
What do the regulations do? As I have just said, the changes affect small, medium-sized and large companies. The regime for micro entities is unchanged except that they will no longer be required to provide a director’s report which, for this size of company, adds no real value. The regulations raise the thresholds for defining the size of companies. This is the first time we have been able to do so since 2008. In raising the thresholds, we have taken up the option to maximise the thresholds for defining a small company. This will enable 11,000 medium-sized companies to be recategorised as small and so access the significantly less burdensome small companies accounting regime. Similarly, the raising of the thresholds will enable more than 3,000 large companies to be categorised as medium-sized companies and so reduce their reporting obligations.
The thresholds for the small company accounting regime currently also determine the thresholds for the small company audit exemption. We will allow the small companies audit exemption threshold to rise in line with that for the small companies accounting regime. This will mean that an estimated 7,400 companies will be exempt from annual audit of their accounts. However, consultation responses indicated that the link between thresholds was an area of concern to some stakeholders. Some think the thresholds should remain aligned, while others want more debate. Therefore, we will consider the link further in the light of responses to the Government’s discussion document on the new audit directive, which closed for comment last week.
We will also permit small companies to prepare abridged accounts. These are accounts whose formats are simplified from the general formats provided in the small companies accounts regulations. However, in response to stakeholder concerns about the availability of information to minority shareholders, abridged accounts will be possible only where the decision is supported by all the company’s shareholders, not just the majority. Of course, there are some companies for which the provision of reduced levels of information would be inappropriate. These include certain types of financial and investment bodies and all companies currently excluded from the small company regime—for example, banks and insurance companies. Such companies must continue to provide full accounts.
These regulations fulfil our obligation to transpose the directive and, importantly, provide thousands of UK companies with the opportunity to access a more flexible, less burdensome financial reporting regime. I commend the regulations to the Committee.
Lord Young of Norwood Green (Lab)
My Lords, once again I welcome the Minister’s full and comprehensive report. She mentioned the dreaded Companies Act 2006, in which I was not involved. I forget how many clauses it contains—something like 1,000.
These are sensible proposals which will help companies. I have only one concern. The Minister probably addressed it but there was a rather long list. It is a point about small companies being exempted from annual audits. If they do not have to submit an annual audit, when do they have to submit an audit? The information may be contained in the regulations, in which case I apologise, but that thought has crossed my mind. There was a safeguard for abridged accounts because, as the Minister has advised, they have to be supported by all the shareholders. I hope I did not mishear what she said about the exemption to annual audits but, in any event, it would be useful to have clarification on the record. With that question, I am happy to approve the regulations.
Baroness Neville-Rolfe
I thank the noble Lord, Lord Young, for his support for both this instrument and the previous one. We have worked together in these areas and, as he said, these are good changes. As to the question about exemptions, a small company audit is done at the request of shareholders or, as I explained, if it is a financial company. I hope that clarifies the point.
Lord Young of Norwood Green
If they do not submit an annual audit, when do they submit an audit? The Minister has said that it is at the request of shareholders, but I am still puzzled.
Baroness Neville-Rolfe
I hope this helps. A small company is exempt from audit unless the shareholders request it. If it is a financial company, there is an audit. I am not sure that that helps.
Lord Young of Norwood Green
I am not going to pursue the matter further today. Perhaps the Minister can write to me because at some point, small company or not, an audit has to be prepared. The Minister is shaking her head so I have clearly misunderstood.
Baroness Neville-Rolfe
There are companies which are exempt from audit because of their size and the simplicity of their affairs. I will write to the noble Lord setting out the circumstances in which companies are exempt from audit. Obviously directors’ duties and so on still apply, but some companies are exempt from audit.