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Oral Answers to Questions
(9 years ago)
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Mark Spencer (Sherwood) (Con)
1. What support her Department offers to kinship carers.
The Minister for Children and Families (Edward Timpson)
Let me begin by welcoming the new shadow Front-Bench team to their respective roles, and in particular the hon. Member for Washington and Sunderland West (Mrs Hodgson), whom I look forward to working with on the whole of my portfolio, as we did on special educational needs in the past. I am sure she, along with the rest of the House, would agree that kinship carers play a pivotal role in caring for many children who cannot live with their parents. That is why during the previous Parliament we issued family and friends care statutory guidance for local authorities, which makes it clear that every council should publish a family and friends care policy setting out how it will support the needs of children living with kinship carers, whether or not they are looked after. Some 83% of English local authorities now have a published policy, compared with 42% in 2012, and I intend to write again to councils on this issue.
Mark Spencer
I know the Minister will recognise the important role that kinship carers are taking, many of whom are the grandparents of those for whom they have responsibility. Their caring responsibilities prevent them from working full-time. What assistance can my hon. Friend give to grandparents who happen to be kinship carers to support them further in their caring duties?
Edward Timpson
My hon. Friend is right to raise the important and often crucial role that working grandparents play in proving childcare and supporting working families. As a Government we recognise that fact. That is why we have announced plans to extend the current system of shared parental pay and leave to cover working grandparents, thereby providing much greater choice for families trying to balance childcare and work. We will bring forward legislation to enable this change with the aim of implementing it by 2018.
Bill Esterson (Sefton Central) (Lab)
Carers save the taxpayer a great deal of money, as well as often being the best option for the children they are looking after, so in addition to the publication by local authorities of their practice, will the Minister ensure that those local authorities have the resources they need to support kinship carers, both to save the taxpayer money and to do what is right for the carers and the children in the short as well as longer term?
Edward Timpson
We have taken such a strong interest in these issues for all the reasons that the hon. Gentleman set out, because kinship carers are performing a role that would otherwise have to be performed by the state. That is why, whether through the discretionary housing fund or through the work that we are doing with the Family Rights Group and others to encourage family group conferences, we are trying to help those families where at all possible to keep children living with them, thereby helping to save not only taxpayers’ money, but those children’s futures.
Mr David Burrowes (Enfield, Southgate) (Con)
Given the significant financial pressure from placement breakdown on the formal fostering system, will the Minister support a kinship reform grant, similar to the adoption reform grant, which has a significant impact, to show that the Government are matching the intent with the money to support kinship care?
Edward Timpson
My hon. Friend will be aware of the already impressive impact the adoption support fund has had on helping families trying to care for some of the most vulnerable children in our society. It is clear that such a positive approach across the board will help many other families struggling in similar circumstances to bring about those excellent outcomes. The special guardianship review, which is under way, and the improvements to social work reform will help to deliver better pre- and post-placement support for all those children who need it.
Rachael Maskell (York Central) (Lab/Co-op)
At my last surgery I had two families who were taking on kinship responsibilities. They have less ongoing support than adoptive parents. Will the Government ensure that they get support equal to that which adoptive parents receive?
Edward Timpson
In the previous answer, on the support that we have offered on adoption, I touched on some of the other support that is available to kinship carers in their own local authority area. That is why through Ofsted inspections of local authorities and through the family and friends statutory guidance we have made sure that there is a greater emphasis on the support that we know works for kinship carers. More importantly, the announcement on shared parental leave will help many of those families who have a grandparent who works and who is helping with childcare, by providing the flexibility they need to have a much better balance between having a family and having good childcare in place.
Andrew Gwynne (Denton and Reddish) (Lab)
I was privileged to meet a group of kinship carers, along with the Family Rights Group, in Parliament a couple of weeks ago. They told me that the Government’s changes to welfare might have an unintended consequence by deterring people from taking up kinship care, because many look after more than three children. What assessment has the Minister made of the likely impact of changes to tax credits on this group of people, who are doing such fantastic work?
Edward Timpson
The hon. Gentleman is right to highlight the importance of ensuring that we have the right support in place for kinship carers and that any changes are thought through carefully, and that is exactly what we have done. He will know that the two-child policy is not being introduced until April 2017, and that any extra support that kinship carers receive from their local authority is disregarded when it comes to the benefit cap. Extra support is available in exceptional circumstances to protect kinship carers from those changes from April 2017. All these things have been thought through, but of course we are happy to consider them as they are implemented.
Michael Fabricant (Lichfield) (Con)
2. What steps her Department is taking to ensure a more equitable allocation of funding per pupil throughout England; and if she will make a statement.
Nigel Huddleston (Mid Worcestershire) (Con)
12. What plans the Government have to deliver fairer funding for schools.
The Secretary of State for Education (Nicky Morgan)
The Government remain committed to implementing our manifesto pledge to make funding fairer. We are protecting the schools budget, which will rise as pupil numbers increase, and we have made significant progress towards fairer funding for schools, with an extra £390 million for underfunded areas this year, which we have now confirmed will be included in budgets for next year as well.
Michael Fabricant
My right hon. Friend will know that schools in Staffordshire receive about £320 less per pupil than the English average. At the risk of boring you, Mr Speaker, I raised this matter in 1992, and I raised it during Prime Minister’s questions with Tony Blair, who was very sympathetic but also did nothing, and when I raised it in the previous Parliament, I was told that it was being blocked by the “wicked Liberals” and David Laws. Well, now we are in government, so what are we going to do about it and when will it happen?
Mr Speaker
The hon. Gentleman might be considered exotic, but never boring—not by the Chair anyway.
Nicky Morgan
I entirely agree, Mr Speaker.
The Minister for Schools recently met colleagues in Staffordshire to discuss school funding, which I hope they found useful. My hon. Friend the Member for Lichfield (Michael Fabricant) was unable to attend, but I know that he was there in spirit. As I have said, we have protected the per pupil funding in Staffordshire so that schools will continue to receive the additional £130,000 they received in 2015-16, but I am determined to make further progress on this.
Nigel Huddleston
Under current arrangements, per pupil funding in Worcestershire is £4,231, whereas in nearby Birmingham it is £5,218. When my right hon. Friend visits Worcestershire in a couple of weeks, will she be able to deliver some good news to my constituents about upcoming arrangements that will narrow that gap?
Nicky Morgan
I am very much looking forward to my visit to Worcestershire. I cannot say what I will be saying at that point, but I know that my hon. Friend and other Members from Worcestershire, including my Parliamentary Private Secretary, my hon. Friend the Member for Worcester (Mr Walker), have been campaigning tirelessly for fairer schools funding for some time, and I know that they will welcome the nearly £7 million extra per year that we have given to schools in Worcestershire. I look forward to working on this further.
Mr Barry Sheerman (Huddersfield) (Lab/Co-op)
If the Secretary of State is to get into equitable funding right across England, will she also look at where that equitable funding ends up in terms of where students end up, whether in further education colleges, sixth-form colleges or studio schools? The fact of the matter is that so many kids across our country are not getting a fair share.
Nicky Morgan
I think that I can therefore welcome the hon. Gentleman’s support for the principle of fairer funding. As he will know, we are of course looking at all elements of funding as part of the forthcoming spending review, but we have made it clear that we are protecting per pupil funding in this Parliament, which means that the amount going to schools will go up as the number of pupils goes up.
John Pugh (Southport) (LD)
With due respect to the hon. Member for Lichfield (Michael Fabricant), I must say, as one of the “wicked Liberal Democrats”, that equitable funding requests do not always seem to sit happily with the pupil premium policy. Has the Secretary of State any thoughts on either revising or reviewing that policy?
Nicky Morgan
I think that we can all agree that pupil premium funding has been hugely successful. It is absolutely right that over £2.5 billion is given to schools for additional funding to help those who are most disadvantaged, and schools, by and large, are spending it extremely effectively. The hon. Gentleman is absolutely right to say that obviously the school funding formula reflects both deprivation funding and pupil premium funding, which has since been introduced, but we absolutely want to ensure that the same pupils with the same needs attract the same funding. I reiterate that pupil premium funding has been very successful.
Neil Carmichael (Stroud) (Con)
Given the scale and complexity of the issue, does the Secretary of State agree that we need some proposals relatively soon so that the Education Committee, for one, can examine them and be satisfied that they offer a long-term solution to a very significant problem?
Nicky Morgan
My hon. Friend, who chairs the Committee, is absolutely right that any solution must be for the long term. I can assure him that, were there to be any changes, there would be an extensive consultation, in which I hope members of the Committee as well as members of the public, including schools, teachers and parents across the country, would be involved.
Wes Streeting (Ilford North) (Lab)
Redbridge, like many other parts of London, faces an acute shortage of places in primary and secondary provision over the course of this Parliament. Will the Secretary of State or a relevant Minister agree to meet me and representatives from the local authority to discuss this? Will she consider allowing local authorities such as Redbridge with a good track record of local authority maintained schools not only to expand existing local authority schools but to build new ones?
Nicky Morgan
I or one of the Ministers will be happy to meet the hon. Gentleman. I remind him that in the previous Parliament we put in an extra £5 billion into the system to build new places, and we have committed another £7 billion for new places across the system. Of course, his own party took out funding for 200,000 places at a time of growing pupil numbers.
Rebecca Pow (Taunton Deane) (Con)
In a similar vein to questions from other hon. Friends, may I point out that pupils in Taunton Deane receive £2,000 less than the average per pupil nationally? I have the backing of thousands of teachers and parents on a petition for our fairer funding campaign. Can I give them any indication from the Minister that they will be listened to?
Nicky Morgan
I know that petitions and signatures are being collected up and down the country, as in my Leicestershire constituency, where fair funding is also a huge issue. I can assure my hon. Friend that I am extremely aware of these issues, as are Ministers across Government.
Nic Dakin (Scunthorpe) (Lab)
The Institute for Fiscal Studies has shown that for the first time since the mid-’90s school spending per pupil will fall in real terms. Those in further education and early years already fear huge cuts. Will the Secretary of State assure this House that any increases in funding in one area of her budget will not be at the further expense of others?
Nicky Morgan
The hon. Gentleman will know that I cannot give any predictions about the forthcoming spending review until all the negotiations and discussion with the Treasury are concluded, but of course the issues of fairer funding that we have been discussing are a very important part of responding to the pressures on schools budgets across the country.
David Rutley (Macclesfield) (Con)
3. What steps she is taking in the education system to support children and young people with mental health issues.
Stella Creasy (Walthamstow) (Lab/Co-op)
4. What assessment she has made of the effect of child and adolescent mental health services on the health, wellbeing and performance of young people in schools and colleges.
Paul Maynard (Blackpool North and Cleveleys) (Con)
11. What plans the Government has to improve mental health in schools.
Ruth Cadbury (Brentford and Isleworth) (Lab)
13. What assessment she has made of the effect of child and adolescent mental health services on the health, wellbeing and performance of young people in schools and colleges.
The Secretary of State for Education (Nicky Morgan)
We have high aspirations for all children and want them to be able to fulfil their potential academically and in terms of their mental wellbeing. This attainment is best supported if they have good mental health, character and resilience.
David Rutley
I am pleased that a new initiative in Macclesfield, Emotionally Healthy Schools, has been established between our local mental health service providers—Cheshire and Wirral Partnership NHS Foundation Trust—Cheshire East Council, and six schools and local community groups, including Just Drop-In, which does incredibly important work in this area. Does my right hon. Friend agree that such local initiatives have a vital role to play in improving mental health outcomes for young people in our communities?
Nicky Morgan
I absolutely do recognise that the partnerships between health and education are vital in getting the right mental health support to children quickly. I welcome the initiatives that have been established in Macclesfield. We believe that the significant investment of £1.4 billion in children and young people’s mental health services that this Government have announced will make a real difference. I am delighted that there are so many questions on children’s mental health in this session today.
Stella Creasy
A parent of a young girl in Walthamstow suffering from an eating disorder recently wrote to me giving a harrowing account of the struggle to get support for her daughter. She suggested that one of the things that would make a difference would be for child and adolescent mental health services to have a presence directly in schools so that they could intervene earlier. As my hon. Friend the Member for Scunthorpe (Nic Dakin) pointed out, we know from the IFS that real-terms funding for schools is going to be cut for the first time since the 1990s. What can the Secretary of State say directly to my constituent to reassure her that every young person will have access to mental health services directly in their schools so that such situations can be avoided in future?
Nicky Morgan
I agree with the hon. Lady. We all, as constituency MPs, hear these heart-rending stories. I, too, have had parents in my constituency bring to my attention cases of eating disorders among young people. I mentioned the £1.4 billion that the Government have already introduced, a significant sum of which is being spent this year on supporting young people with eating disorders. We are also contributing £1.5 million to a pilot with NHS England to train single points of contact in schools and specialist mental health services so that those services work well together to ensure that schools, which do not necessarily have mental health experts trained in that area, know exactly who to go to and how to get help for their pupils.
Paul Maynard
The Secretary of State may be aware that Blackpool has the highest proportion in the country of pupils in pupil referral units. This stems partly from poor underlying mental health. What more can the Government do to ensure that each pupil has a single point of contact not just in one school but throughout their education, from age four to whenever they leave, so that we start to tackle this problem?
Nicky Morgan
I have just mentioned the £1.5 million we are contributing to a pilot for single points of contact between schools and specialist mental health services. That pilot will run in 250 schools, with training starting later this term. I should also like to mention that this year, for the first time, the Department for Education included just under £5 million in our voluntary and community sector grants for organisations such as Mind and Place2Be and for putting new resources for parents on the MindEd website.
Ruth Cadbury
As someone who has in the past been a council lead member for children and education, I know the importance of children and adolescent mental health services and the educational psychology service in ensuring that teachers and other school staff are able to keep children with challenges in school and learning effectively. The Mental Health Foundation has said that one in 10 children have mental health problems at some point in their school career; that 81% of educational psychologists have seen an increase in demand for their services in the past 12 months; that there is a shortage in services; and that ed psychs are leaving the profession in alarming numbers, possibly owing to the pressure of their workload. How is the Secretary of State ensuring that an adequate number of professional educational psychologists are working in schools? Is she—
Mr Speaker
Order. We have the thrust of it and are deeply obliged to the hon. Lady, but a degree of truncation would be helpful.
Nicky Morgan
The hon. Lady speaks with great passion on an issue that she obviously cares about greatly. We have commissioned more places with educational psychologists this year than last year. She is absolutely right to say that a lot of this is about making sure that young people stay in education and that there are no barriers to them doing so. I am very happy to write to her with further details.
John Howell (Henley) (Con)
Colleagues have rightly pointed to the impact of mental health on the children themselves, but children’s mental health problems also impact on the family as a whole. Will the Secretary of State explain what we are doing in that respect?
Nicky Morgan
My hon. Friend is absolutely right to say that when somebody in a family, particularly a younger person, is struck with mental ill health, it affects the whole family. That is why funding through the voluntary and community sector programme and organisations such as Mind and Place2Be, as well as the MindEd website, which provides resources for parents, are important. I strongly encourage any parents who are worried about the mental health of their children to have an early conversation with people in their schools, including headteachers and teachers, so that they can then make the referrals.
Alex Cunningham (Stockton North) (Lab)
5. What assessment she has made of the effect of recent changes in 16-19 funding on the (a) breadth and (b) viability of post-16 education.
The Minister for Skills (Nick Boles)
Since 2013-14, all 16-to-19 institutions have received a national funding rate, which we have held steady in 2015-16. We understand the financial challenges facing the sector and have therefore launched a national programme of area reviews to ensure that we have strong and sustainable institutions delivering high-quality routes to employment.
Alex Cunningham
The Secretary of State said earlier that she cannot guarantee funding or protection for any one age group, but the Minister knows that the further education sector has suffered a disproportionate cut in funding over many years and the area review does not even include sixth forms in schools. When are the Government actually going to do something to protect 16 to 19-year-olds?
Nick Boles
The hon. Gentleman is not quite right, because the regional school commissioner, who is responsible for commissioning schools in his or her area, is always going to be part of the area reviews and can bring in the perspective of sixth forms in schools, but I do not think the hon. Gentleman would think it practical to include every single school with a sixth form in the review and actually achieve a result. We are determined to achieve a result in a short space of time so that we have strong, specialist institutions that are able to provide a high-quality education.
James Berry (Kingston and Surbiton) (Con)
Kingston college in my constituency has federated with Carshalton college in a neighbouring constituency. Will my hon. Friend congratulate their move to consolidate their efforts and to provide better provision for young people going into further education, and will he visit Kingston college with me?
Nick Boles
The reason I would love to visit is that that is a model example of what the sector should be doing. It is very important for hon. Members to remember that the sector is independent: Government cannot force institutions to merge, but we can encourage them to do so and show great examples such as that outlined by my hon. Friend.
Yvonne Fovargue (Makerfield) (Lab)
20. Wigan colleges are concerned that the Greater Manchester area review starts with the strong presumption that the merger of colleges is the only way forward. Will the Minister confirm that other ways to achieve financial stability for colleges and good outcomes for pupils will be given serious consideration if they present a strong case for that?
Nick Boles
We are certainly open to a whole range of options. As I say, ultimately, colleges themselves will determine what they think will work best. I do not agree with the hon. Lady that somehow there is anything necessarily to be afraid of from a merger. A merger can mean that people save a whole lot of administrative and management costs, so they can actually pour more money into paying teachers to do the job that we all want them to do.
Mr Gordon Marsden (Blackpool South) (Lab)
In the last Parliament, the Government cut education funding for 16 to 19-year-olds hardest of all. Today, we learn that funding allocations for colleges and schools for the 16-to-19 sector are down over £100 million so far compared with last year. The Government have given them further instability with the flawed series of area FE reviews, jeopardising colleges and their students. With this record, does the Minister have any guarantees for the spending review to secure viability for the 16-to-19 sector?
Nick Boles
We might want to look over the channel to see what happens to an education sector when the Government are not getting a grip on spending and on ensuring a strong economy. In Portugal, schools have been closed and teachers laid off. In Greece, teachers have faced a 30% cut in their salaries. We are ensuring a strong sector that is able to educate young people for a life of work.
Valerie Vaz (Walsall South) (Lab)
6. What assessment she had made of the effect of the services offered by Sure Start children’s centres on the families who use those centres.
The Parliamentary Under-Secretary of State for Education (Mr Sam Gyimah)
It is crucial that we evaluate the impact of children’s centres for families. The Department for Education has funded the “Evaluation of Children’s Centres in England” research, and three interim reports were published in June 2015. I expect the full impact report to be published later this year, with a consultation to follow on how children’s centres can have the greatest impact for local communities going forward.
Valerie Vaz
Palfrey Sure Start in my constituency has twice been rated outstanding for doing community-based work and culturally sensitive work, not just childcare. What further steps can be taken to ensure that it can continue to support parents with this vital work?
Mr Gyimah
The hon. Lady is an excellent and assiduous MP. I congratulate the Sure Start centre in her constituency on the excellent work it is doing. That highlights the fact that, to look at the future of children’s centres, we must look at more innovation and other ways of delivering services that work for local communities and satisfy local demand.
Joan Ryan (Enfield North) (Lab)
In Enfield, some 12 children’s centres have been closed. Headteachers tell me that that is resulting in more and more children not being school-ready, which affects their progress throughout their whole primary school career and beyond. What does the Minister intend to do to address that problem?
Mr Gyimah
Labour Members continue to count buildings rather than services when they talk about children’s centres. One million families have benefited from children’s centre services. Free childcare for disadvantaged two-year-olds and for all three and four-year-olds is delivering the school-readiness that has seen record numbers of children ready for school, according to the early years foundation stage profile.
Pat Glass (North West Durham) (Lab)
The Minister continues to talk about the services that are offered. However, he will be aware that the charity 4Children has recently highlighted that more than 2,000 children’s centre sites have had their budgets significantly cut this financial year and that fewer centres are now able to reach fewer families. Nearly 60% report cutting front-line services, nearly 30% have significantly cut the range of services they offer, 28% are now forced to charge for services that would otherwise have been free and 20% are reducing their hours. Is the Minister proud of the Government’s legacy on Sure Start?
Mr Gyimah
I welcome the hon. Lady to her new post. It is great to see that many of her predecessors are still in the shadow education team. It is wonderful that the new politics is being led by the same old faces.
I am proud of our record on children’s centres. We have seen record numbers of families receiving support, but there has also been a 50% increase in the number of health visitors and we have expanded the troubled families programme. We are on the side of the families that need children’s centres most, and we are doing something about it.
Dr Lisa Cameron (East Kilbride, Strathaven and Lesmahagow) (SNP)
7. What assessment she has made of the effect of the Government's proposed changes to tax credits on the number of children accessing free school meals.
Patrick Grady (Glasgow North) (SNP)
14. What assessment she has made of the effect of the Government's proposed changes to tax credits on the number of children accessing free school meals.
The Parliamentary Under-Secretary of State for Education (Mr Sam Gyimah)
Thanks to the growing economy, the number of children requiring free school meals is falling. We are currently assessing the effect of proposed changes to tax credits.
Dr Cameron
The proposed changes to tax credits will see 22,000 children in Scotland lose their entitlement to free school meals, although our First Minister has pledged to safeguard that entitlement. Will the Minister make a similar pledge to ensure that children from the most vulnerable backgrounds in the rest of the UK remain eligible for free school meals?
Mr Gyimah
The hon. Lady will be aware that, in the rest of the UK, the majority of children who are entitled to free school meals have parents who are on out-of-work benefits. We are assessing the impact of the changes to tax credits, and there is nothing to suggest that people who currently receive free school meals will not continue to do so.
Patrick Grady
If children become hungry or undernourished as a result of missing out on free school meals, what effect will that have on attainment levels in the classroom and the life chances of future generations? What steps will the Government take to mitigate the long-term impact of these short-sighted cuts?
Mr Gyimah
The hon. Gentleman will be aware that eligibility for free school meals in Scotland is a matter for the Scottish Government. The Scotland Bill will give the Scottish Government power to top up or reverse tax credits, or to raise taxes, but they are noticeably silent about what they will do to ensure that such eligibility continues.
Mr James Gray (North Wiltshire) (Con)
As the Minister correctly points out, free school meals in Scotland are a matter not for him but for the Scottish Parliament in Edinburgh. Is it not odd to hear Members of the Scottish National party questioning the Minister about free school meals in England, when I cannot go to Edinburgh and question Ministers there about free school meals in Scotland?
Andrew Stephenson (Pendle) (Con)
Does the Minister agree that welfare changes are an essential part of reducing the deficit, and far preferable to sacking thousands of teachers and closing schools, as we have seen in countries such as Greece and Portugal?
Mr Gyimah
My hon. Friend makes an important point that was also highlighted by the Minister for Skills. In countries such as Greece that did not take grown-up, difficult decisions, teachers’ pay has been cut by 30% and thousands of schools have closed. This Government are taking the right decisions for the country.
Mrs Sharon Hodgson (Washington and Sunderland West) (Lab)
As the Minister knows, free school meals are vital to ensure that many children have access to a hot and healthy meal every day. Recent reports from Kellogg’s and the Trussell Trust highlight that thousands of children who rely on free school meals in term time will go hungry during the current half-term holiday. Does the Minister agree that free school meals are a vital tool in combating child hunger, and will he promise to protect universal infant free school meals in the spending review, so that infant children from low-income working families do not go hungry?
Mr Gyimah
I am glad that the hon. Lady has brought up a policy that we in this Government introduced, and I am proud of the take-up and quality of school meals for all children. In our manifesto we committed to continuing with that—we are going through the spending review, but our manifesto commitments remain.
Carol Monaghan (Glasgow North West) (SNP)
Assuming that a similar percentage of children across the rest of the UK will lose their entitlement to free school meals as the percentage estimated for Scotland, how much does the Minister estimate that changes to tax credits will save his Department on free school meals, and how will Scotland see its budget cut as a result?
Mr Gyimah
It is worth making it absolutely clear that whatever the position of tax credits for the United Kingdom, eligibility for free school meals in Scotland is a matter for the Scottish Government. I would rather that SNP Members did not try to scaremonger about what will happen in the rest of the United Kingdom, and instead made clear what they will do as a result of these changes.
Carol Monaghan
Straightaway we can see from the Minister’s answer that there will be budgetary impacts on Scotland from decisions on which Scottish MPs will no longer be able to vote. Can he assure us that when there will be funding implications, Scottish MPs will not be barred from voting?
Mr Gyimah
I am not sure that the hon. Lady listened to my answer, but she makes the point about tax credits in general. Tax credits are a matter for the United Kingdom. This House has voted on tax credits three times and each time the motion has been passed. As for the implications for free school meals, as I said, that is a matter for the Scottish Government.
Maria Caulfield (Lewes) (Con)
8. What steps she is taking to ensure that safeguarding policies are in schools.
The Minister for Children and Families (Edward Timpson)
When carrying out their duties to safeguard and promote the welfare of children, schools must have regard to the statutory guidance we have issued, “Keeping children safe in education”, which includes ensuring an effective child protection policy, together with appropriate safeguarding responses to children going missing from education and procedures for handling allegations of peer-to-peer abuse.
Maria Caulfield
Further to that reply, can the Minister highlight what support is available to help parents, school governors and teachers who may have concerns about local issues to report those concerns?
Edward Timpson
Where there is a specific safeguarding incident that either a governor or parent wants to raise, they should contact their local authority’s children’s services safeguarding team; where there are concerns about safeguarding processes at a school, they should be raised through the school complaints process; and if the safeguarding processes at the local authority are causing concern, they should be raised with Ofsted. In law, it is the local safeguarding children’s board that is responsible for developing and scrutinising local procedures and arrangements, but I am sure my hon. Friend will also know that the National Society for the Prevention of Cruelty to Children has an excellent helpline to enable parents who have concerns about safeguarding in their school to raise them directly.
Ann Coffey (Stockport) (Lab)
Ofsted recently praised Stockport academy for its outstanding work to keep pupils safe. The school uses a software application into which staff input any concern they have about a child, including if they are missing from a lesson. That means that immediate checks can be made to ensure that the child is in a safe place. Does the Minister agree that that approach to safeguarding, using modern technology, should be used by more schools?
Edward Timpson
I know how assiduous the hon. Lady has been in pursuing these matters, and it is good to hear of that initiative in her constituency from Stockport academy. I would like to learn more—as, I am sure, would the Department—about how it has achieved that, so that that best practice might be spread more widely. I am happy to discuss that with her further.
Diana Johnson (Kingston upon Hull North) (Lab)
Many parents will be surprised to know that under the previous Government a requirement for volunteers in schools to undergo a Criminal Records Bureau check was removed. Is the Minister planning to review that change in the law?
Edward Timpson
There are no current decisions to be made about whether to review that particular measure. As the hon. Lady knows, there were some widespread changes made during the last Parliament—they were predominantly led by the Home Office, but the Department for Education was kept closely involved. We feel that we have a robust system in place, but more important is making sure that the people who are delivering the services have the best practice, skills and knowledge at their disposal, because where things go wrong, it tends to be through basic practice failures, rather than systems.
Bob Blackman (Harrow East) (Con)
9. What discussions she has had with the Chancellor of the Exchequer on the VAT treatment of sixth-form colleges.
The Minister for Skills (Nick Boles)
My hon. Friend knows that we can have lots of discussions about this issue, as he and I have done, but ultimately the decisions are made by the Chancellor, and we all await those with bated breath.
Bob Blackman
I am sure my hon. Friend agrees that academies, schools and sixth-form colleges should receive equal treatment in respect of VAT. Does he therefore agree that it is grossly unfair that, per institution, the average sixth-form college is out of pocket by £314,000? That is hardly equal treatment.
Nick Boles
I entirely understand those arguments and have some sympathy with them, but I would point out to my hon. Friend that sixth-form colleges, like further education colleges, also have the freedom to borrow, which many of them have taken advantage of. That is not a freedom that is available to other schools, so there are swings and roundabouts.
Kelvin Hopkins (Luton North) (Lab)
Sixth-form colleges are arguably the most successful education institutions in our system, in terms of educational achievement and financial efficiency, so would it not be sensible for the Government to encourage the creation of more sixth-form colleges, rather than punishing them for their success?
Nick Boles
I certainly agree with the hon. Gentleman that there are remarkable sixth-form colleges achieving extraordinary things, and I want to support them as best we can. As he knows, one option we are keen to explore is whether some sixth-form colleges might want to link up with groups of schools and multi-academy trusts in order to be stronger themselves and to provide more of their great education to more people.
Mr Philip Hollobone (Kettering) (Con)
10. How many pupils of secondary school age there are in Kettering constituency; and how many such pupils there were in 2010.
The Minister for Schools (Mr Nick Gibb)
The January 2015 school census shows 5,757 secondary school-age pupils attending schools in Kettering. In January 2010, there were 5,732 such pupils.
Mr Hollobone
Per pupil funding in Northamptonshire is £317 less than the English average, yet the rate of house building in Kettering and Northamptonshire over the next 10 or 15 years is among the highest in the country. When the Minister gets around to introducing a fairer funding formula for schools, will he ensure an extra boost for areas that are growing quicker than everywhere else?
Mrs Sheryll Murray (South East Cornwall) (Con)
15. What plans the Government have to improve school attendance.
The Minister for Schools (Mr Nick Gibb)
Reducing absence from school is a top priority for this Government, and good attendance is clearly linked to attainment. There are 200,000 fewer pupils regularly missing school compared with when we began our reforms in 2010, but we need to do more to ensure that all children, regardless of their background or where they come from, are attending school regularly, because even short absences can damage a child’s education and life chances.
Mrs Murray
I recently visited the Caradon alternative provision academy in Liskeard, in my constituency. It provides education for young people who have been permanently excluded or are in intervention programmes, and it is achieving fantastic results. Will my hon. Friend join me in congratulating the academy and consider visiting to see the fantastic work it does?
Mr Gibb
My hon. Friend is right. Every child, regardless of background or the problems they face, deserves the opportunity to develop their knowledge, skills and values to prepare them for life in modern Britain. Alternative provision academies, such as Caradon, play a crucial role in ensuring that pupils who cannot currently be educated in a mainstream school continue to receive a good education. I would be delighted to visit the school with her and to congratulate the staff at the academy on their achievements and professionalism.
Mr Stewart Jackson (Peterborough) (Con)
Poor attendance, as well as extremely poor educational attainment, is a feature of the most recent Ofsted inspection at the Voyager academy in Walton, Peterborough, which is managed by the Comberton academy trust. May I encourage the Minister and the Secretary of State to use their powers to intervene on this first wave academy to replace Comberton with a much more suitable academy trust for the benefit of pupils in my constituency and beyond?
Mr Gibb
We take very seriously the performance of multi-academy trusts and the trustees’ oversight of academies, and the regional school commissioners will be looking at my hon. Friend’s case, as they do all issues of poor performance by academies within multi-academy trusts.
Graham Evans (Weaver Vale) (Con)
16. What steps the Government are taking to support young people with their mental health in schools.
The Parliamentary Under-Secretary of State for Education (Mr Sam Gyimah)
Good mental health and attainment are different sides of the same coin, which is why the Secretary of State appointed me as the first Education Minister with responsibility for mental health in schools. We are taking a number of steps, working with partners, to improve the mental health of young people.
Graham Evans
Given that mental health conditions can be life-limiting for many young people in school, how are the Government ensuring that teachers have access to appropriate materials to teach pupils about mental health in an age-appropriate way so that we can break through this stigma?
Mr Gyimah
I am glad my hon. Friend has asked that question. We have been working with the PSHE Association to develop age-appropriate lesson plans, as well as improving counselling and guidance, so that teachers know how to teach about mental health and deal with the range of issues they come across in young people.
Steve McCabe (Birmingham, Selly Oak) (Lab)
As well as offering welcome advice and support to schools, will the Government consider introducing a compulsory psychological assessment for all children entering care to complement the physical assessment already required?
Mr Gyimah
That is a very good suggestion. I understand from my hon. Friend the Minister for Children and Families that we already have a health assessment, but we are open-minded on all ideas about how to tackle the problem. I will happily meet the hon. Gentleman to discuss his suggestion.
Jessica Morden (Newport East) (Lab)
18. What recent steps she has taken to promote safe transport on school trips.
The Minister for Schools (Mr Nick Gibb)
Nothing is more important in education than the safety of young people at school and on school trips. We have worked with the Department for Business, Innovation and Skills, the Foreign Office and the Health and Safety Executive to revise our health and safety advice to provide further guidance on risk assessment and safety standards for school trips, and for trips abroad the Department recommends that tour operators and schools organising their own trips should follow British standard 8848, which provides a rigorous framework for risk assessment.
Jessica Morden
The Nightcap campaign, led by my constituent Pat Harris, is working with coach drivers to highlight their real concerns about the conditions they have to endure on long-distance school trips, including driver’s fatigue and concerns about safety. Will the Minister agree to meet the Nightcap campaigners and look at some of their recommendations?
Mr Gibb
I would be happy to meet the campaign, and I know that the hon. Lady has campaigned effectively on the issue of school trip safety for school pupils, particularly, as she said, on long-distance school trips and whether coach drivers are given sufficient time for sleep. As I said, British standard 8848 provides useful and important guidance on the risks of driver fatigue, and we recommend that schools and tour operators follow it. I would be happy to discuss these issues further with the hon. Lady and her constituent.
Chi Onwurah (Newcastle upon Tyne Central) (Lab)
T1. If she will make a statement on her departmental responsibilities.
The Secretary of State for Education (Nicky Morgan)
Since the last time the House met for Education questions, thousands of students across the country have taken key stage 1 and key stage 2 tests, GCSEs, AS-levels and A-levels. I congratulate them all—and I am sure that all hon. Members, including the new shadow Education Secretary, would want to do so—on their results and thank the teachers and families who supported them. It is one year since the workload challenge was launched, and I would like to thank all those involved in our three working groups, which are making excellent progress on marking, lesson planning, resources and data management. I am determined to work with the profession to tackle these issues.
Chi Onwurah
I, too, would like to congratulate all those who took their exams over the summer. Their success is often due to the hard work of teaching assistants who perform a vital role in the classroom, yet recent House of Commons Library figures show that they could lose up to £1,800 per year as a result of the tax credit cuts. Will the Secretary of State stand up for those working on the frontline who are enabling our children to get the best education possible?
Nicky Morgan
The hon. Lady will be aware of the earlier questions asked about the state of school funding and funding for education. She will know that it is essential for schools to be properly funded and that those countries that have not brought their economies under control have sacked thousands of teachers and closed thousands of schools. She will also be aware that, because of the rise in the income tax threshold since 2010, 12 million women pay less income tax and 2 million women pay no income tax at all. We are also offering help to hard-working people with council tax freezes, fuel duty freezes and additional help with childcare.
Lucy Frazer (South East Cambridgeshire) (Con)
T2. I support all those who have called for a fairer funding formula, but I would like to develop the argument a little further. Outstanding schools in my constituency, such as Bottisham Village college, do not do well on the funding formula at present, and as a result they are all the more reliant on grants for capital expenditure. Will the Secretary of State consider whether historic underfunding ought to be one of the factors taken into account for capital expenditure grant applications?
The Parliamentary Under-Secretary of State for Education (Mr Sam Gyimah)
All local authorities receive capital funding for schools, including for school places and conditions. Cambridgeshire has been allocated almost £160 million in capital allocations between 2011 and 2018. It is important that capital funding is targeted on the school areas that need it most. Academies can also bid for the condition improvement fund. Bottisham’s application to the fund was assessed in relation to other expansion bids. Although I understand my hon. Friend’s point for capital to be considered as part of the revenue funding formula, she must realise that capital is part of what is done on a needs basis, which is different from how revenue is allocated.
Lucy Powell (Manchester Central) (Lab/Co-op)
Thank you for calling me, Mr Speaker. It is good to be here this afternoon.
Yet again today, Ministers are doing the rounds asserting that the expansion of free childcare is one of the measures that will offset the cuts in tax credits for families. As the Secretary of State knows, however, the increase to 15 hours’ free childcare will not take place until September 2017 at the earliest, well after the tax credit cuts. Given that the Department is, in its own words, “unable to understand” the costs of childcare following the Secretary of State’s review, there are now real questions to be asked about the deliverability of the scheme. Does the Secretary of State agree that families need help with childcare now, especially those who face losing vital tax credits? What help is she providing for families before 2017?
Nicky Morgan
I would believe in the hon. Lady’s concern a little bit more if her party’s peers had not voted against the Childcare Bill last week, delaying the introduction of both the Bill and the new scheme.
Lucy Powell
Perhaps they would not have done that if the Secretary of State had provided adequate funds. Is not the truth that only a tiny minority of those affected by tax credit cuts will receive this childcare help anyway when it is eventually introduced? What is more, the Institute for Public Policy Research has said that the Secretary of State’s childcare pledge is underfunded by £1 billion. Given that the tax-free childcare is already 18 months behind schedule, the Government’s childcare policy is a mess. What has the Secretary of State to say to parents who, at the election, thought that they would be better off voting for her?
Nicky Morgan
What I would say to the hon. Lady is that the reason funding in all areas of Government is so tight is the fact that we are dealing with the economic legacy left by the hon. Lady’s own party. If she were so interested in this, she would have allowed her peers to support the Bill.
If the hon. Lady wants to—[Interruption.]
Mr Speaker
Order. These are highly charged exchanges, but Members must not seek to shout down the Secretary of State. Let us hear the right hon. Lady.
Nicky Morgan
If the hon. Lady had wanted people to believe promises, she would not have tried to carve them on the 8-foot six-inch “Edstone” that was unveiled by the former leader of her party. What we are seeing is a dearth of thinking from the hon. Lady. So far, in her short tenure as shadow Education Secretary, we have heard negativity about teacher recruitment, about childcare and about schools. Indeed, she has attacked a school in her own constituency, Manchester Enterprise Academy, whose headteacher claimed that she had misled him over what was going to be said about the school during the debate on the Bill’s Third Reading.
Pauline Latham (Mid Derbyshire) (Con)
T8. What plans has the Government to meet the demand for school places in Mid Derbyshire, in the light of the pressure on local authorities to allow planning permission for more housing to be built on brownfield sites?
The Minister for Schools (Mr Nick Gibb)
Helping local authorities to secure enough school places is one of the Government’s top priorities, and basic need funding is allocated to local authorities to support the creation of new places. Derbyshire will receive £12.8 million of basic need funding between 2015 and 2018.
When we came to office in 2010, we took the issue of providing more school places very seriously. We more than doubled capital spending, and we have created 445,000 new places since 2010. It is interesting to note that the Labour Government, during their last period in office, cut 207,000 places at a time when there was a baby boom.
Debbie Abrahams (Oldham East and Saddleworth) (Lab)
T3. Some 150,000 families with a disabled child will be affected by the cuts in child tax credit. What assessment has the Secretary of State undertaken of the effect of the cuts on the additional number of disabled children who will be plunged into poverty, and, in turn, the effect on their development and their opportunity to succeed in education?
Nicky Morgan
Yet again, all that we hear is the continual rumbling, if not outpouring, of negativity from the Labour party. The hon. Lady will know that the Government are spending more on disability benefits than her own party did in government, and also that all tax changes are subjected to the normal impact assessment.
Mr Peter Bone (Wellingborough) (Con)
T10. Hopefully, I will be positive and helpful. I went to both a comprehensive and a grammar school, and it seemed to me that there was much to be said for grammar schools. Would the Secretary of State like to encourage their expansion?
Nicky Morgan
The Government believe very firmly in the expansion of all good and outstanding schools, regardless of what type of schools they are, because we want all children to have an excellent education regardless of birth or background.
John Mann (Bassetlaw) (Lab)
T4. A part of rip-off Britain is increasingly affecting schools, which is the branding of every item of clothing by academies under the guise of school uniforms. As there is a monopoly supplier for every school, what is the Secretary of State doing to ensure that there is some competition so parents can have a choice and save some of their valuable earnings?
Dr Liam Fox (North Somerset) (Con)
Edward Saunders, a bright and promising student in my constituency, died tragically aged 18 of meningitis. Will my right hon. Friend make sure everything is done across Government to highlight, including in schools and higher education, the dangers to young adults of meningitis? When he was 11, Edward wrote a children’s book entitled “Robey and the Dentist”, which has now been published with all profits going to help raise awareness of meningitis and to treat it. Might I present my right hon. Friend with a copy at the Department to help raise the profile of this very worthwhile campaign?
Nicky Morgan
I thank my right hon. Friend very much indeed for that question. I will be delighted and honoured to accept a copy of Edward Saunders’ book, and I will also undertake to look at what more we can do to raise awareness of this devastating condition.
Peter Kyle (Hove) (Lab)
T5. Now that the Secretary of State is allowing the expansion of grammar schools, will she consider amending the Education and Adoption Bill which is presently going through another place to enable us to tackle coasting in grammar schools, so that where coasting is identified they can swiftly be converted to academies?
Nicky Morgan
I like the hon. Gentleman’s thinking in some aspects of that question. He is absolutely right to say that we are serious about tackling the continued underperformance of all schools across the country. I should be clear that there has been no change in policy on grammar schools or selective education. One particular school has been given permission to expand.
Mike Wood (Dudley South) (Con)
What assessment have the Government made of the need for greater capacity post-16 for special educational needs such as at the excellent new Pen’s Meadow post-16 facility in Pensnett, which I had the honour of opening on Friday?
The Minister for Skills (Nick Boles)
I was delighted to hear from my hon. Friend about the opening of this new institution. It is incredibly important that the best possible opportunities are presented to all young people including those with special educational needs, and sometimes that is best done in institutions that specialise in that. I would be delighted to learn more and maybe visit with him at some point in the future.
Mr Speaker
Perhaps the Minister could face the Chamber as we would all be the beneficiaries of that.
John Woodcock (Barrow and Furness) (Lab/ Co-op)
T6. Further to the questions asked earlier, the Minister will be aware of the merger discussions announced between Barrow sixth-form college and Furness college today, and the fact that it is prompted by the dire situation the sixth-form college finds itself in. Will he agree to meet me and education representatives from the area to discuss the unusual situation Furness finds itself in, where it cannot put courses on with the same number of people and therefore does not have the same efficiency as it does in other areas?
Nick Boles
Of course I would be delighted to meet the hon. Gentleman. My understanding is that this is a proposal that has been brought forward by the sixth-form college, anticipating the problems it has and trying to get ahead of them, and that is an approach we entirely welcome, but I will be happy to meet him and representatives of both colleges to understand the situation better.
Scott Mann (North Cornwall) (Con)
My hon. Friend will be familiar with the London challenge, which ran in the capital until 2011. As an MP for a very rural area, may I ask the Secretary of State to look at introducing a rural challenge to help support areas in North Cornwall?
Nicky Morgan
I thank my hon. Friend for that question. He will be aware that our stated ambition is that all children should have an excellent education regardless of where they live and their birth or background. I am particularly conscious of the challenges facing rural schools, and I look forward to working with him and MPs across the House on these particular challenges facing their schools.
Greg Mulholland (Leeds North West) (LD)
T7. Free school meals was a Liberal Democrat policy achieved by the coalition Government and the pilot areas show it has improved attainment particularly for lower-income children. Will the Secretary of State now give those families the assurance and certainty they need by saying that this programme will not be reduced in the comprehensive spending review?
Nicky Morgan
I wonder whether the hon. Gentleman was here for the earlier exchanges on this issue. For the avoidance of doubt, let me say to him that, like all Government Departments, we are having to look at all areas of spending and at every line in the Department. However, there was a clear commitment in our manifesto to free school meals, which the Prime Minister has recently reiterated.
Helen Whately (Faversham and Mid Kent) (Con)
Parents in Kent welcome the Secretary of State’s support for the expansion of popular grammar schools. Will she join me in expressing support for the commission launched by Kent County Council to ensure that children from low-income families get enough help to get into grammar schools, so that those schools can fulfil their potential to create social mobility?
Nicky Morgan
I thank my hon. Friend for her question. I should apologise to all Kent Members of Parliament, who will have seen my face in far too many local magazines and newspapers following my announcement. I welcome the work being done by Kent County Council. The new admissions code will specifically allow grammar schools to give priority to disadvantaged children who are eligible for the pupil premium. I also know that schools and authorities across the country are introducing stringent ways of stopping people being prepared for tests through tutoring.
Stephen Timms (East Ham) (Lab)
T9. A record number of teachers have left the profession in the past year—more than the number that have been recruited into the profession. What steps are Ministers taking to tackle this growing teacher shortage?
Mr Gibb
I am not sure that the right hon. Gentleman has got his facts right. There are now more teachers in England’s classrooms than ever before. There are 455,000, which is 5,000 more than there were last year and 13,000 more than when Labour left office in 2010. Vacancy rates are stable. Almost 90% of teachers continue in the profession following their first year of teaching, with 72% of newly qualified teachers still teaching after five years and 52% still teaching after 18 years. I am afraid that he has got his facts wrong.
Ben Howlett (Bath) (Con)
Charities such as Off the Record in my constituency help to facilitate safe spaces for young people who have faced traumatic incidents in schools. Does the Secretary of State agree that the creation of safe spaces in schools would have a dramatic impact and help to reduce mental ill health in schools?
Nicky Morgan
That sounds like a very interesting project, and I would certainly be happy to look into that issue if my hon. Friend writes to us with more details. I was recently at Upton Cross primary school in West Ham, where the charity Place2Be is working with the school to provide a similar service offering spaces where children can share their experiences.
Liam Byrne (Birmingham, Hodge Hill) (Lab)
This term, schools around the country are rightly being asked not only to respect but to promote British values. Does the Secretary of State agree with the proposal in my early-day motion, tabled today, that it is time we added compassion to that list of values? My constituents think that that is one of the qualities that make this country great. Should we not start to celebrate it as such?
Nicky Morgan
I welcome the right hon. Gentleman’s commitment and his support for the teaching of fundamental British values in all our schools. He is absolutely right to say that those are the values that make our country great. I am very happy to look at this. We could have an endless debate on which values to capture, but the ones that we have, particularly respect and tolerance, are hugely important and I want everyone to get on with thinking about how best we can promote them.
Several hon. Members rose—
Mr Speaker
Order. As so often happens, demand has exceeded supply. We must now move on.
Speaker’s Statement
Mr Speaker
I have a short statement to make to colleagues about how I intend to implement the Standing Orders agreed by the House on 22 October—for the benefit of those listening beyond this Chamber, this of course concerns the so-called English votes on English laws issue. After a Government Bill has been introduced, a note will be published in the appropriate place on the Order Paper to the effect that I have not yet considered it for certification. The same process will be followed for statutory instruments requiring consideration. If I sign a certificate, the note on the Order Paper will be changed accordingly. Any certification will also be recorded in the Votes and Proceedings. I do not propose to record a decision not to certify. The absence of any note on the Order Paper will indicate that no certification has been made.
Before Report stage begins, I will seek to identify in advance those changes made in Committee which I would expect to certify, together with any Government amendments tabled for Report stage which, if passed, would be likely to lead me to issue a certificate. At the end of Report stages of Bills, where I am required to consider any matter for certification I would as a matter of course expect a brief suspension of the House, so that I, or a Deputy, can leave the Chair and decide whether to certify. Similar brief suspensions may be necessary at later stages. I propose to accept the advice of the Procedure Committee not, as a rule, to give reasons for decisions on certification during this experimental phase of the new regime. Anybody wishing to make representations to me prior to any decision should send them to the Clerk of Legislation. I wish to assure the House that everything is in hand to provide for “double majority Divisions”, including deferred Divisions.
Finally, may I say that, as set out on Thursday, we are in experimental territory and I may indeed myself experiment by adjusting these arrangements as the new regime develops? Whatever the views of colleagues on their merits, I hope the House will support me and the Officers of the House in trying to give effect to these Standing Orders to the best of our ability.
Arrests of Chinese Protesters
(9 years ago)
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Fabian Hamilton (Leeds North East) (Lab)
(Urgent Question): To ask the Minister to make a statement on the arrests of three peaceful protesters during President Xi Jinping’s visit to London last week.
The Minister for Policing, Crime and Criminal Justice (Mike Penning)
Last week, there was a very successful visit of the President of the People’s Republic of China to the United Kingdom, hosted by Her Majesty. As is the case for all state visits, careful plans were put in place to ensure the safety and security of the visit. The Home Secretary was personally briefed on the policing plans by the Metropolitan Police Commissioner. The right of peaceful protest is guaranteed under UK law, with respect to a protester’s rights to express their views peacefully, and the policing plans therefore sought to facilitate peaceful protest. However, as part of last week’s policing operation three individuals were arrested. I understand, and it is public knowledge, that the Metropolitan police arrested individuals for breach of the peace and, subsequently, on suspicion of conspiracy to commit threatening behaviour. I understand that all three individuals have now been bailed to return to a London police station at a later date, while further investigations continue.
The operational policing of protests and the use of police powers are entirely matters for chief constables in the United Kingdom, and therefore it would be inappropriate for me to comment on specific individual cases. The right to protest peacefully is guaranteed under UK law, but protesters’ rights need to be balanced with the right of others to go about their business without fear of intimidation or serious disruption to the community. Rights to peaceful protest do not extend to violent, threatening behaviour, and the police have the powers to deal with such acts. The Metropolitan police issued a statement on this issue last week; they reject any suggestion that they acted inappropriately. They made it clear that throughout the visit they had sought to facilitate peaceful protest and ensured that all those who wished to do so were allowed to express their views. That is the fundamental British value of freedom of expression and association, which I am sure this House would continue to support.
I also remind this House that the system of policing complaints in this country is an independent one; under the procedures laid down in part 2 of the Police Reform Act 2002 to ensure that officers and staff can be answerable to the public, that process is there. However, a police investigation is going on and, frankly, politicians should stay out of that.
Fabian Hamilton
I thank the Minister for his statement. Right hon. and hon. Members from across the House will, I am sure, however, share my deep concern at the way in which Dr Shao Jiang, a former Chinese dissident and veteran of the Tiananmen Square protests of 1989, was arrested last Wednesday on the Mall and the fact that a short time later two Tibetan students, one of whom, Sonam Choden, was a British Citizen, were also arrested for attempting to display a Tibetan flag while the Chinese President’s cavalcade was passing the Mansion House. Dr Shao, who is now a British citizen, stepped out into the road while he was trying to display two A4-sized placards protesting against China’s human rights abuses when he was tackled to the ground by five Metropolitan police officers. This was shown on “Channel 4 News”. While the three protesters were being held in the cells in Bishopsgate, their homes were searched and their computers and iPads seized. Their mobile phones were also kept by the police. Does the Minister have any idea when their possessions will be returned? Will the confidentiality of the data on their computers be respected, as all three depend on their computers for work? Will he comment on why their homes were searched at night while they were in custody?
The three people arrested were told that any charges they may face will be decided on in early December. Does the Minister believe that that delay is justified? Is it acceptable to detain lawful protesters overnight in the cells? Finally, will the Minister comment on whether these arrests are related to last week’s visit of the Chinese President, Xi Jinping?
Mike Penning
There is an ongoing police investigation. Three people are on bail while it continues, and I will not jeopardise the case or any investigations by commenting further.
Mr Speaker
Order. What the Minister chooses to say or not to say is a matter for him. Equally, other Members can raise these matters, with the agreement of the Chair and if appropriate, whenever and how often they wish. These matters will run and run, so colleagues must not worry about that.
Mr Peter Bone (Wellingborough) (Con)
This seems to be extraordinary. If only three people were arrested when a lot of people were wanting to protest, the police must have allowed protest. If there were a complaint about 300 people being arrested, I would understand the problem, but not when there were only three.
Mike Penning
As I said in my statement, a lot of preparation work was done to ensure that people had the right to protest peaceably, as the law stipulates. But if the police made a decision to arrest—and they have made that decision—that is an operational matter and not a matter for the Police Minister to comment on.
Jack Dromey (Birmingham, Erdington) (Lab)
China is a proud country of 1.4 billion people. It is the second largest economy in the world—soon to be the largest. The Anglo-Chinese relationship is very important. We have, for example, Chinese collaboration, Chinese investment and Chinese students. If it is right that we seek to strengthen that relationship, then that relationship should be underpinned by an integrity of approach. There are certain values of universal human rights that transcend any commercial or other relationship. That is why this country rightly believes that, domestically, our Bill of Rights is so important, rooted as it is in our great democratic traditions back to the Magna Carta. That is why, internationally, in a free society we both engage and speak out, as indeed you did last week, Mr Speaker—would that the Prime Minister had been quite as vigorous as you—as did the Leader of the Opposition and the BBC’s Laura Kuenssberg in her interrogation of the Chinese President.
In a free society, we defend the right to dissent and to protest. It would not be appropriate to comment in any detail on the circumstances of this case, because it is under investigation, but these are very serious allegations that should be properly investigated, including the raid on the homes of those engaged in dissent. My hon. Friend the Member for Leeds North East (Fabian Hamilton) is absolutely right to raise these concerns on the Floor of the House of Commons.
Mike Penning
I am not certain whether there was a question there. If I have missed it, I will write to the hon. Gentleman. I think that I agree with everything that he said early on in his contribution about our relationship with China. Indeed, some very, very important business was done last week. The principle of protest is absolutely right. Three people are on bail while an investigation takes place. It would be wrong of me to comment, in any shape or form, on the legitimacy of the case at the moment.
Dr Tania Mathias (Twickenham) (Con)
I am glad that the Minister shares our pride in our tradition of peaceful protest. Does he share my shame at the purported harassment of a Tiananmen Square survivor, Dr Shao Jiang? What would the Minister do if peaceful protesters such as myself or other Members in this Chamber got a knock on the door in the middle of the night from the police? Would he help us?
Mike Penning
I am not going to prejudge an investigation by the Metropolitan police, for whom I have great respect—as I do for the other 42 police authorities for which I am responsible. Let us wait and see, rather than prejudge the case. If we let the investigation continue, we will all know the facts.
Anne McLaughlin (Glasgow North East) (SNP)
The Chinese ambassador to the UK recently stated that nobody would be put behind bars simply for criticising the Chinese Government. I appreciate that the Government are keen to banish human rights protections in this country, but is the Minister really happy not even to be able to make the same civil liberties commitment as China claims to make? I appreciate that the Minister cannot comment on an individual case, so I will not ask him to do so. Will he tell me, however, whether he can think of any reason, hypothetically speaking, why somebody waving their country’s flag should lead to them being arrested, put behind bars and having their mobile phone and PC taken from them?
Mike Penning
With all due respect, this might become slightly repetitive. The police made a decision operationally on the ground, which we should respect. We should wait for the investigation to finish and then we can all make our commentary on the facts. If people want to make a complaint, there is a certain way that that can be done and it certainly does not involve this House. It happens after the case is finished.
Geoffrey Clifton-Brown (The Cotswolds) (Con)
Will my right hon. Friend assure the House that these potential breaches of the peace will be subject to the same investigation and same due process as they would whether they had involved the Chinese President’s visit or anybody else’s visit? Will he also say whether the powers of the Independent Police Complaints Commission will be invoked wherever necessary?
Mike Penning
If an individual wants to make a complaint pertaining to this case to the police complaints authority, that is for them to do. It does not matter whether this was a Chinese demonstration or any other sort of demonstration; if the police decided at the scene that an arrest was needed, I will back them for that. I think that the whole House would support that decision, too.
Mr David Winnick (Walsall North) (Lab)
Does the Minister have any idea of the anger felt in this place and outside it over what occurred? It is unfortunate that he appears to be an apologist for that, as it seems to many people that what took place, as far as the police were concerned, could be described as British police action with Chinese characteristics.
Mike Penning
I will treat some of those comments with contempt. Given the amount of experience the hon. Gentleman has in this House, I would have thought that he would have supported the police in this difficult situation. I was not there and I saw the TV coverage, too. The officers who were there made the decision to arrest. Ongoing litigations continue, so let us wait and see what happens.
Tim Loughton (East Worthing and Shoreham) (Con)
Perhaps I can elicit more of a comment from the Minister if I talk in generalities. I am pleased that he mentioned freedom of expression as a centrepiece of our democracy. When I asked the Minister of State, Foreign and Commonwealth Office, my right hon. Friend the Member for East Devon (Mr Swire), the same question on Thursday, I appeared to receive an answer to a completely different question, so will the Minister tell me how freedom of expression was equitably allowed by police who corralled peaceful Tibetan demonstrators at the back of the Mall with a line of police officers in front of them while pro-Chinese demonstrators, wearing T-shirts issued by the Chinese embassy, were allowed prime position at the front?
Mike Penning
How to police the protest and surrounding situation is an operational police decision. Politicians stay out of such decisions because we do not want to live in that sort of state.
Matthew Pennycook (Greenwich and Woolwich) (Lab)
One of the three individuals arrested, Sonam Choden, is a constituent of mine. She is a British citizen and was arrested on Wednesday for waving a Tibetan flag. I understand the Minister’s point about not getting involved in operational matters, but if it proves to be the case that there were no grounds for arrest, will he support me in looking into how the protests are policed and operationally overseen, as it seems that these three individuals were arrested without sufficient grounds?
Mike Penning
I can understand the concern. I am a constituency MP and if I were on the Back Benches I would have the concerns that the hon. Gentleman expressed. However, I would also wait for the police investigation. There are a lot of assumptions about who, why and where. Let us wait. I have faith in the police in this country, as we all have. Let us wait and see as the investigation progresses.
Emily Thornberry (Islington South and Finsbury) (Lab)
Dr Shao Jiang is a constituent of mine. The world saw him arrested for waving two A4 placards calling for human rights in China. His home was searched when no one was there, and his and his wife Johanna’s computers have been confiscated. I spoke to Johanna this afternoon. It was a very traumatic experience for both of them, but particularly for Dr Jiang, given that he has already been held for 18 months in a Chinese jail for organising the Tiananmen Square demonstrations. Will the Minister advise me how I as Dr Jiang’s Member of Parliament can hold to account those who made the disgraceful decisions to arrest someone who was, on the face of it, behaving in a way that was entirely peaceful, who should not have been arrested and whose house should not have been searched?
Mike Penning
Although I fully understand the hon. Lady’s feeling that she needs to support her constituents—I fully understand that—we must wait, because that is the sort of democracy we are in. It is an ongoing investigation. The gentleman she refers to is on bail. Let us wait and see what happens. After it is all over I will be more than happy to meet colleagues to discuss this, but we must wait.
Ann Clwyd (Cynon Valley) (Lab)
I spent most of last week in Geneva chairing a committee of the Inter-Parliamentary Union on the human rights of parliamentarians. Many of the breaches of their rights involved freedom of expression and so on—many of the things that appear to have taken place here last week—and I feel rather embarrassed to be lecturing politicians from other countries about freedom of expression when what was, as I understand it, a peaceful demonstration was treated in such a way.
Mike Penning
I met the right hon. Lady just before she went to Geneva so I know exactly why she was there, and I hope it was a very successful visit. Thousands of people did demonstrate peacefully. Three people were arrested. Let us wait and see what the investigation shows. [Interruption.] I trust the police to do an investigation. The hon. Member for Walsall North (Mr Winnick) does not, and he should be ashamed. [Interruption.]
Mr Speaker
Order. Not an appropriate observation from a sedentary position. The loyalist chirruping of the hon. Member for Northampton North (Michael Ellis)—[Interruption.] Order. No comment is required from the hon. Gentleman. His loyalist chirruping is unsurpassed by any Member of the House of Commons. I recognise that in the exercise of his important note-passing responsibilities as Parliamentary Private Secretary to the Home Secretary, he feels a duty to discharge his obligations with great commitment. [Interruption.] No, I am not interested in the hon. Gentleman’s views. His responsibility is to sit there and nod and shake his head in the appropriate places as a PPS, and to fetch and carry notes when required. It is always a joy to hear the hon. Gentleman on his feet, but I do not need to hear him when he is in his seat.
Mark Pritchard (The Wrekin) (Con)
This may have been a lawful arrest; I do not want to prejudge the police, not knowing the evidence, but what we do know is that up and down the country, not only in the Metropolitan police area, but in other police forces in England and Wales, there are unlawful arrests every single day of the week, and for that the taxpayer has to pay out millions of pounds of compensation every year. What we do not know, because the Home Office has yet to publish those figures and is unprepared to do so thus far, is how much that costs taxpayers. Does the Minister agree that if those figures were published, it might incentivise the police to be a little bit more careful about what is lawful and unlawful?
Mike Penning
I think my hon. Friend is trying to drag me into a discussion on whether the arrests were lawful or unlawful. I am not willing to get into that discussion while there is an ongoing police investigation.
Mr Alistair Carmichael (Orkney and Shetland) (LD)
The Minister is absolutely right: operational matters are and must be for the police, but when the execution of these operational matters is done in such a way as to risk a chilling effect on freedom of speech, that becomes a matter for this House. I do not see how it would prejudice any future prosecution for the Minister to interrogate those responsible for the policy behind these actions now. Indeed, I suggest to him that he has a duty to do so. Will he do that?
Mike Penning
As I said in my opening remarks, before the state visit the Home Secretary was briefed by the Metropolitan Police Commissioner on how legitimate protests would be policed, and on the possibility of protests that were not legitimate or legal. Ultimately, what took place was still the result of operational decisions taken on the day, and of course those decisions will be reviewed. Today’s urgent question was about three people being arrested, and I cannot comment on that because doing so could jeopardise ongoing investigations. Of course, we must always learn from how policing is done, and I am sure that is exactly what we will do.
Ms Gisela Stuart (Birmingham, Edgbaston) (Lab)
When the Minister looks back on these police actions and forms a judgment on whether they were appropriate, will he also look at the actions of Birmingham City Councillor Alex Yip—a Conservative councillor—who, as The Independent reports today, has been accused of helping pro-Chinese demonstrations? As far as I can see, that was deemed to be totally appropriate.
Mike Penning
I must admit that I am not aware of the actions that the right hon. Lady refers to, but I will look into the matter and perhaps drop her a line.
Mr Dennis Skinner (Bolsover) (Lab)
Does the Minister not appreciate the propaganda value of what has happened over the past few weeks? First it was all about China, human rights and Tiananmen Square—indeed, you, Mr Speaker, almost referred to that in your remarks in the Royal Gallery. Today, however, the Chinese can say, “Well, things are no different in Britain.”
Mike Penning
I find that completely baffling. We went out of our way, during a state visit by a very senior member of a foreign Government, to ensure that people had an opportunity to protest, and at huge cost to the Metropolitan police. When people have been arrested and are on bail while investigations take place, it would not be right for a Policing Minister to judge how other countries will look on those arrests until those investigations have been concluded.
Mr Barry Sheerman (Huddersfield) (Lab/Co-op)
As someone who has worked very hard to build bridges between this country, this Parliament and China, and who thinks that the recent visit was, by and large, a great success—the balance was right, because they heard some things they did not want to hear, especially from you, Mr Speaker, but it was also a very positive visit—I have to say to the Minister, whom I have known a long time, that we would be much happier if he had started his remarks with the same tone that he has since used. Our right as Members of Parliament is to say that we are really concerned, so my hon. Friend the Member for Leeds North East (Fabian Hamilton) was right to ask this urgent question. At first the Minister sounded as if he was full of testosterone and ready to defend his patch, but he has ended up being much more conciliatory. He should have started that way, because we all quite like him when he is in that mode.
Mr Speaker
Mystic guidance has been provided from Huddersfield, and the Minister must make his own assessment of it, as will all colleagues.
Mike Penning
To be fair, this is a massively serious issue, particularly for the three people who were arrested, but it is also a very important issue for the police, and perhaps for the Crown Prosecution Service, but we all need to wait, and perhaps we will all learn a little from that.
Mike Gapes (Ilford South) (Lab/Co-op)
This is a serious matter, but is the Minister aware that a few days before the state visit by the President of China there was a visit to this country by the Chief Executive of Hong Kong, and outside the Dorchester hotel the umbrella movement were playing music and shouting into megaphones? Can he tell us whether any of those democracy protesters from Hong Kong were arrested, or is it a case of one country, two systems?
Mike Penning
The hon. Gentleman’s question is better than the last one, but I do not think the soundbite quite worked. I do not know because I was not aware of that, so let me find out. If anyone was arrested, I will obviously let the hon. Gentleman and the House know.
Mrs Madeleine Moon (Bridgend) (Lab)
During the visit of President Xi I met a Chinese dissident, Chen Guangcheng—a human rights lawyer who was granted asylum by the Americans. He talked about the pressures that human rights activists are facing in China with the persecution of journalists and of Christians. I appreciate that the Minister is not able to talk about police operations, but it is important that we recognise the sensitivity in countries like China at seeing how democracy operates in Britain and that freedom of speech is respected, as is the freedom to demonstrate. I hope he will make sure that the Metropolitan police are made aware of that.
Mike Penning
I am sure that the Metropolitan police are listening to this discussion, but I will also make sure that I mention that in the discussions I have with them. The fact that peaceful demonstrations by thousands of people took place in this country is an example to the world that we can have demonstrations like that. I am not going to go into the issue of what happened with the arrests, but we are a democracy where peace-loving people can demonstrate, and thank goodness they can.
Diana Johnson (Kingston upon Hull North) (Lab)
Does the Minister know whether formal complaints have been made to the Metropolitan police? If they have, does he think it is appropriate that rather than being dealt with through an internal investigative measure they should be referred automatically to the Independent Police Complaints Commission because of their sensitivity?
Mike Penning
I am not aware of whether a formal complaint has been made. It is the normal procedure for the matter to go to the Metropolitan police and then the Met themselves can either refer it or it can be referred later on once it has gone through the due process of the complaints procedure. I will find out whether the Metropolitan police have done this and arrange for the commissioner to write to the hon. Lady.
Andy Slaughter (Hammersmith) (Lab)
The Minister may be embarrassed on behalf of the Government’s distinguished foreign guest, but does he understand that many in this House are embarrassed when Mrs Zhang, one of the arrested people, says “It feels like when I was in China”? The police pick up signals from Government, and this Government are in the process of repealing the Human Rights Act 1998 and our obligations under the European convention on human rights, including the article 11 rights to protest and freedom of association. When the operational decisions are over, will he properly investigate these circumstances to ensure that our feelings on these matters are not unsubstantiated?
Mike Penning
Of course, once the investigation is over and decisions are made we will all look very carefully at what went on. It is, however, a stretch of the imagination to insinuate that the police would police a protest because of a feeling they get from a Government’s possible future legislation.
Mr Speaker
I am most grateful to the Minister and to participating colleagues. We come now to the urgent question from Chi Onwurah.
Data Breaches (Consumer Protection)
Urgent Questions are proposed each morning by backbench MPs, and up to two may be selected each day by the Speaker. Chosen Urgent Questions are announced 30 minutes before Parliament sits each day.
Each Urgent Question requires a Government Minister to give a response on the debate topic.
This information is provided by Parallel Parliament and does not comprise part of the offical record
Chi Onwurah (Newcastle upon Tyne Central) (Lab)
(Urgent Question): To ask the Secretary of State for Culture, Media and Sport if he will make a statement on Government responsibilities and policies for protecting consumers and infrastructure following large-scale data breaches such as that suffered by TalkTalk.
The Minister for Culture and the Digital Economy (Mr Edward Vaizey)
Let me begin by saying that this is clearly a very serious matter. We are all aware that TalkTalk suffered a data breach last week. I want to reassure Members of this House, and TalkTalk customers who may have been affected, that law enforcement has been working very closely with the company since the breach was notified and of course continues to do so.
I commend the chief executive of TalkTalk for her openness and transparency since the company became aware of the attack. I know that she will do all she can to protect her customers. Nevertheless, this is a very serious incident. I understand that the company has offered free support to customers to ensure that they are alerted to any suspicious activity in relation to their bank accounts. I am also reassured that the Financial Conduct Authority has said that it is not aware of any unusual activity at the moment, and that further advice and guidance is available in a range of places such as Get Safe Online and Cyber Streetwise.
However, it is extremely important that companies do all they can to protect themselves, and of course their customers, from cyber-attacks. This Government and the previous Administration have worked extremely hard to ensure that companies have the tools they need to protect themselves. We have invested £860 million over five years in the national cyber-security programme, set up the national cybercrime unit inside the National Crime Agency, and launched the Cyber Streetwise and Cyber Essentials schemes. I am pleased that the number of businesses aware of Cyber Streetwise has doubled and that more than 1,000 businesses have now signed up to the Cyber Essentials scheme, which sets out basic technical controls.
A year ago we made it mandatory that any company that contracts with Government should be accredited under the Cyber Essentials scheme, where appropriate and proportionate. I am also pleased that almost every FTSE 350 company has included cyber-security on its risk register. The “10 Steps to Cyber Security” guidance gives large businesses and organisations comprehensive advice and there are simplified versions available for small and medium-sized enterprises.
Recent events show how vital it is that we maintain that momentum and that businesses act on our advice in order to protect their customers from harm. I will write again to the FTSE 350 companies, to reinforce the steps we expect them to take and the robust procedures that they need to have in place.
The Government take the UK’s cyber-security extremely seriously and we will continue to do everything in our power to protect organisations and individuals from attacks.
Chi Onwurah
Thank you, Mr Speaker, for granting this urgent question.
When someone’s data are lost, criminals are given a gateway into their lives. I have spoken to one woman who lost £5,000 in a sophisticated scam following a previous TalkTalk breach. Today, up to 4 million people are wondering what data they have lost and where a cyber-attack will come from. They are checking their bank accounts, callers and credit cards. The Government need to reassure us that our digital lives are secure, and they need to help our digital economy to grow.
When did the Minister first speak to TalkTalk about the breach and its implications? Is he now aware of what data were taken and whether they were encrypted? What obligations were there on TalkTalk to report the breach to the Information Commissioner’s Office and to advise customers, and did it do that quickly enough? What rights of compensation do TalkTalk customers have and for how long, and how can they exercise them?
Will the Minister ask the Information Commissioner to update his guidance in the light of the current confusion? What additional resources will police have to respond to the up to 4 million inquiries from frightened customers, and will the breach be reported as one cybercrime or many?
For many years, we have been calling on the Government to take action to protect consumers and citizens from cyber-scams. This Government’s data policy is chaos illuminated by occasional flashes of incompetence. Will the Minister acknowledge that all the innovation has come from the criminals while the Government sit on their hands, leaving it to businesses and consumers to suffer the consequences?
Mr Vaizey
Of course, the hon. Lady is perfectly entitled to ask those questions, many of which are valid, but I have to take issue from the very beginning with her assertion that the Government have somehow been sitting on their hands. I do not think she heard my response to the urgent question. We have invested more than £860 million in cyber-security and we have a number of very effective schemes with which to engage business. It is worth remembering that that money was invested at a time of economic austerity and that that was one of the first decisions taken by the coalition Government.
The hon. Lady asked how many people have lost their data. The situation is fast moving and, given that the investigation is ongoing, it would be remiss of me to put a final figure on it. As I said in my response, law enforcement agencies have been in touch, and we have been in continuous discussion, with TalkTalk since Thursday.
On the question of what data have been taken, the chief executive of TalkTalk has issued a number of statements, saying that bank account details have been given out and that some credit card details, albeit tokenised, have been stolen as well.
The question of whether TalkTalk reported the breach to the Information Commissioner’s Office in time will be a matter between the Information Commissioner and TalkTalk, although I understand that it was reported on the Thursday. As I understand it, any rights of compensation and how long they will take will also be a matter for the Information Commissioner.
I am delighted that, since last month, the Information Commissioner falls within my Department. It is precisely that kind of joined-up government that is needed to make our combating of cybercrime and cyber-fraud as effective as possible. I will certainly meet the Information Commissioner to discuss the issues.
The police have extensive resources with which to combat cybercrime, and we are the Government who set up the national cybercrime unit.
Jesse Norman (Hereford and South Herefordshire) (Con)
May I just confirm that we will look very closely at this issue on the Culture, Media and Sport Committee? Has my hon. Friend noted that it appears that much of the information had not been encrypted? Is there in fact a case for requiring the encryption of customer data by other companies, such as this one, in future?
Mr Vaizey
I am delighted that the Chairman of the Select Committee will conduct an inquiry into data protection. I am sure that the inquiry, particularly the findings that come out of the report, will be extremely valuable. It has to be said that companies should encrypt their information. There has been some misinformation that the Government are somehow against encryption.
John Nicolson (East Dunbartonshire) (SNP)
Wednesday’s cyber-attack on TalkTalk has illustrated the problems faced by a Government who have failed to protect the interests of consumers through their lightweight regulation of telecoms. For the third time in less than a year, the 4 million customers of TalkTalk have had their confidential details compromised and, once again, the Government and TalkTalk have fallen short in their response.
TalkTalk has attempted to downplay the impact of the attack on its website, stating that the core system was not affected, but that ignores the broader use of personal data in fraud and identity theft. It is estimated that the value of a credit card number to a criminal increases by 500% when combined with the personal details of the individual. Although credit card numbers expire and can change, self-evidently people’s names, addresses and dates of birth do not. Once a criminal has those details, they can use them for numerous purposes. TalkTalk is clearly not taking that seriously enough.
In the United States, AT&T was fined £17 million for failing to protect customer data. In the United Kingdom, the ICO can only place fines of up to £500,000. For a company that received an annual revenue of nearly £1.8 billion, a fine that small will clearly not be terrifying. The regulation of telecoms must be strengthened to protect consumers.
Does the Minister agree that telecom providers must be held fully responsible for failing to protect confidential data? Regulation needs to be strengthened to ensure that; I am afraid that free counselling from TalkTalk is meaningless twaddle.
Mr Vaizey
I thank the hon. Gentleman for that extensive question. As I said earlier, the Information Commissioner’s Office will obviously look at this data breach. It has extensive powers to take action and, indeed, to levy significant fines. The Government are always open to suggestions about how that could be improved. As I said in an earlier answer, I will certainly meet the Information Commissioner to look at what further changes may be needed in the light of this data breach.
Mrs Cheryl Gillan (Chesham and Amersham) (Con)
The internet is the fastest growing sector of the economy, having moved from about 6% of GDP in 2011 to 10% now and growing. One of the aims of the Government’s admirable UK cyber-security strategy is to make the UK
“one of the most secure places in the world to do business”
in cyberspace. However, that depends on the capabilities of our law-enforcement operations, such as the Met police who are working with TalkTalk today. What can the Minister say about ensuring that our law-enforcement officers have the skills and capabilities needed to tackle cybercrime and to maintain the valuable confidence we need to continue to do growing business on the internet?
Mr Vaizey
My right hon. Friend is quite right to say that cyber-security lies at the heart of the success of our digital economy. It is absolutely vital that customers can trust the websites to which they go and that we have the right law-enforcement capabilities. I am delighted that the police national cybercrime unit has received significant funding and that we have regional cybercrime units, including the Metropolitan police’s very effective cybercrime unit, which has worked so closely with TalkTalk since this matter came to light.
Keith Vaz (Leicester East) (Lab)
Two years ago, Adrian Leppard, the country’s most senior police officer for online fraud, told the Home Affairs Committee that we were not winning the war against cybercrime. Every month there are 600,000 cyber-attacks against British companies, and we need a 21st-century response to this 21st-century crime. Will the Minister seek an urgent meeting with the Home Secretary to see whether more of the cyber-budget could be put into policing, and will he consider what can be done to advise and assist British companies that lose £34 billion every year to cybercrime? Many attacks are launched from the territories of EU partners, and this is an international crime. The Government should be commended for putting in the money, but we must do more through Europol, in conjunction with other countries.
Mr Vaizey
Given that the right hon. Gentleman has been gracious enough to commend the Government for investing money in this area, let me meet him half way. Of course Ministers meet across Departments—a number of Departments have relevant interests in this area—and we will always consider what more can be done. I will certainly take the right hon. Gentleman’s advice and ensure that Ministers meet across Departments to consider how we can co-ordinate our action more effectively.
Andrew Stephenson (Pendle) (Con)
I welcome what the Minister has said because it underlines the importance of cyber-security skills to our whole economy. Will he join me in congratulating Training 2000, which is currently establishing an institute of cyber-security in my constituency? That will provide cyber-security apprenticeships, along with a range of other courses for small and medium-sized businesses in my area.
Joan Ryan (Enfield North) (Lab)
No doubt the Minister is aware that many companies have decided to rethink their data protection strategies in the light of some of the more publicised cases of cybercrime, yet according to recent surveys, some 24% of companies are not doing that. The Government need to take more action to persuade companies to act. Perhaps the Minister will also think about reviewing the legislation on these matters, which is no longer fit for purpose.
Mr Vaizey
This is not a case of the Government simply issuing a strategy and forgetting about it: we constantly engage with businesses, trade associations and professional services that can do a huge amount to advise their clients. However, I will take the right hon. Lady’s question in the spirit in which it was asked, because we can—and should—constantly engage with businesses on this issue. We will certainly consider any changes in legislation that she thinks necessary, and keep the issue under review.
Mr Peter Bone (Wellingborough) (Con)
The suggestion by the Chair of the Home Affairs Committee that most of these attacks come from the European Union means that I can blame the European Union for something more, although probably unfairly in this case. More seriously, constituents are getting calls and emails from companies that apparently need to talk to them because of the TalkTalk situation. Those companies say, “So that we know we are talking to the right person, can we have your address and date of birth?” What is the Minister’s advice to my constituents?
Mr Vaizey
This case has achieved a great deal of publicity, and common sense tells us that people will somehow try to scam off the back of it. My advice to my hon. Friend’s constituents is to put the phone down. If hon. Members have an issue with a constituent who feels that this matter is not being taken seriously, they are welcome to contact me.
Albert Owen (Ynys Môn) (Lab)
I was not clear from the Minister’s response to the Chair of the Home Affairs Committee whether the data that have been stolen from TalkTalk are raw or encrypted. There is a lot of concern about that. Is not part of the problem that all the information has to be provided online, and there is no opportunity for other forms of data—such as the old paper way—which were safer? Many people feel more secure providing smaller amounts of data but keeping copies.
Mr Vaizey
The hon. Gentleman makes an interesting point. We now live in a digital world and we will see more and more companies engaging with their customers on digital platforms. Indeed, it is important to stress that customers find this convenient. I am sure all of us in this House transact with many organisations digitally, so I am not sure we can go backwards in that respect. The challenge for the Government is to engage with business and to emphasise, as we have not been shy in doing, the importance of maintaining proper cyber-security.
Maggie Throup (Erewash) (Con)
With the apparently increasing frequency of cyber-attacks, and to reassure my constituents, will my hon. Friend say whether he agrees that businesses that handle sensitive personal data such as bank account details must now put in place comprehensive procedures to ensure that customers are informed immediately if their data may have been breached by cyber-attack?
Diana Johnson (Kingston upon Hull North) (Lab)
Has the Minister had any meetings with the Home Office to discuss the legislative changes that are required? Also, has he thought about using the draft communications Bill, which would seem to be an ideal vehicle for that and which I understand will come before the House later this month?
Wes Streeting (Ilford North) (Lab)
The Minister will be aware that there are discussions in the European Union about updating data protection legislation, so, first, what outcomes would he like for consumers and what chance is there of achieving them? Secondly, if anyone has lost out financially as a result of this data protection breach, would TalkTalk or the banks be liable for compensating those consumers?
Mr Vaizey
We have been working for many years on data protection regulation in the European Commission, and it is almost at the point of being completed. It has always been an important principle from the UK’s perspective that we put the consumer and the citizen at the centre of this. These are their data, and it is their right to own them and be sure about how they are used.
As far as compensation is concerned, as I said earlier, it will be a matter for the Information Commissioner’s office and TalkTalk to decide on any appropriate levels of compensation.
Andrew Gwynne (Denton and Reddish) (Lab)
Since the election, the number of people working for the Government data services has declined and the appointment of a chief data officer has still not been made. What impact is that having on the advice that Ministers receive from officials about data protection and the security of online digital services in government?
Mr Vaizey
I think the hon. Gentleman is referring to the Government Digital Service; and the Minister for the Cabinet Office, who is responsible for that service, has today made an important speech on its future. It is an extremely successful part of Government, and the hon. Gentleman can rest assured that the Government take the protection of citizens’ data on their own platforms extremely seriously.
Ms Gisela Stuart (Birmingham, Edgbaston) (Lab)
I had better start by declaring an interest: I am a customer of TalkTalk and have so far not been contacted by the company by email or phone, or in any other way. The title for the urgent question contains the words “consumer protection”. Have Ministers considered ways that consumers can assess whether the providers of any of these services have robust cyber-security mechanisms in place? At the moment, we are completely blindsided as consumers.
Mr Vaizey
The right hon. Lady makes a valid point. In many cases, businesses set out extremely detailed terms and conditions, but the idea that they are consumer-friendly is wide of the mark. If I can take, as it were, the spirit of her question, some kind of kitemark to denote companies that have robust cyber-security procedures in place would be something worth exploring.
Point of Order
Mr James Gray (North Wiltshire) (Con)
On a point of order, Mr Speaker. Moving from the latest in data protection to a more traditional format, may I ask your advice on a matter concerning the Administration Committee, on which I serve? I was, I have to admit, a few moments late for a meeting of the Committee on 12 October and was surprised to discover that a motion had been rushed through in the first few seconds of the meeting to change the means by which we record the Acts of Parliament from vellum, which has been used for 1,000 years or more, to paper. I immediately registered my opposition and said that I disagreed with that, but was very surprised to discover this morning when the report was published that the decision appears to have been unanimously supported by the Committee, including by me.
Mr Speaker, am I right in thinking that because the use of vellum was brought in by an order of the House, voted for on the Floor of the House, its removal would also require a vote of this House? If that is the case, would that be an opportunity for me both to register my dissent properly and to try to encourage hon. Members on both sides of the House to oppose what seems to me to be a disgraceful piece of heritage vandalism?
Mr Speaker
I am extremely grateful to the hon. Gentleman for his point of order and for his courtesy in giving me advance notice of it. It is of course based, as he has just advised us, on his experience of the Administration Committee, of which I can confirm he is himself a distinguished ornament.
I understand that the hon. Gentleman was not present for the decision to agree to the report, but came to the meeting very soon thereafter, expressed his dissent and indeed asked for it to be recorded. The formal minutes, as printed with the report, do—I think unintentionally, but I accept unsatisfactorily from his point of view—imply that he consented to the report. His dissent will, I understand, be recorded on the informal minutes. He has now put on the record—it should not be necessary to have to do so by a point of order, but it was in this case—his opposition to the substitution of archival paper for vellum.
I can confirm that for the recommendation—this is the key point—to be implemented, the matter would have to be brought to the Floor of the House, as it was in 1999. In such circumstances, he will very likely have the chance to address the House on the subject and, if need be, to press his opposition to a Division. Perhaps I can just say in this context, and I feel sure that the hon. Gentleman will be familiar with the Official Report, that the vote of 1 November 1999 will be fresh in the minds of some colleagues.
Now that the Liaison Committee is fully functioning, under the distinguished leadership of the right hon. Member for Chichester (Mr Tyrie), I gently suggest to the hon. Gentleman that he might raise with the Committee the case for any change in the practice of formal minuting in such cases.
The hon. Gentleman did not refer to a date on which a previous resolution was passed. I believe it was in 1849, but there is no doubt that whatever the precise date it was in the long-distant past and a considerable period away from the 21st century that he and I now inhabit. I will leave the matter there for today, but knowing the hon. Gentleman and his perspicacity, he will require no further incentive to proceed with the matter as he thinks fit.
Finance Bill (Ways and Means) (Payment of Corporation Tax)
Resolved,
That provision may be made in connection with the payment of corporation tax.—(Mr Gauke.)
Finance Bill (Ways and Means) (Restitution Interest Payments)
Resolved,
That–
(1) The Corporation Tax Act 2010 is amended as follows.
(2) In section 1 (overview of Act), in subsection (3), after paragraph (ac) insert–“(ad) restitution interest (see Part 8C),”.
(3) After Part 8B insert–
“PART 8C
RESTITUTION INTEREST
CHAPTER 1
AMOUNTS TAXED AS RESTITUTION INTEREST
357YA Charge to corporation tax on restitution interest
The charge to corporation tax on income applies to restitution interest arising to a company.
357YB Restitution interest chargeable as income
(1) Profits arising to a company which consist of restitution interest are chargeable to tax as income under this Part (regardless of whether the profits are of an income or capital nature).
(2) In this Part references to “profits” are to be interpreted in accordance with section 2(2) of CTA 2009.
357YC Meaning of “restitution interest”
(1) In this Part “restitution interest” means profits in relation to which Conditions A to C are met.
(2) Condition A is that the profits are interest paid or payable by the Commissioners in respect of a claim by the company for restitution with regard to either of the following matters (or alleged matters)–
(a) the payment of an amount to the Commissioners under a mistake of law relating to a taxation matter, or
(b) the unlawful collection by the Commissioners of an amount in respect of taxation.
(3) Condition B is that–
(a) a court has made a final determination that the Commissioners are liable to pay the interest, or
(b) the Commissioners and the company, have in final settlement of the claim, entered into an agreement under which the company is entitled to be paid, or is to retain, the interest.
(4) Condition C is that the interest determined to be due, or agreed upon, as mentioned in subsection (3) is not limited to simple interest at a statutory rate (see section 357YU).
(5) Subsection (4) does not prevent so much of an amount of interest determined to be due, or agreed upon, as represents or is calculated by reference to simple interest at a statutory rate from falling within the definition of “restitution interest”.
(6) For the purposes of subsection (2) it does not matter whether the interest is paid or payable–
(a) pursuant to a judgment or order of a court,
(b) as an interim payment in court proceedings,
(c) under an agreement to settle a claim, or
(d) in any other circumstances.
(7) For the purposes of this section–
(a) “interest” includes an amount equivalent to interest, and
(b) an amount paid or payable by the Commissioners as mentioned in subsection (2) is “equivalent to interest” so far as it is an amount determined by reference to the time value of money.
(8) For the purposes of this section a determination made by a court is “final” if the determination cannot be varied on appeal (whether because of the absence of any right of appeal, the expiry of a time limit for making an appeal without an appeal having been brought, the refusal of permission to appeal, the abandonment of an appeal or otherwise).
(9) Any power to grant permission to appeal out of time is to be disregarded for the purposes of subsection (8).
357YD Further provision about amounts included, or not included, in “restitution interest”
(1) Interest paid to a company is not restitution interest for the purposes of this Part if–
(a) Condition B was not met in relation to the interest until after the interest was paid, and
(b) the amount paid was limited to simple interest at a statutory rate
(2) Subsection (1) does not prevent so much of a relevant amount of interest determined to be due, agreed upon or otherwise paid as represents or is calculated by reference to simple interest at a statutory rate from falling within the definition of “restitution interest”.
(3) In subsection (2) “relevant amount of interest” means an amount of interest the whole of which was paid before Condition B was met in relation to it.
(4) Section 357YC(7) applies in relation to this section as in relation to section 357YC.
357YE Period in which amounts are to be brought into account
(1) The amounts to be brought into account as restitution interest for any period for the purposes of this Part are those that are recognised in determining the company’s profit or loss for the period in accordance with generally accepted accounting practice.
(2) If Condition A in section 357YC is met, in relation to any amount, after the end of the period for which the amount is to be brought into account as restitution interest in accordance with subsection (1), any necessary adjustments are to be made; and any time limits for the making of adjustments are to be disregarded for this purpose.
357YF Companies without GAAP-compliant accounts
(1) If a company–
(a) draws up accounts which are not GAAP-compliant accounts, or
(b) does not draw up accounts at all,
this Part applies as if GAAP-compliant accounts had been drawn up.
(2) Accordingly, references in this Part to amounts recognised for accounting purposes are references to amounts that would have been recognised if GAAP compliant accounts had been drawn up for the period of account in question and any relevant earlier period.
(3) For this purpose a period of account is relevant to a later period if the accounts for the later period rely to any extent on amounts derived from the earlier period.
(4) In this section “GAAP-compliant accounts” means accounts drawn up in accordance with generally accepted accounting practice.
357YG Restitution interest: appeals made out of time
(1) This section applies where–
(a) an amount of interest (“the interest”) arises to a company as restitution interest for the purposes of this Part,
(b) Condition B in section 357YC is met in relation to the interest as a result of the making by a court of a final determination as mentioned in subsection (3)(a) of that section,
(c) on a late appeal (or a further appeal subsequent to such an appeal) a court reverses that determination, or varies it so as to negative it, and
(d) the determination reversing or varying the determination by virtue of which Condition B was met is itself a final determination.
(2) This Part has effect as if the interest had never been restitution interest.
(3) If–
(a) the Commissioners for Her Majesty’s Revenue and Customs have under section 357YO(2) deducted a sum representing corporation tax from the interest, or
(b) a sum has been paid as corporation tax in respect of the interest under section 357YQ,
that sum is treated for all purposes as if it had never been paid to, or deducted or held by, the Commissioners as or in respect of corporation tax.
(4) Any adjustments are to be made that are necessary in accordance with this section; and any time limits applying to the making of adjustments are to be ignored.
(5) In this section–
“final determination” has the same meaning as in section 357YC;
“late appeal” means an appeal which is made by reason of a court giving leave to appeal out of time.
357YH Countering effect of avoidance arrangements
Any restitution-related tax advantages that would (in the absence of this section) arise from relevant avoidance arrangements are to be counteracted by the making of such adjustments as are just and reasonable in relation to amounts to be brought into account for the purposes of this Part.
(2) Any adjustments required to be made under this section (whether or not by an officer of Revenue and Customs) may be made by way of an assessment, the modification of an assessment, amendment or otherwise.
(3) For the meaning of “relevant avoidance arrangements” and “restitution-related tax advantage” see section 357YI.
357YI Interpretation of section 357YH
(1) This section applies for the interpretation of section 357YH (and this section).
(2) “Arrangements” include any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable).
(3) Arrangements are “relevant avoidance arrangements” if their main purpose, or one of their main purposes, is to enable a company to obtain a tax advantage in relation to the application of the charge to tax at the restitution payments rate.
(4) But arrangements are not “relevant avoidance arrangements” if the obtaining of any tax advantages that would (in the absence of section 357YH) arise from them can reasonably be regarded as consistent with wholly commercial arrangements.
(5) “Tax advantage” includes–
(a) a repayment of tax or increased repayment of tax,
(b) the avoidance or reduction of a charge to tax or an assessment to tax,
(c) the avoidance of a possible assessment to tax,
(d) deferral of a payment of tax or advancement of a repayment of tax, or
(e) the avoidance of an obligation to deduct or account for tax.
(6) In subsection (5)(b) and (c) the references to avoidance or reduction include an avoidance or reduction effected by receipts accruing in such a way that the recipient does not bear tax on them as restitution interest under this Part.
357YJ Examples of results that may indicate exclusion not applicable
Each of the following is an example of something which might indicate that arrangements whose main purpose, or one of whose main purposes, is to enable a company to obtain a restitution-related tax advantage are not excluded by section 357YI(4) from being “relevant avoidance arrangements” for the purposes of section 357YH–
(a) the elimination or reduction for the purposes of this Part of amounts chargeable as restitution interest arising to the company in connection with a particular claim, if for economic purposes other or greater profits arise to the company in connection with the claim;
(b) preventing or delaying the recognition as an item of profit or loss of an amount that would apart from the arrangements be recognised in the company’s accounts as an item of profit or loss, or be so recognised earlier;
(c) ensuring that a receipt is treated for accounting purposes in a way in which it would not have been treated in the absence of some other transaction forming part of the arrangements.
CHAPTER 2
APPLICATION OF RESTITUTION PAYMENTS RATE
357YK Corporation tax rate on restitution interest
(1) Corporation tax is charged on restitution interest at the restitution payments rate.
(2) The “restitution payments rate” is 45%.
357YL Exclusion of reliefs, set-offs etc
(1) Under subsection (3) of section 4 (amounts to which rates of corporation tax applied) the amounts to be added together to find a company’s “total profits” do not include amounts of restitution interest on which corporation tax is chargeable under this Part.
(2) No reliefs or set-offs may be given against so much of the corporation tax to which a company is liable for an accounting period as is equal to the amount of corporation tax chargeable on the company for the period at the restitution payments rate.
(3) In subsection (2) “reliefs and set-offs” includes, but is not restricted to, those listed in the second step of paragraph 8(1) of Schedule 18 to FA 1998.
(4) Amounts of income tax or corporation tax, or any other amounts, which may be set off against a company’s overall liability to income tax and corporation tax for an accounting period may not be set off against so much of the corporation tax to which the company is liable for the period as is equal to the amount of corporation tax chargeable at the restitution payments rate.
CHAPTER 3
MIGRATION, TRANSFERS OF RIGHTS ETC
357YM Assignment of rights to person not chargeable to corporation tax
(1) Subsection (4) applies if–
(a) a company which is within the charge to corporation tax under this Part (“the transferor”) transfers to a person who is not within the charge to corporation tax under this Part a right in respect of a claim, or possible claim, for restitution,
(b) the transfer is made on or after 21 October 2015, and
(c) conditions A and B are met.
(2) Condition A is that the main purpose, or one of the main purposes, of the transfer is to secure a tax advantage for any person in relation to the application of the charge to tax on restitution interest under this Part.
(3) Condition B is that as a result of that transfer (or that transfer together with further transfers of the rights) restitution interest arises to a person who is not within the charge to corporation tax under this Part.
(4) Any restitution interest which arises as mentioned in Condition B is treated for corporation tax purposes as restitution interest arising to the transferor.
(5) A person is “within the charge to corporation tax under this Part” if the person–
(a) is a UK resident company, and
(b) would not be exempt from corporation tax on restitution interest (were such interest to arise to it).
(6) In this section “tax advantage” has the meaning given by section 357YI.
357YN Migration of company with claim to restitution interest
(1) This section applies where–
(a) restitution interest arises to a non-UK resident company,
(b) the rights in respect of which the company is entitled to the restitution interest had (to any extent) accrued when the company ceased to be UK resident, and
(c) the company’s main purpose, or one of its main purposes, in changing its residence was to secure a tax advantage for any person in relation to the application of the charge to tax on restitution interest under this Part.
(2) The company is treated as a UK resident company for the purposes of the application of this Part in relation to so much of that restitution interest as is attributable to relevant accrued rights.
(3) “Relevant accrued rights” means rights which had accrued to the company when it ceased to be UK resident.
(4) The company is to be treated for the purposes of sections 185 and 187 of TCGA 1992 as not having disposed of its assets on ceasing to be resident in the United Kingdom, so far as its assets at that time consisted of rights to receive restitution interest.
(5) Any adjustments that are necessary as a result of subsection (4) are to be made; and any time limits for the making of adjustments are to be ignored for this purpose.
CHAPTER 4
PAYMENT AND COLLECTION OF TAX ON RESTITUTION INTEREST
357YO Duty to deduct tax from payments of restitution interest
(1) Subsection (2) applies if the Commissioners for Her Majesty’s Revenue and Customs pay an amount of interest in relation to which Conditions 1 and 2 are met and–
(a) the amount is (when the payment is made) restitution interest on which a company is chargeable to corporation tax under this Part, or
(b) a company would be chargeable to corporation tax under this Part on the interest paid if it were (at that time) restitution interest.
(2) The Commissioners must, on making the payment–
(a) deduct from it a sum representing corporation tax on the amount at the restitution payments rate, and
(b) give the company a written notice stating the amount of the gross payment and the amount deducted from it.
(3) Condition 1 is that the Commissioners are liable to pay, or have agreed or determined to pay, the interest in respect of a company’s claim for restitution with regard to–
(a) the payment of an amount to the Commissioners under a mistake of law relating to a taxation matter, or
(b) the unlawful collection by the Commissioners of an amount in respect of taxation.
(4) Condition 2 is that the interest is not limited to simple interest at a statutory rate. In determining whether or not this condition is met, all amounts which the Commissioners are liable to pay, or have agreed or determined to pay in respect of the claim are to be considered together.
(5) For the purposes of Condition 1 it does not matter whether the Commissioners are liable to pay, or (as the case may be) have agreed or determined to pay, the interest–
(a) pursuant to a judgment or order of a court,
(b) as an interim payment in court proceedings,
(c) under an agreement to settle a claim, or
(d) in any other circumstances.
(6) For the purposes of subsection (2) the restitution payments rate is to be applied to the gross payment, that is to the payment before deduction of a sum representing corporation tax in accordance with this section.
(7) For the purposes of this section–
(a) “interest” includes an amount equivalent to interest, and
(b) an amount which the Commissioners pay as mentioned in subsection (1) is “equivalent to interest” so far as it is an amount determined by reference to the time value of money.
357YP Treatment of amounts deducted under section 357YO
(1) An amount deducted from an interest payment in accordance with section 357YO(2) is treated for all purposes as paid by the company mentioned in section 357YO(1) on account of the company’s liability, or potential liability, to corporation tax charged on the interest payment, as restitution interest, under this Part.
(2) Subsections (3) and (4) apply if–
(a) the Commissioners have, on paying an amount which is not (when the payment is made) restitution interest, made a deduction under section 357YO(2) from the gross payment (see section 357YO(6)), and
(b) a company becomes liable to repay the net amount to the Commissioners, or it otherwise becomes clear that the gross amount cannot, or will not, become restitution interest.
(3) If the condition in subsection (2)(b) is met in circumstances where the company is not liable to repay the net amount to the Commissioners, the Commissioners must–
(a) repay to the company the amount treated under subsection (1) as paid by the company, and
(b) make any other necessary adjustments;
and any time limits applying to the making of adjustments are to be ignored.
(4) If the condition in subsection (2)(b) is met by virtue of a company becoming liable to repay to the Commissioners the amount paid as mentioned in subsection (2)(a)–
(a) this Part has effect as if the company were liable to repay the gross payment to the Commissioners, and
(b) the amount deducted by the Commissioners as mentioned in subsection (2)(b) is to be treated for the purposes of this Part as money repaid by the company in partial satisfaction of its liability to repay the gross amount.
(5) Subsections (3) and (4) have effect with the appropriate modifications if the condition in subsection (2)(b) is met in relation to part but not the whole of the gross amount mentioned in subsection (2)(a).
(6) In this section “the net amount”, in relation to a payment made under deduction of tax in accordance with section 357YO(2), means the amount paid after deduction of tax.
357YQ Assessment of tax chargeable on restitution interest
(1) An officer of Revenue and Customs may make an assessment of the amounts in which, in the officer’s opinion, a company is chargeable to corporation tax under this Part for a period specified in the assessment.
(2) Notice of an assessment under this section must be served on the company, stating the date on which the assessment is issued.
(3) An assessment may include an assessment of the amount of restitution income arising to the company in the period and any other matters relevant to the calculation of the amounts in which the company is chargeable to corporation tax under this Part for the period.
(4) Notice of an assessment under this section may be accompanied by notice of any determination by an officer of Revenue and Customs relating to the dates on which amounts of tax become due and payable under this section or to amounts treated under section 357YP as paid on account of corporation tax.
(5) The company must pay the amount assessed as payable for the accounting period by the end of the period of 30 days beginning with the date on which the company is given notice of the assessment.
357YR Interest on excessive amounts withheld
(1) If an amount deducted under section 357YO(2) in respect of an amount of interest exceeds the amount which should have been deducted, the Commissioners are liable to pay interest on the excess from the material date until the date on which the excess is repaid.
(2) The “material date” is the date on which tax was deducted from the interest.
(3) Interest under subsection (1) is to be paid at the rate applicable under section 178 of FA 1989.
357YS Appeal against deduction
(1) An appeal may be brought against the deduction by the Commissioners for Her Majesty’s Revenue and Customs from a payment of a sum representing corporation tax in compliance, or purported compliance, with section 357YO(2).
(2) Notice of appeal must be given–
(a) in writing,
(b) within 30 days after the giving of the notice under section 357YO(2).
357YT Amounts taxed at restitution payments rate to be outside instalment payments regime
For the purposes of regulations under section 59E of TMA 1970 (further provision as to when corporation tax due and payable), tax charged at the restitution payments rate is to be disregarded in determining the amount of corporation tax payable by a company for an accounting period.
CHAPTER 5
SUPPLEMENTARY PROVISIONS
357YU Interpretation
(1) In this Part “court” includes a tribunal.
(2) In this Part “statutory rate” (in relation to interest) means a rate which is equal to a rate specified–
(a) for purposes relating to taxation, and
(b) in, or in a provision made under, an Act.
357YV Relationship of Part with other corporation tax provisions
(1) So far as restitution interest is charged to corporation tax under this Part it is not chargeable to corporation tax under any other provision.
(2) This Part has effect regardless of section 464(1) of CTA 2009 (priority of loan relationship provisions).
357YW Power to amend
(1) The Treasury may by regulations amend this Part (apart from this section).
(2) Regulations under this section–
(a) may not widen the description of the type of payments that are chargeable to corporation tax under this Part;
(b) may not remove or prejudice any right of appeal;
(c) may not increase the rate at which tax is charged on restitution interest under this Part;
(d) may not enable any provision of this Part to have effect in relation to the subject matter of any claim which has been finally determined before 21 October 2015.
(3) Subject to subsection (2), regulations under this section may have retrospective effect.
(4) For the purposes of this section a claim is “finally determined” if a court has disposed of the claim by a final determination or the claimant and the Commissioners for Her Majesty’s Revenue and Customs have entered into an agreement in final settlement of the claim.
(5) Section 357YC(8) (which defines when a determination made by a court is final) has effect for the purposes of this section as for the purposes of section 357YC.
(6) Regulations under this section may include incidental, supplementary or transitional provision.
(7) A statutory instrument containing regulations under this section must be laid before the House of Commons.
(8) The regulations cease to have effect at the end of the period of 28 days beginning with the day on which they are made unless, during that period, the regulations are approved by a resolution of the House of Commons.
(9) In reckoning the 28-day period, no account is to be taken of any time during which–
(a) Parliament is dissolved or prorogued, or
(b) the House of Commons is adjourned for more than 4 days.
(10) Regulations ceasing to have effect by virtue of subsection (8) does not affect–
(a) anything previously done under the regulations, or
(b) the making of new regulations.”
(4) In the Taxes Management Act 1970, in section 59D (general rule as to when
corporation tax is due and payable)–
(a) in subsection (3) after “with” insert “the first to fourth steps of”;
(b) in subsection (5) after “59E” insert “and section 357YQ of CTA 2010 (assessment of tax chargeable on restitution interest)”.
(5) Paragraph 8 Schedule 18 to the Finance Act 1998 (company tax returns, assessments etc: calculation of tax payable) is amended as follows–
(a) in paragraph 2 of the first step, after “company” insert “(other than the restitution payments rate)”;
(b) After the fourth step insert–
“Fifth step
Calculate the corporation tax chargeable on any profits of the company that are charged as restitution interest.
1. Find the amount in respect of which the company is chargeable for the period under the charge to corporation tax on income under Part 8C of CTA 2010.
2. Apply the restitution payments rate in accordance with section 357YK(1) of that Act.
The amount of tax payable for the accounting period is the sum of the amounts resulting from the first to fourth steps and this step.”
(6) Schedule 56 to the Finance Act 2009 (penalty for failure to make payments on time) is amended in accordance with paragraphs (7) and (8).
(7) In paragraph 1, in the table after item 6 insert–
“6ZZA | Corporation tax | Amount payable under section 357YQ of CTA 2010 | The end of the period within which, in accordance with section 357YQ(5), the amount must be paid” |
(8) In paragraph 4(1), for “or 6” substitute “, 6 or 6ZZA”.
(9) The amendments made by paragraphs (1) to (8) have effect in relation to interest (whether arising before or on or after 21 October 2015) which falls within paragraph (11).
(10) Section 357YO of the Corporation Tax Act 2010, and the amendments made by subsections (1) to (8) so far as relating to the deduction of tax under section 357YO, have effect in relation to payments of interest made on or after 26 October 2015. This rule is not limited by the rule in paragraph (9).
(11) Interest arising to a company falls within this paragraph if–
(a) a determination made by a court that the Commissioners for Her Majesty’s Revenue and Customs are liable to pay the interest becomes final on or after 21 October 2015, or
(b) on or after 21 October 2015 the Commissioners and a company enter into an agreement in final settlement of a claim for restitution, under which the company is entitled to be paid, or to retain, the interest.
(12) In paragraphs (9) to (11)–
(a) the reference to a determination made by a court becoming “final” is to be interpreted in accordance with section 357YC of the Corporation Tax Act 2010;
(b) the references to “interest” are to be interpreted in accordance with section 357YC of the Corporation Tax Act 2010.
And it is declared that it is expedient in the public interest that this Resolution should have statutory effect under the provisions of the Provisional Collection of Taxes Act 1968.—(Mr Gauke.)
Finance Bill Programme (No.2) Motion
Ordered,
That the following provisions shall apply to the Finance Bill for the purpose of supplementing the Order of 21 July 2015 (Finance Bill (Programme)):
(1) Paragraphs (10) and (11) of the Order shall be omitted.
(2) Proceedings on Consideration shall be taken in the order shown in the first column of the following Table.
(3) The proceedings shall (so far as not previously concluded) be brought to a conclusion at the times specified in the second column of the Table on the day on which proceedings on Consideration are commenced.
Proceedings | Time for conclusion of proceedings |
|---|---|
New Clauses standing in the name of a Minister of the Crown | 6.30 pm |
Amendments relating to vehicle excise duty | |
New Clauses and amendments relating to inheritance tax | 9.00 pm |
Remaining new Clauses | |
Remaining proceedings on Consideration |
(4) Proceedings on Third Reading shall (so far as not previously concluded) be brought to a conclusion at the moment of interruption on the day on which proceedings on Consideration are commenced.—(Mr Gauke.)
Finance Bill
(9 years ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
17:48 - The House divided: - Ayes: 255 / Noes: 308 - Question accordingly negatived.
20:59 - The House divided: - Ayes: 278 / Noes: 318 - Question accordingly negatived.
21:13 - The House divided: - Ayes: 277 / Noes: 317 - Question accordingly negatived.
21:26 - The House divided: - Ayes: 287 / Noes: 305 - Question accordingly negatived.
22:00 - The House divided: - Ayes: 316 / Noes: 278 - Question accordingly agreed to.
The Financial Secretary to the Treasury (Mr David Gauke)
I beg to move, That the clause be read a Second time.
Mr Speaker
With this it will be convenient to discuss the following:
Government new clauses 5, 6 and 8.
Amendment 91, page 57, in clause 42, leave out lines 26 and 27.
Amendment 92, page 57, leave out lines 30 to 41.
Amendment 93, page 58, leave out from beginning of line 1 to end of line 37 on page 60 and insert—
“Graduated rates of duty payable on first vehicle licence
For the purpose of determining the rate at which vehicle excise duty is to be paid on each of the first three years of vehicle licence for a vehicle to which this Part of this Schedule applies, the annual rate of duty applicable to the vehicle shall be determined in accordance with the following table by reference to the applicable CO2 emissions figure.
Carbon Dioxide emissions | Rate | |||
|---|---|---|---|---|
(1) Exceeding g/km | (2) Not exceeding g/km | (3) First full year (£) | (4) Second full year (£) | (5) Third full year |
0 | 0 | 0 | 0 | 0 |
0 | 50 | 10 | 10 | 10 |
50 | 75 | 25 | 25 | 25 |
75 | 90 | 100 | 100 | 100 |
90 | 100 | 120 | 120 | 120 |
100 | 110 | 140 | 140 | 140 |
110 | 130 | 160 | 160 | 160 |
130 | 150 | 200 | 200 | 200 |
150 | 170 | 500 | 500 | 500 |
170 | 190 | 800 | 800 | 800 |
190 | 225 | 1,200 | 1,200 | 1,200 |
225 | 255 | 1,700 | 1,700 | 1,700 |
255 | - | 2,000 | 2,000 | 2,000 |
Rates of duty payable on any other vehicle licence
1GD For the purpose of determining the rate at which vehicle excise duty is to be paid on any other vehicle licence for a vehicle to which this Part of this Schedule applies, the annual rate of vehicle excise applicable to the vehicle shall be determined in accordance with the following table by reference to the applicable CO2 emissions figure.
Carbon Dioxide emissions | Rate | |
|---|---|---|
(1) Exceeding g/km | (2) Not exceeding g/km | (3) Standard rate (£) |
0 | 0 | 20 |
0 | 50 | 40 |
50 | 75 | 60 |
75 | 90 | 80 |
90 | 100 | 100 |
100 | 110 | 120 |
110 | 130 | 140 |
130 | 150 | 160 |
150 | 170 | 180 |
170 | 190 | 200 |
190 | 225 | 220 |
225 | 255 | 240 |
255 | - | 260” |
New clause 3—Tax treatment of private equity fund managers’ pay—
‘(1) The Chancellor of the Exchequer shall, within six months of the passing of this Act, publish and lay before the House of Commons a report setting out proposals for amending the law to ensure that no element of the remuneration paid to an investment fund manager may be treated as a capital gain, and that such remuneration shall be treated for tax purposes wholly as income.
(2) For the purposes of this section, an “investment fund manager” is a person who performs investment management services directly or indirectly.”
Government amendments 71 to 88 and 31 to 70.
Mr Gauke
I would like to open the debate by discussing amendments 31 to 70. As announced in the Public Bill Committee, the Government are introducing amendments to clauses 25 and 26 and schedules 5 and 6 to ensure that the Bill works as intended and that the new rules work correctly with the existing provisions.
I remind the House that the original clauses and schedules make changes to the rules for the enterprise investment scheme and venture capital trusts to bring them into line with new state aid rules. This will secure the future of the schemes and ensure they continue to be well targeted towards companies that need investment to develop and grow. The enterprise investment and venture capital schemes have been supporting small companies to access finance for more than 20 years and provide generous tax incentives to encourage private individuals to invest in high-risk small and growing companies that would otherwise struggle to access finance from the market. The original clauses and subsequent amendments ensure the long-term future of these important schemes.
Alongside the amendments, the Government are also introducing new clause 4, which makes changes to exclude companies from qualifying for the seed enterprise and investment scheme, the enterprise investment scheme and the venture capital trust, if their activities involve making available reserve electricity generating capacity—for example, under the capacity market agreement or the short-term operating reserve contract. In recent years, there has been a significant increase in tax-advantaged investment in energy companies benefiting from other guaranteed income streams. These activities are also generally asset-backed. The new clause will ensure that the Government remain consistent in their approach by keeping the venture capital schemes targeted at high-risk companies. We will also introduce secondary legislation to exclude subsidised renewable energy generation by community energy organisations.
Jesse Norman (Hereford and South Herefordshire) (Con)
The Minister will be aware that the very late tabling of new clause 4 might have disconcerted and inconvenienced companies. Among those it has unsettled is one in my constituency which was on the point of closing a funding arrangement that would have given it access to capital of about £25 million to £40 million. Given that the concern the new clause appears to address is focused on state aid or subsidy, particularly capacity market agreements, will he confirm that it is not intended to apply to businesses that do not use capacity market agreements, such as the one I have described?
Mr Gauke
I am grateful to my hon. Friend for letting me know earlier today about his constituency case. It is difficult to be drawn too much on an individual case, although I understand why he has raised it, and I can assure him that the representation he made to me earlier today on behalf of his constituent is being looked at closely. He has obviously put his concerns on the record, but all I can say now is that there is a clear objective behind new clause 4. It is about ensuring that the provisions are state aid compliant and that the regime is well targeted. I hope he will be reassured that I and my officials will look closely at his case, but if he will forgive me, I will not get too drawn into the specific circumstances he outlines.
Jesse Norman
I am extremely grateful to the Minister for those assurances. Am I right in thinking that there will be scope within regulation to allow the kind of carve-out that might be necessary if his investigations uphold, as it were, the position that I am taking?
Mr Gauke
My hon. Friend draws me more into the specifics, but I hope he will be satisfied if I ask him to let me look at the particular circumstances that his constituent has raised. In that context, before we get into process matters, he should let me look at those particular circumstances. There are good reasons why we are bringing forward new clause 4, which is consistent with our general approach to ensure that the schemes are properly targeted.
As I mentioned, we shall introduce secondary legislation to exclude subsidised renewable energy generation by community energy organisations. This follows the announcement in the summer Budget that the Government would continue to monitor the use of the venture capital schemes by community energy to ensure that the schemes were not subject to misuse and that they provided value for money to the taxpayer. All these changes on energy activities will take effect for investments made on or after 30 November. The Government intend to apply all these exclusions to the social investment tax relief when SITR is enlarged.
New clause 5 corrects a technical defect in the legislation relating to corporation tax instalment payments. Instalment payments are currently made by large companies—that is, companies with profits that exceed £1.5 million. The definition of “large” was previously included in primary legislation, which has since been repealed when corporation tax rates were unified from 1 April 2015, at which point the definition moved to secondary legislation. Following that, there is a mismatch between the cessation of the repealed legislation and the commencement of the new definition, which could be interpreted to mean that corporation tax payments would be due nine months and a day after the accounting period. There is no evidence of companies having acted on the defect, and corporation tax receipts are, happily, above forecast. The changes proposed in new clause 5 correct this uncertainty to ensure that the definition of “large” will apply for accounting periods that span 1 April 2015, so that corporation tax instalment legislation will apply.
New clause 8 addresses an unfairness whereby in certain claims for repayment of tax and restitution through interest payments, taxpayers might receive a significant additional benefit at the expense of the public purse. The vast majority of interest payments that are paid by Her Majesty’s Revenue and Customs are made under the relevant Taxes Act. These will continue to be subject to the normal rate of corporation tax. However, the interest payments targeted by this clause arise from claims made under common law, which stretch over a large number of years—in some cases, going back to 1973—and represent a unique set of circumstances.
As it stands under current law, any payments will be taxed at the low corporation tax rate that applies at the time the payments are due to be made. Since the interest payments targeted by the clause have accrued over years when the rate of corporation tax was much higher than companies currently enjoy, those making the claims receive a significant financial benefit. In addition, such payments may have to be calculated on a compound basis, further improving the advantage gained at the expense of the public purse.
Mark Field (Cities of London and Westminster) (Con)
While I support the robust way in which the Minister is protecting the public purse, he will also recognise, not least from the correspondence he must have received, that many colleagues and constituents feel that this fairness deal does not apply both ways. At times when individuals have owed the Exchequer rather more money, they have had interest charged at very high levels. Will my hon. Friend try to ensure that what is good for the geese is also good for the gander in respect of these matters? I entirely understand that he wants an equitable arrangement, but there is a sense from many taxpayers and indeed their financial advisers that all too often the Revenue does not see it in quite the same light when they are on the other side of the equation.
Mr Gauke
I can tell my right hon. Friend, who is a tireless defender of the interests of the taxpayer, that the measure is targeted at very specific circumstances in which compound interest may have to be paid in relation to claims which, as I have said, potentially date back to 1973. I hope I can reassure him that we do not believe the same approach should be applied in every case.
As I have said, such payments may have to be calculated on a compound basis, which would increase the advantage gained at the expense of the public purse. To address that unfairness, the Government are ensuring that an appropriate amount of tax, set at a rate of 45% , is paid on any such awards. That rate reflects the long period over which any such interest accrued, the higher rate of corporation tax which applied during the period, and the compounding nature of such potential awards. It is a special rate which applies in special circumstances. We are also introducing a withholding tax on those payments to provide for the easiest method of paying and collecting the tax that is due.
The changes will affect only a relatively small number of companies which have claims related to historical issues. They will affect fewer than 0.5% of companies making corporation tax returns. This is a prudent step to ensure that if any such payments have to be made, they are subject to a fair rate of tax. HMRC will continue to challenge all aspects of the claims on the basis of strong legal arguments.
New clause 8 will ensure that a principled and targeted system is in place to address a potential unfairness whereby a few businesses receive significant benefits resulting from the unique nature of this litigation at the expense of the public purse.
New clause 6 and amendments 71 to 88 relate to clauses 40 and 41. Let me begin with a brief reminder of the provisions in those clauses. Investment fund managers are rewarded for their work in a range of ways, one of which is known as carried interest. It is the portion of a fund’s value that is allocated to managers in return for their long-term services to the fund. The manager’s reward therefore depends on the performance of the fund. Aspects of the UK tax code meant it was possible for asset managers to reduce the effective tax rate payable by them on their carried interest awards. In particular, it was possible for them to pay tax on amounts much lower than their actual economic gains. The changes made by clauses 40 and 41 ensure that investment managers will pay at least 28% tax on the economic value of the carried interest that they receive.
Amendments 71 to 88 make a series of technical changes in relation to carried interest to ensure that it operates as intended. New clause 6 is an addition to the provisions dealing with the tax treatment of carried interest and the related measures on disguised investment management fees. It establishes a comprehensive definition when sums arise for tax purposes under these rules.
Mark Field
Will the Minister give us an indication of the amount of consultation that has taken place on these changes, which, obviously, have been introduced since the publication of the Finance (No. 2) Act 2015? While I entirely appreciate that he rightly wants to ensure that the Exchequer receives the correct amount of money, and while I also appreciate that there is clearly a potential for carried interest payments to be at least—shall we say—uncertain, is he entirely satisfied that there has been sufficient consultation to ensure that those who will be affected by the changes have had an opportunity to put their case?
Mr Gauke
It certainly is the case that there has been no shortage of representations received by the Treasury on the changes we have undertaken in this area. As always, it is necessary to strike a balance between ensuring we move swiftly to address any risk to the Exchequer and ensuring the legislation is adequate and achieves what the Government seek. I am satisfied that in these circumstances we have struck that balance successfully, and that there has been the opportunity to understand the implications of this legislation while at the same time ensuring we have been able to protect the Exchequer.
While I am on my feet, and perhaps to anticipate some of the points that will be made on this somewhat diverse group, I shall address the related matter of new clause 3 tabled by Scottish National party Members. It proposes a review within six months of Royal Assent on the tax treatment of investment fund managers’ remuneration. Legislating for a review in six months is unnecessary. The Government have already launched a consultation in this area to ensure rewards will be charged to income tax when it is correct they are, according to the activity of the fund. That consultation closed on 30 September and we will be publishing our response along with any resulting draft legislation in due course.
In anticipation of remarks I know we will hear from the hon. Member for Salford and Eccles (Rebecca Long Bailey) about vehicle excise duty, let me also turn to amendments 91 to 93. They would require the Chancellor to replace the changes made by clause 42 and introduce a new VED system that addressed none of the challenges of the current VED system. The amendments call for first year rates of VED to be extended to cover the first three years of ownership and thereafter for rates to be based on a shallower graduation of CO2. By continuing to base annual rates of VED on CO2, these amendments would recreate the sustainability challenge of the existing VED system. As new cars become more fuel efficient, more and more ordinary cars will fall into the lower rate of VED bands for their entire lifetime. The changes would also weaken incentives for people to purchase the very cleanest cars. The system Opposition Members propose would therefore need updating regularly to keep pace with technological change. Unless Opposition Members are proposing to retrospectively tax motorists every time the system needs tweaking, an entirely new VED system would need to be created each time. This would create uncertainty for motorists and car manufacturers, something they have repeatedly asked the Government to avoid. These amendments would also mean the VED system remains regressive and unfair for motorists. Poorer families with older, less fuel-efficient cars would still end up paying more tax than richer ones who were able to buy a new car every few years.
In contrast to amendments 91 to 93, the changes made by clause 42 do address the fairness and sustainability problems of the current VED system. These changes base annual rates of VED on a flat rate of £140 for all cars except zero-emission cars, which pay nothing. There will be a standard rate supplement of £310 for cars worth above £40,000 to apply for the first five years in which the standard rate is paid. These changes improve fairness for all motorists and ensure that those with expensive cars pay more than those with ordinary family cars. Those who can pay more will pay more.
They also provide long-term certainty in VED revenues. This supports the creation of the new roads fund so that from 2020 all revenue raised from VED in England will go into the fund. It will be invested directly back into the English strategic road network. The changes made by clause 42 still support uptake of the cleanest cars. They maintain and strengthen the environmental signal where it is most effective in influencing people’s choice of car in the highly visible first-year rates.
By returning VED to a flat rate while continuing to support the cleanest cars, clause 42 provides a simple, fairer, more certain and more sustainable long-term solution. It allows for the creation of a new roads fund which will ensure that our roads network will receive the multi-billion programme of investment it needs. I commend clause 42 and urge the house to reject amendments 91 to 93.
Jonathan Edwards (Carmarthen East and Dinefwr) (PC)
How will the roads fund work when applied to Wales, Scotland and Northern Ireland, with the duty coming from Welsh, Scottish and Northern Irish car taxes?
Mr Gauke
I can assure the hon. Gentleman that the Government are talking to the devolved Administrations about exactly how we are going to do that. We are conscious that these are devolved matters, and we are actively engaged with the devolved Administrations.
I hope that the new clauses and amendments to which I referred earlier in the context of the enterprise investment scheme, venture capital trusts, corporation tax instalment payments and restitution interest payments will be able to stand part of the Bill and have the support of the whole House.
Rebecca Long Bailey (Salford and Eccles) (Lab)
It is an honour for me to speak from the Dispatch Box for the first time under your chairmanship, Madam Deputy Speaker, and I hope that this will be the first of many debates in the Chamber with the Financial Secretary to the Treasury.
I shall first speak to the Government’s amendments and new clauses, before speaking to our amendments on vehicle excise duty. On the whole, the Government’s amendments are technical in nature, designed to preserve the integrity of the Bill, to comply with EU law and to close loopholes. On that basis, we broadly support them, but I will make a few comments.
The explanatory notes and impact assessments relating to the measures were only provided by the Government at 11.50 this morning. Given the detailed nature of the proposed changes, that simply does not allow sufficient time for scrutiny. The hon. Member for Hereford and South Herefordshire (Jesse Norman) has already made that point, and KPMG has also voiced its concern, stating:
“It is important…that the Government is seen to follow the process consistently, and provide suitable time for consultation and Parliamentary scrutiny wherever possible: the addition of entirely new measures to the Summer Finance Bill so late in its passage through the Commons…is likely to foster only uncertainty.”
I hope that the Minister will take these concerns into account and ensure that this does not happen again.
New clause 4 will exclude certain contractual activities relating to reserve electricity generating capacity from the scope of venture capital trusts. These proposals are required to comply with EU state aid rules, along with amendments 31 to 45 and 46 to 70. New clause 5 relates to corporation tax instalment payments and corrects a legislative defect that has previously caused uncertainty over how the legislation will apply to accounting periods that run over 1 April 2015.
New clause 6 relates to carried interest and disguised investment management fees. These are technical corrections to clause 40 that are meant to ensure that where carried interest is charged to tax under the capital gains tax code, the full economic gain is brought into charge to tax. This new clause is intended to prevent sums arising to a fund manager as investment management fees or carried interest from being sheltered from tax through arrangements that have the effect that the amounts arise to other persons.
New clause 8 relates to restitution interest payments and introduces a new rate of corporation tax on amounts of restitution interest that may be paid by HMRC under a claim relating to the payment of tax on a mistake of law or the unlawful collection of tax. The interest element of a restitution award will be chargeable to corporation tax at a special rate of 45% instead of the normal 20% rate. We broadly support this measure, but the Minister will be aware of the hostile views that have been expressed by some businesses. He might wish to take this opportunity to respond to some of those views today.
New clause 3 requires the Chancellor to lay a report setting out proposals for amending the law to ensure that no element of the remuneration aid to an investment fund manager may be treated as a capital gain and that such remuneration shall be treated as income for tax purposes. We agree with the general aims of the new clause but we will listen carefully to what the Minister has to say on this issue.
The proposal dealing with vehicle excise duty relates to rates for light passenger vehicles in the UK and considerably flattens them out by introducing a flat-rate excise charge for every vehicle, regardless of carbon dioxide emissions, from 1 April 2017. First-year rates will continue to be determined by a sliding scale, depending on CO2 emissions. For most greener cars, which emit below 120g of CO2 per kilometre, people will now pay VED of up to £160 in the first year, whereas previously they paid nothing—only zero-emission cars will be liable for zero VED. In subsequent years, there will be a flat-rate of VED of £140 a year. Hon. Members will note that this will result in a substantial VED increase for low-emission cars in the first and subsequent years, while there is a substantial reduction for cars that are less carbon-efficient. Previously, VED for subsequent years was banded, with the more polluting cars paying more—up to £505.
Clearly, over time, the approach being taken strongly benefits more polluting cars, which will pay hundreds of pounds a year less, while greener cars, aside from those with zero emissions, will pay about £100 a year more. To put this into perspective, approximately 445 cars are currently in the top least polluting bands and so pay no VED, as they emit less than 100g of CO2 per kilometre, whereas under the proposed changes only 13 will fall into the exempt category. That represents a significant drop. In addition to those proposals, moves are also being made to additionally penalise vehicles priced at over £40,000 and, over time, there will also be a supplementary rate of £310 for the first five years.
A tax on passenger vehicles has been a feature of Government policy since as far back as 1889, but it is important to note that it was the Labour Government in 1999 who introduced bands of VED linked to the levels of CO2 emissions. The measure was designed to encourage the purchase and use of more fuel-efficient and low-emission vehicles, with the aim of lessening the environmental impact of an ever-increasing number of cars on the road. There is broad consensus on both sides of the House that VED reform is needed. Greener, more carbon-efficient vehicles are slowly becoming more commonplace across the UK, and this will undoubtedly have clear implications for VED as a future source of Government revenue. VED bands were set up in 2008, when the average emission was 158g of CO2 per kilometre, whereas the average car now produces 125g of CO2 per kilometre. Many cars therefore pay no VED at all.
Labour Members agree with the Government that this is unsustainable, but we question whether the approach they have taken to address it is pragmatic. We do not agree that increasing the duty paid on low-emission cars while decreasing the duty paid on higher-emission cars is the logical solution. The fact that zero-emission vehicles will continue to be exempt from road tax is welcome, but we are concerned that a flat rate of VED, as outlined in this proposal, will mean that low-emission vehicles will pay £800 to £1,000 more over a seven-year period than they do now, while many high-emission vehicles are expected to pay up to £440 less.
Mark Field
I congratulate the hon. Lady on her debut at the Dispatch Box, and I hope she will be looking across in precisely the same direction for many years to come. Will she give at least some thought to what was said by the Minister, in that there is a delicate balance to be struck here? We are trying not only to encourage people to have low-emission vehicles—this is not just about carbon dioxide, because nitrogen dioxide is increasingly seen as being a problem, although none of this legislation properly addresses that—but to ensure that relatively less well-off people who perhaps have to hang on to a car for many years should not be artificially penalised. Does she not recognise that the balance the Government have tried to put in place is at least a sensible one?
Rebecca Long Bailey
I welcome the right hon. Gentleman’s comments. He is certainly a silver-tongued fox, and I look forward to staring at him from these Benches in the months to come. He raises some important issues. Hopefully, I will address them during my speech.
Rebecca Long Bailey
I wish to make a little progress before I take any further interventions.
Let me cite an example to show the absurdity of the current proposals. Although I appreciate and agree that VED needs to be reformed as it is unsustainable in its present form, the current proposals create the obvious absurdity of a Mitsubishi Outlander plug-in hybrid owing as much VED as a BMW 5 series saloon from year 2. On top of that, many vehicles that harness the latest technological developments tend to be rather expensive and may be hit by the supplementary rates as well as by the higher flat rate. For instance, the Volvo V60 plug-in hybrid estate—a hybrid suitable for families—would have to pay a first-year rate of £320 and a supplementary rate of £450 for five years thereafter despite being at the forefront of low-emission technology.
Roger Mullin (Kirkcaldy and Cowdenbeath) (SNP)
I rise to support new clause 3, tabled in my name and those of my hon. Friends. I also welcome the hon. Member for Salford and Eccles (Rebecca Long Bailey) to the Front Bench. I was pleased to hear the Minister talk about his desire to see fairness in the tax system. We all welcome that.
If you will allow me, Madam Deputy Speaker, I want to start with a quote I used in Committee:
“I was shocked to see that some of the very wealthiest people in the country have organised their tax affairs, and to be fair it’s within the tax laws, so that they were regularly paying virtually no income tax. And I don’t think that’s right.”
Those were the words, of course, of the Chancellor of the Exchequer, speaking in April 2012. He was right then, but we need to do more about it now. I acknowledge that, as the Minister said, some progress is being made in the clauses proposed by the Government in the Bill, and I welcome that, but for us they are not nearly sufficient. Not enough is being done, so we have brought back this new clause on Report.
As I also noted in Committee, support for our argument comes from many quarters. Of particular interest to me is the fact that in May 2014 the OECD, not known for its radical tax positions, released a raft of recommendations to tackle rising income inequality in the OECD area. They included
“taxing as ordinary income all remuneration, including fringe benefits, carried interest arrangements, and stock options.”
Private equity fund managers shrink their tax bills by arranging to pay what will now be 28% capital gains tax rather than 45% income tax on their carried interest. Carried interest is in effect their remuneration for managing other people’s money and should therefore be taxed as income tax. Their ability to pay capital gains tax on what is properly income also allows fund managers to avoid paying any national insurance contributions on a major portion of their income. I note, however, that those who would be affected if we closed the so-called Mayfair loophole are, as a group, the highest donors to the Conservative party, which might be purely accidental.
I also note that not closing the loophole costs the Treasury between £250 million to £600 million annually. But this Government, through their moves on tax credits, seem more intent on hammering someone earning, say, £15,000 per annum than on asking someone earning £15,000 per week simply to pay their fair share. Stephen Feinberg, head of the private equity firm Cerberus Capital Management, said back in 2011:
“In general, I think that all of us are way overpaid in this business. It is almost embarrassing.”
[Interruption.] Yes, I was rather surprised that it was “almost embarrassing.” I would have thought it was thoroughly embarrassing.
The average European PE firm’s managing director can expect to receive around £8 million per annum in total personal compensation. The largest funds pay out some £15 million or more. Some very junior people can earn £1 million. These figures will be conservative for many in the London area, which has some of the highest paid equity fund managers. In Committee some Members implied that no other developed country was moving to close this loophole. This is not so.
Mark Field
Does the hon. Gentleman recognise that the concept of carried interest is integral to the way that private equity and venture capital industries operate? The Government have been pretty robust at trying to draw the distinction to which he refers, between capital and income, and any abusive schemes will be closed down. Carried interest is not a con. It is the very nature of the way in which venture capital funds operate in investing the funds they have for future projects.
Roger Mullin
I thank the right hon. Gentleman. I do not think I accused anyone of being engaged in a con. It is not a con; it is perfectly legal, as George Osborne himself recognised in 2012. The issue is that, despite the technicalities, the ordinary member of the public will look at this and say, “Is this fair, particularly at this time in the development of our economy?” I am primarily driven by what is fair to the wider public in our society.
Mark Field
I do not want to get involved in a philosophical debate about fairness or otherwise in relation to the tax system. The hon. Gentleman is making a perfectly logical argument and one that I have some sympathy with—that in the longer term we should try to move towards a system whereby capital gains and income gains are considered at similar rates. The fact that there is such a big disparity between those rates causes the imbalance.
Roger Mullin
I agree with much of what the right hon. Gentleman says, but I would go wider. Our whole tax system is incredibly and unnecessarily complicated. Why do we not begin to think about moving towards an alignment, say, of income tax and national insurance in the longer term? There are many areas where the over-complication serves nobody’s interests well. It does not serve the Exchequer or the wider public, so I have some sympathy with the right hon. Gentleman’s argument. I return to the point I was trying to make before his two excellent interventions.
In Committee some Members implied that no other country in the world was doing anything to close the loophole. My recent research shows that that is not the case. For example, the Netherlands has already tackled the issue more thoroughly than we have in the UK. France has moved—perhaps not as far as some in France would have liked at the time—further than the UK to address the problem, and in other countries, such as Sweden and even the United States, it is a growing element of the political debate.
Sammy Wilson
Is that not the most important point? Provided the tax change does not impact upon the ability of the financial market to do its job, it is right to bring tax rates into line and to close the loophole. If closing the loophole were somehow to distort the financial market or make the financial market work less efficiently, I could understand the argument from the right hon. Member for Cities of London and Westminster (Mark Field), but that is not the case. It does not seem to have had that impact in other countries, so why should it do so here?
Roger Mullin
I thank the hon. Gentleman for that intervention. I point out that, as I am sure he fully understands, this issue is not unique to the United Kingdom; it has international resonance. It has particular resonance with people who are relatively poor and suffering under austerity. As I said in Committee, my constituency manager—we all know how well paid our constituency managers are—will pay an effective rate of tax that is higher than that paid by the vast majority of highly paid fund managers. That cannot be described as fair, as I think people in this country and elsewhere recognise.
Sammy Wilson
I think that there is merit in what is proposed in new clause 3, at a time when the tax system is under scrutiny and people feel under pressure. We must look at both the economic and political consequences of tax proposals, because no tax regime can be viewed in isolation from the political context in which it is set. At a time when many people in lower-income groups feel that they are bearing a disproportionate burden, despite paying less tax, loopholes that become apparent should be closed where possible. I would be worried if it was shown that closing such loopholes would have a detrimental impact on the efficient working of the capital markets, but if that is not the case, then I think there is an important reason for closing them.
With regard to the Opposition’s amendment on vehicle excise duty, I must say that I was very surprised by the stance taken by the hon. Member for Salford and Eccles (Rebecca Long Bailey). The one thing that is quite clear in the amendment is that although it might be very green, it is not very fair, with regard to the burden of taxation. It is more likely to impose a higher tax burden on those on lower incomes, who tend to have older cars with higher emissions, so it would be highly regressive.
Rebecca Long Bailey
The average car currently emits 128 grams of CO2 per kilometre, which is actually in the lower band. It is also important to note that these provisions would come into effect from April 2017, so they would not be retrospectively applied—
Madam Deputy Speaker (Mrs Eleanor Laing)
Order. I fully appreciate that it is the hon. Lady’s first time at the Dispatch Box, but—I am not reprimanding her, but merely giving a little hint for future reference—turning her back on the Chair is not acceptable. Even though she wants the hon. Member for East Antrim (Sammy Wilson), who is sitting behind her, to hear what she is saying, she still must face the Chair at all times. [Interruption.] No, she need not apologise, because it is her first time at the Dispatch Box, but she will always get it right in future.
Sammy Wilson
I accept that the provisions would not be retrospective. Nevertheless, older cars tend to more polluting and would therefore, under the new clause, carry the higher rates of duty.
The second argument that has been made is about the sale of low-emission cars, whereby it is said that the duty that will be imposed, which is a small percentage of the cost of a new car, will distort the market or dissuade people from purchasing one. When people are purchasing a new car, whether it is a hybrid car or a low-polluting car, the last thing on their minds when deciding to lay out £20,000, £25,000 or £30,000 will be whether they will pay a couple of hundred pounds in vehicle excise duty. It is argued that this will hurt the car market and the emerging market for more energy-efficient cars, but the price elasticity of such cars, or their running cost, is unlikely to impact on the demand for them.
I think the Government have got the balance right on this one. Yes, we do have to consider the detrimental impact of emissions that come from cars, and there should be a tax on that, but we must also recognise that a vehicle is very important for most families across the United Kingdom. As lower-income families tend to have older cars, a regime that ramps up tax payments according to the car’s age and emissions would be unfair. The proposal in the Bill is therefore acceptable.
I have a question that the Minister did not give a clear answer to, and I hope he will do so when he sums up. On the road fund that is being proposed as a result of the money that is collected, given that infrastructure developments are devolved issues in Northern Ireland, Scotland and Wales, it will be important to know how exactly that fund will be allocated. Will there be separate accounting for the tax that is collected in each of the areas? Will it be done on the basis of Barnett consequentials or will some other regime be put in place? It is important that we know that, because if this is to be one of the ways in which infrastructure developments are to be financed in future, there needs to be certainty for devolved Administrations as to what money is likely to be coming their way and how it will be calculated.
George Kerevan (East Lothian) (SNP)
I want to make a brief contribution on new clause 3. The Minister, elegantly as he does, fobbed us off by saying, “We’re having a consultation and so on, but meanwhile we’ll press on regardless.” However, there is still a major issue regarding a potential tax loophole that has not been closed.
I accept that fund managers are remunerated on two different and distinct levels: they are paid for the work they do as investment managers and also receive a reward for hazarding their own capital. I also accept that there is a gain in having fund managers hazard some of their own capital, perhaps more so than they do at the moment. Unfortunately, though, if we charge very different marginal rates on the income component and on the hazarding their own money component, we will create the capacity for a loophole in paying the lower tax on the capital gain and less on the income.
It does not matter what short-term changes the Minister makes to try to prevent existing ways in which hedge funds allow the personal investment component of the investment to be organised, because people will just think up new ones. We have to close the loophole at source. The obvious way to do that would be to go back to a previous situation in which income tax and capital gains tax were charged at the same marginal rate.
Unfortunately, for the past several decades we have proceeded down a road of constantly cutting taxes on capital. I think there was a case in the 1990s for cutting marginal rates of tax on capital, because it was a difficult economic period and we had to encourage investment, but the Government have transformed that into an ideological demand that we always go on cutting taxes. Indeed, one of the core philosophies of the Finance Bill is to cut corporation tax even more, despite the fact that, on both a UK and a global level, we have pyramided up corporate surpluses, which are not being used. The current problem is not to find more loose capital, but to find fiscal incentives to make the owners of capital invest it.
The inherent philosophical problem with which the Government present us in the Bill is the imbalance created when marginal rates of taxation on capital are pushed lower and lower while significant taxes on labour are not reduced effectively and significantly. Our new clause 3 is specifically designed to force the Government to respond to the philosophical principle that the loophole should not be created in the first place. I do not think that the Minister has answered that effectively, which is why we will press new clause 3 to a vote.
Mr Gauke
Let me respond to what has been an eclectic debate. I welcome the hon. Member for Salford and Eccles (Rebecca Long Bailey) to the Dispatch Box for her debut. I echo the comments of my right hon. Friend the Member for Cities of London and Westminster (Mark Field) and wish her a long and successful career speaking from the Opposition Dispatch Box. I am sure she will be something of a star of the Labour Opposition Front Bench for years to come.
The hon. Lady said that the explanatory notes were only made available this morning, but I understand that they have been available on the gov.uk website since Thursday 22 October, which was the day after the amendments and new clauses were tabled. If she has any contrary information, I will happily look at it.
The hon. Lady touched briefly on the compound interest charge and asked me to respond to hostile comments from business. The measure is being introduced to ensure that a fair amount of corporation tax is paid and that any awards of restitution interest are paid by Her Majesty’s Revenue and Customs. We are setting the special rate to reflect the unique circumstances of the claims. It will affect only a relatively small number of companies—about 0.5% of those submitting corporation tax returns in relation to specific payments—and it will not affect the benefit given by the historically low rates of corporation tax on the trading and investment profits they currently make. It will ensure that relatively few do not gain a significant additional benefit at the expense of the public purse.
Let me turn to the lengthier debate we have had about reforms of vehicle excise duty. The hon. Lady raised a concern that they may damage UK car manufacturing and penalise cars built in the United Kingdom. We are not doing that. The supplement will apply to all cars worth more than £40,000, regardless of where they are manufactured, and we are supporting cars such as the Nissan Leaf, which is built in Sunderland, through zero rates for zero-emission cars. We think it is fair that more expensive cars pay more than ordinary family cars.
On the accusation that it is unfair that cars that are more fuel efficient pay the same as gas-guzzling vehicles, I would argue that they do not. Under the new system, the first-year rates for the highest-emitting cars will be doubled compared with the current system. Zero-emission cars will continue to pay no annual VED rate, and more expensive, bigger, higher-polluting cars will pay the standard rate supplement, so there will be incentives to buy smaller, lower-emitting cars on the second-hand market. What is unfair in the current system is that those who can afford to buy a brand-new car pay less than those who cannot do so. That point was made by the hon. Member for East Antrim (Sammy Wilson). In the new system, those who can afford an expensive car will pay more.
Jonathan Edwards
If there is any evidence in future years of significant behavioural changes, which some of us are concerned there might be, would the Government be willing to revise their position?
Mr Gauke
The Government and the Treasury keep all taxes under review, and were contrary evidence to emerge, we would of course look at it and, if necessary, adapt the policy. We have, however, made a judgment on the evidence before us, and consumer research demonstrates that first-year incentives are by far the most important when customers come to choose new cars.
The hon. Member for Salford and Eccles asked why the Government are now taxing plug-in and hybrid vehicles the same as conventionally fuelled cars. Such cars will still benefit from cheaper rates. The updated CO2 banding on first-year rates in the new VED system will strengthen the incentive to purchase the cleanest cars, including plug-in and hybrid vehicles. As I have said, the evidence suggests that up-front incentives are the most effective in influencing behaviour. We will continue to support hybrids and plug-in vehicles with beneficial rates of company car tax and enhanced capital allowances, as well as through the plug-in car grant. The Government have guaranteed that £5,000 grant until February 2016.
Our longer-term plan will be announced after the spending review. To drive down carbon emissions and air pollutants, we will give the greatest incentives to zero-emission cars—those that produce no air pollution or CO2 whenever they are driven—which pay no VAT.
Mark Field
I appreciate that the current regime for vehicle excise duty reflects carbon emissions, but I mentioned in an earlier intervention that one of the biggest concerns in relation to clean air, particularly in London, is about NOx—nitrogen dioxide—emissions. That is a particular problem in emissions from diesel vehicles. Will some consideration be given to making that part and parcel of the consultation on adapting this duty in the years to come?
Mr Gauke
The view we have taken about NOx is that it is best addressed through regulation, rather than through vehicle excise duty. It is necessary for the Government to use all the tools in the toolbox in these circumstances. We think that that is the right way to address that concern. Indeed, new regulatory standards are being put in place for NOx.
I will, if I may, turn to the £40,000 premium surcharge. A concern was raised that it might slow the uptake of the latest carbon technologies, such as hydrogen fuel cell cars, where price is already a barrier to uptake. In response I would say that the Government are committed to supporting low-carbon vehicle technologies. All manufacturers will need to invest in affordable new technologies to meet their emissions targets, and the Government have committed £11 million through the hydrogen for transport advancement programme to support the roll-out of fuel cell electric vehicles and 12 hydrogen refuelling stations. Fuel cell electric vehicles are also eligible for the plug-in car grant and beneficial rates of company car tax. Hydrogen is also fuel-duty exempt.
Zero-emission cars, even ones with a list price of £40,000, will pay zero first-year rates. Only a small proportion of motorists can afford cars that cost more than £40,000. The most popular cars in the UK cost an average of £15,000, and even the most popular large family cars cost an average of £21,000. It is fair that premium cars—including low-carbon ones—pay more than ordinary family cars.
The hon. Members for East Antrim and for Carmarthen East and Dinefwr (Jonathan Edwards) mentioned the application of the road fund in the rest of the United Kingdom. Although changes to VED affect the whole UK, the road fund relates only to the English strategic road network, which is managed by Highways England. We are in discussions with the devolved Administrations on how exactly the money is allocated, to ensure that we reach a sensible and fair agreement that reflects the various requirements across the whole United Kingdom. In the meantime, just as for a range of other taxes and spending, the devolved Administrations will receive allocations in the normal way through the Barnett formula, as opposed to an assessment of road use or VED for the various nations of the United Kingdom. I hope that that provides some clarity.
New clause 3, tabled by the SNP, relates to carried interest. We had that debate in Committee, so it is rather familiar territory. I shall avoid the temptation to refer the House to the speech that I gave in Committee on a specific date and suggest that Members look at particular columns—[Interruption.] As the hon. Member for Kirkcaldy and Cowdenbeath (Roger Mullin) says, no doubt the House has already read it but would like to hear it from me again afresh. This point was also touched on by my right hon. Friend the Member for Cities of London and Westminster (Mark Field).
Carried interest is a reward for a manager that is linked to the long-term performance and growth of the funds they manage. They are therefore capital in nature, and should continue to be charged capital gains tax. The measure ensures that private equity managers pay at least 28% tax on the carried interest rewards that they receive. In addition the disguised management fee rules introduced in the Finance Act 2015 put it beyond doubt that when management fees are received by fund managers, the part of the remuneration that is not variable is always subject to income tax. If any part of the manager’s reward payment is properly regarded as income rather than capital, they will continue to be charged to income tax. The Government have launched a consultation to ensure that rewards that should be charged to income tax are always taxed in that way.
National insurance is not charged on capital returns and is payable only on earned income. Bringing carried interest into income tax could raise more initially, but over time the yield would disappear as the industry moved to more competitive jurisdictions.
That is the essence of the debate, and it is instructive to look back at what previous Ministers, not just from my party but from the Labour party, have said at the Dispatch Box, which is that we have to strike a balance, ensuring that we get the revenue we should get and that we properly tax income—certainly we want to tax income as income—while also ensuring that we have a regime that properly taxes capital gains as capital gains. There are risks if we put in place a regime that is uncompetitive and out of line with what happens in other jurisdictions. The point was made that other countries are looking at this issue and that there could be changes to the taxation treatment of carried interest in other jurisdictions. I am aware that there is a debate under way in other countries, but I am not aware of any concrete action taken by any competitor countries to change the approach that is generally followed. The UK is therefore in line with the general approach.
It is important that we do not allow income to be turned into capital in a contrived or artificial way. It is also the case that, as a coalition Government, we took steps in 2010 to narrow the difference between the rates charged for capital gains tax and for income tax. We increased the rate of capital gains tax. It is interesting to hear the argument in the Chamber today about whether there should be a greater alignment between the two. The last Government took two steps to increase the alignment: the first was to increase the rate of capital gains tax and the second was to reduce the additional rate of income tax to 45%. There is a long-standing structural danger when there is a large disparity between the two, but we should also understand why there have been differences in the rates. It comes from a desire to attract investment and encourage individuals and businesses to invest, which is why there is a separate capital gains tax regime. This is an issue that Ministers from all parties have wrestled with over many years, but by taking action in this Bill to create a greater focus on making sure that income is taxed as income and capital gains are taxed as capital gains, we are putting things on a sustainable and fair footing.
I also note the remarks that the hon. Member for Kirkcaldy and Cowdenbeath made about our constituency staff—on other occasions people have referred to cleaners paying a higher rate of tax than their employers—but the changes we have made ensure that we are not in that position. Many of the steps we have taken—for example, to increase the personal allowance—have taken many cleaners out of income tax altogether, whereas the changes we have made to capital gains tax rates have ensured that private equity managers pay a higher rate of tax than they might have paid some years ago.
The suggestion has been made that there is one rule for some and another for others, but the rule we have in place on carried interest ensures that investment managers who are receiving capital returns are taxed to at least 28%, the higher rate of capital gains tax. Any carried interest that constitutes income will be chargeable to income tax. The Government have launched a consultation to ensure that when investment managers should be charged for income tax, they will be.
I hope that is helpful to the House in dealing with the various points that have been raised. As I say, in this first group—[Interruption.]
Madam Deputy Speaker (Mrs Eleanor Laing)
Order. I know that the Minister is concluding, but the points he is making are very important and the Chamber is not a place where people come for a little chat. It is much too noisy. People are not behaving badly in a noisy way; there are just too many people talking just above a whisper. If hon. Members are going to whisper, they should please learn to whisper, because we need to hear the Minister. He is making some important points.
Mr Gauke
I am very grateful for your injunction, Madam Deputy Speaker. The Chamber is no place for people to enjoy themselves, and you and I together are going to put an end to that.
A broad range of issues has been debated. I urge the Labour party not to press their amendments on vehicle excise duty to a Division, just as I urge SNP Members not to press their new clause. I believe the reforms we have made to VED are necessary and sustainable. They will ensure the source of finance for the road fund and a more progressive regime that, in terms of first-year rates, fulfils our environmental objectives. On the reforms relating to carried interest, I believe we are making changes that put us on a sustainable footing.
I thank the House for its patience and urge the parties on the Opposition Benches not to press their amendments and new clauses to a Division.
Question put and agreed to.
New clause 4 accordingly read a Second time, and added to the Bill.
New Clause 5
Corporation tax instalment payments
‘(1) The Corporation Tax (Instalment Payments) (Amendment) Regulations 2014 (S.I. 2014/2409) are to be treated as always having had effect as if in regulation 1(2) (commencement) “ending” were substituted for “beginning”.
(2) Consequently, for the purposes of the application of regulations 2(2) and 3(5B) of the Corporation Tax (Instalment Payments) Regulations 1998 (S.I. 1998/3175) to accounting periods beginning before, and ending on or after, 1 April 2015—
(a) sections 279F and 279G of CTA 2010 are taken to have effect in relation to such periods, and
(b) paragraph 22 of Schedule 1 to FA 2014 is to be disregarded accordingly.”—(Mr Gauke.)
Brought up, read the First and Second time, and added to the Bill.
New Clause 6
Carried interest and disguised investment management fees: “arise”
‘(1) In ITA 2007, after section 809EZD insert—
“809EZDA Sums arising to connected persons other than companies
(1) This section applies in relation to an individual (“A”) if—
(a) a sum arises to a person (“B”) who is connected with A,
(b) B is not a company,
(c) income tax is not charged on B in respect of the sum by virtue of this Chapter,
(d) capital gains tax is not charged on B in respect of the sum by virtue of Chapter 5 of Part 3 of TCGA 1992, and
(e) the sum does not arise to A apart from this section.
(2) The sum referred to in subsection (1)(a) arises to A for the purposes of this Chapter.
(3) Where a sum arises to A by virtue of this section, it arises to A at the time the sum referred to in subsection (1)(a) arises to B.
(4) Section 993 (meaning of “connected”) applies for the purposes of this section, but as if—
(a) subsection (4) of that section were omitted, and
(b) partners in a partnership in which A is also a partner were not “associates” of A for the purposes of sections 450 and 451 of CTA 2010 (“control”).
“809EZDB Sums arising to connected company or unconnected person
(1) This section applies in relation to an individual (“A”) if—
(a) a sum arises to—
(i) a company connected with A, or
(ii) a person not connected with A,
(b) any of the enjoyment conditions is met, and
(c) the sum does not arise to A apart from this section.
(2) The enjoyment conditions are—
(a) the sum, or part of the sum, is in fact so dealt with by any person as to be calculated at some time to enure for the benefit of A or a person connected with A;
(b) the arising of the sum operates to increase the value to A or a person connected with A of any assets which—
(i) A or the connected person holds, or
(ii) are held for the benefit of A or the connected person;
(c) A or a person connected with A receives or is entitled to receive at any time any benefit provided or to be provided out of the sum or part of the sum;
(d) A or a person connected with A may become entitled to the beneficial enjoyment of the sum or part of the sum if one or more powers are exercised or successively exercised (and for these purposes it does not matter who may exercise the powers or whether they are exercisable with or without the consent of another person);
(e) A or a person connected with A is able in any manner to control directly or indirectly the application of the sum or part of the sum.
In this subsection, in a case where the sum referred to in subsection (1)(a) arises to a company connected with A, references to a person connected with A do not include that company.
(3) There arises to A for the purposes of this Chapter—
(a) the sum referred to in subsection (1)(a), or
(b) if the enjoyment condition in subsection (2)(a), (c), (d) or (e) is met in relation to part of the sum, that part of that sum, or
(c) if the enjoyment condition in subsection (2)(b) is met, such part of that sum as is equal to the amount by which the value of the assets referred to in that condition is increased.
(4) Where a sum (or part of a sum) arises to A by virtue of this section, it arises to A at the time it arises to the person referred to in subsection (1)(a)(i) or (ii) (whether the enjoyment condition was met at that time or at a later date).
(5) In determining whether any of the enjoyment conditions is met in relation to a sum or part of a sum—
(a) regard must be had to the substantial result and effect of all the relevant circumstances, and
(b) all benefits which may at any time accrue to a person as a result of the sum arising as specified in subsection (1)(a) must be taken into account, irrespective of—
(i) the nature or form of the benefits, or
(ii) whether the person has legal or equitable rights in respect of the benefits.
(6) The enjoyment condition in subsection (2)(b), (c) or (d) is to be treated as not met if it would be met only by reason of A holding shares or an interest in shares in a company.
(7) The enjoyment condition in subsection (2)(a) or (e) is to be treated as not met if the sum referred to in subsection (1)(a) arises to a company connected with A and—
(a) the company is liable to pay corporation tax in respect of its profits and the sum is included in the computation of those profits, or
(b) paragraph (a) does not apply but—
(i) the company is a CFC and the exemption in Chapter 14 of Part 9A of TIOPA 2010 applies for the accounting period in which the sum arises, or
(ii) the company is not a CFC but, if it were, that exemption would apply for that period.
In this subsection “CFC” has the same meaning as in Part 9A of TIOPA 2010.
(8) But subsections (6) and (7) do not apply if the sum referred to in subsection (1)(a) arises to the company referred to in subsection (1)(a)(i) or the person referred to in subsection (1)(a)(ii) as part of arrangements where—
(a) it is reasonable to assume that in the absence of the arrangements the sum or part of the sum would have arisen to A or an individual connected with A, and
(b) it is reasonable to assume that the arrangements have as their main purpose, or one of their main purposes, the avoidance of a liability to pay income tax, capital gains tax, inheritance tax or corporation tax.
(9) The condition in subsection (8)(b) is to be regarded as met in a case where the sum is applied directly or indirectly as an investment in a collective investment scheme.
(10) Section 993 (meaning of “connected”) applies for the purposes of this section, but as if—
(a) subsection (4) of that section were omitted, and
(b) partners in a partnership in which A is also a partner were not “associates” of A for the purposes of sections 450 and 451 of CTA 2010 (“control”).”
(2) In ITA 2007, in section 809EZA(3)(c), omit “directly or indirectly”.
(3) The amendments made by this section have effect in relation to—
(a) sums other than carried interest arising on or after 22 October 2015, (whenever the arrangements under which the sums arise were made), and
(b) carried interest arising on or after 22 October 2015 under any arrangements, unless the carried interest arises in connection with the disposal of an asset or assets of a partnership or partnerships before that date.
(4) In subsection (3), “arise”, “arrangements” and “carried interest” have the same meanings as in Chapter 5E of Part 13 of ITA 2007.”—(Mr Gauke.)
Brought up, read the First and Second time, and added to the Bill.
New Clause 8
Restitution interest payments
‘(1) CTA 2010 is amended as follows.
(2) In section 1 (overview of Act), in subsection (3), after paragraph (ac) insert—
“(ad) restitution interest (see Part 8C),”.
(3) After Part 8B insert—
Part 8C
Restitution interest
Chapter 1
Amounts taxed as restitution interest
357YA Charge to corporation tax on restitution interest
The charge to corporation tax on income applies to restitution interest arising to a company.
357YB Restitution interest chargeable as income
(1) Profits arising to a company which consist of restitution interest are chargeable to tax as income under this Part (regardless of whether the profits are of an income or capital nature).
(2) In this Part references to “profits” are to be interpreted in accordance with section 2(2) of CTA 2009.
357YC Meaning of “restitution interest”
(1) In this Part “restitution interest” means profits in relation to which Conditions A to C are met.
(2) Condition A is that the profits are interest paid or payable by the Commissioners in respect of a claim by the company for restitution with regard to either of the following matters (or alleged matters)—
(a) the payment of an amount to the Commissioners under a mistake of law relating to a taxation matter, or
(b) the unlawful collection by the Commissioners of an amount in respect of taxation.
(3) Condition B is that—
(a) a court has made a final determination that the Commissioners are liable to pay the interest, or
(b) the Commissioners and the company, have in final settlement of the claim, entered into an agreement under which the company is entitled to be paid, or is to retain, the interest.
(4) Condition C is that the interest determined to be due, or agreed upon, as mentioned in subsection (3) is not limited to simple interest at a statutory rate (see section 357YU).
(5) Subsection (4) does not prevent so much of an amount of interest determined to be due, or agreed upon, as represents or is calculated by reference to simple interest at a statutory rate from falling within the definition of “restitution interest”.
(6) For the purposes of subsection (2) it does not matter whether the interest is paid or payable—
(a) pursuant to a judgment or order of a court,
(b) as an interim payment in court proceedings,
(c) under an agreement to settle a claim, or
(d) in any other circumstances.
(7) For the purposes of this section—
(a) “interest” includes an amount equivalent to interest, and
(b) an amount paid or payable by the Commissioners as mentioned in subsection (2) is “equivalent to interest” so far as it is an amount determined by reference to the time value of money.
(8) For the purposes of this section a determination made by a court is “final” if the determination cannot be varied on appeal (whether because of the absence of any right of appeal, the expiry of a time limit for making an appeal without an appeal having been brought, the refusal of permission to appeal, the abandonment of an appeal or otherwise).
(9) Any power to grant permission to appeal out of time is to be disregarded for the purposes of subsection (8).
357YD Further provision about amounts included, or not included, in “restitution interest”
(1) Interest paid to a company is not restitution interest for the purposes of this Part if—
(a) Condition B was not met in relation to the interest until after the interest was paid, and
(b) the amount paid was limited to simple interest at a statutory rate
(2) Subsection (1) does not prevent so much of a relevant amount of interest determined to be due, agreed upon or otherwise paid as represents or is calculated by reference to simple interest at a statutory rate from falling within the definition of “restitution interest”.
(3) In subsection (2) “relevant amount of interest” means an amount of interest the whole of which was paid before Condition B was met in relation to it.
(4) Section 357YC(7) applies in relation to this section as in relation to section 357YC.
357YE Period in which amounts are to be brought into account
(1) The amounts to be brought into account as restitution interest for any period for the purposes of this Part are those that are recognised in determining the company’s profit or loss for the period in accordance with generally accepted accounting practice.
(2) If Condition A in section 357YC is met, in relation to any amount, after the end of the period for which the amount is to be brought into account as restitution interest in accordance with subsection (1), any necessary adjustments are to be made; and any time limits for the making of adjustments are to be disregarded for this purpose.
357YF Companies without GAAP-compliant accounts
(1) If a company—
(a) draws up accounts which are not GAAP-compliant accounts, or
(b) does not draw up accounts at all,
this Part applies as if GAAP-compliant accounts had been drawn up.
(2) Accordingly, references in this Part to amounts recognised for accounting purposes are references to amounts that would have been recognised if GAAP-compliant accounts had been drawn up for the period of account in question and any relevant earlier period.
(3) For this purpose a period of account is relevant to a later period if the accounts for the later period rely to any extent on amounts derived from the earlier period.
(4) In this section “GAAP-compliant accounts” means accounts drawn up in accordance with generally accepted accounting practice.
357YG Restitution interest: appeals made out of time
(1) This section applies where—
(a) an amount of interest (“the interest”) arises to a company as restitution interest for the purposes of this Part,
(b) Condition B in section 357YC is met in relation to the interest as a result of the making by a court of a final determination as mentioned in subsection (3)(a) of that section,
(c) on a late appeal (or a further appeal subsequent to such an appeal) a court reverses that determination, or varies it so as to negative it, and
(d) the determination reversing or varying the determination by virtue of which Condition B was met is itself a final determination.
(2) This Part has effect as if the interest had never been restitution interest.
(3) If—
(a) the Commissioners for Her Majesty’s Revenue and Customs have under section 357YO(2) deducted a sum representing corporation tax from the interest, or
(b) a sum has been paid as corporation tax in respect of the interest under section 357YQ,
that sum is treated for all purposes as if it had never been paid to, or deducted or held by, the Commissioners as or in respect of corporation tax.
(4) Any adjustments are to be made that are necessary in accordance with this section; and any time limits applying to the making of adjustments are to be ignored.
(5) In this section—
“final determination” has the same meaning as in section 357YC;
“late appeal” means an appeal which is made by reason of a court giving leave to appeal out of time.
357YH Countering effect of avoidance arrangements
(1) Any restitution-related tax advantages that would (in the absence of this section) arise from relevant avoidance arrangements are to be counteracted by the making of such adjustments as are just and reasonable in relation to amounts to be brought into account for the purposes of this Part.
(2) Any adjustments required to be made under this section (whether or not by an officer of Revenue and Customs) may be made by way of an assessment, the modification of an assessment, amendment or otherwise.
(3) For the meaning of “relevant avoidance arrangements” and “restitution-related tax advantage” see section 357YI.
357YI Interpretation of section 357YH
(1) This section applies for the interpretation of section 357YH (and this section).
(2) “Arrangements” include any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable).
(3) Arrangements are “relevant avoidance arrangements” if their main purpose, or one of their main purposes, is to enable a company to obtain a tax advantage in relation to the application of the charge to tax at the restitution payments rate.
(4) But arrangements are not “relevant avoidance arrangements” if the obtaining of any tax advantages that would (in the absence of section 357YH) arise from them can reasonably be regarded as consistent with wholly commercial arrangements.
(5) “Tax advantage” includes—
(a) a repayment of tax or increased repayment of tax,
(b) the avoidance or reduction of a charge to tax or an assessment to tax,
(c) the avoidance of a possible assessment to tax,
(d) deferral of a payment of tax or advancement of a repayment of tax, or
(e) the avoidance of an obligation to deduct or account for tax.
(6) In subsection (5)(b) and (c) the references to avoidance or reduction include an avoidance or reduction effected by receipts accruing in such a way that the recipient does not bear tax on them as restitution interest under this Part.
357YJ Examples of results that may indicate exclusion not applicable
(none) Each of the following is an example of something which might indicate that arrangements whose main purpose, or one of whose main purposes, is to enable a company to obtain a restitution-related tax advantage are not excluded by section 357YI(4) from being “relevant avoidance arrangements” for the purposes of section 357YH—
(a) the elimination or reduction for the purposes of this Part of amounts chargeable as restitution interest arising to the company in connection with a particular claim, if for economic purposes other or greater profits arise to the company in connection with the claim;
(b) preventing or delaying the recognition as an item of profit or loss of an amount that would apart from the arrangements be recognised in the company’s accounts as an item of profit or loss, or be so recognised earlier;
(c) ensuring that a receipt is treated for accounting purposes in a way in which it would not have been treated in the absence of some other transaction forming part of the arrangements.
Chapter 2
Application of restitution payments rate
357YK Corporation tax rate on restitution interest
(1) Corporation tax is charged on restitution interest at the restitution payments rate.
(2) The “restitution payments rate” is 45%.
357YL Exclusion of reliefs, set-offs etc
(1) Under subsection (3) of section 4 (amounts to which rates of corporation tax applied) the amounts to be added together to find a company’s “total profits” do not include amounts of restitution interest on which corporation tax is chargeable under this Part.
(2) No reliefs or set-offs may be given against so much of the corporation tax to which a company is liable for an accounting period as is equal to the amount of corporation tax chargeable on the company for the period at the restitution payments rate.
(3) In subsection (2) “reliefs and set-offs” includes, but is not restricted to, those listed in the second step of paragraph 8(1) of Schedule 18 to FA 1998.
(4) Amounts of income tax or corporation tax, or any other amounts, which may be set off against a company’s overall liability to income tax and corporation tax for an accounting period may not be set off against so much of the corporation tax to which the company is liable for the period as is equal to the amount of corporation tax chargeable at the restitution payments rate.
Chapter 3
Migration, transfers of rights etc
(1) Subsection (4) applies if—
(a) a company which is within the charge to corporation tax under this Part (“the transferor”) transfers to a person who is not within the charge to corporation tax under this Part a right in respect of a claim, or possible claim, for restitution,
(b) the transfer is made on or after 21 October 2015, and
(c) conditions A and B are met.
(2) Condition A is that the main purpose, or one of the main purposes, of the transfer is to secure a tax advantage for any person in relation to the application of the charge to tax on restitution interest under this Part.
(3) Condition B is that as a result of that transfer (or that transfer together with further transfers of the rights) restitution interest arises to a person who is not within the charge to corporation tax under this Part.
(4) Any restitution interest which arises as mentioned in Condition B is treated for corporation tax purposes as restitution interest arising to the transferor.
(5) A person is “within the charge to corporation tax under this Part” if the person—
(a) is a UK resident company, and
(b) would not be exempt from corporation tax on restitution interest (were such interest to arise to it).
(6) In this section “tax advantage” has the meaning given by section 357YI.
(1) This section applies where—
(a) restitution interest arises to a non-UK resident company,
(b) the rights in respect of which the company is entitled to the restitution interest had (to any extent) accrued when the company ceased to be UK resident, and
(c) the company’s main purpose, or one of its main purposes, in changing its residence was to secure a tax advantage for any person in relation to the application of the charge to tax on restitution interest under this Part.
(2) The company is treated as a UK resident company for the purposes of the application of this Part in relation to so much of that restitution interest as is attributable to relevant accrued rights.
(3) “Relevant accrued rights” means rights which had accrued to the company when it ceased to be UK resident.
(4) The company is to be treated for the purposes of sections 185 and 187 of TCGA 1992 as not having disposed of its assets on ceasing to be resident in the United Kingdom, so far as its assets at that time consisted of rights to receive restitution interest.
(5) Any adjustments that are necessary as a result of subsection (4) are to be made; and any time limits for the making of adjustments are to be ignored for this purpose.
Chapter 4
Payment and collection of tax on restitution interest
357YO Duty to deduct tax from payments of restitution interest
(1) Subsection (2) applies if the Commissioners for Her Majesty’s Revenue and Customs pay an amount of interest in relation to which Conditions 1 and 2 are met and—
(a) the amount is (when the payment is made) restitution interest on which a company is chargeable to corporation tax under this Part, or
(b) a company would be chargeable to corporation tax under this Part on the interest paid if it were (at that time) restitution interest.
(2) The Commissioners must, on making the payment—
(a) deduct from it a sum representing corporation tax on the amount at the restitution payments rate, and
(b) give the company a written notice stating the amount of the gross payment and the amount deducted from it.
(3) Condition 1 is that the Commissioners are liable to pay, or have agreed or determined to pay, the interest in respect of a company’s claim for restitution with regard to—
(a) the payment of an amount to the Commissioners under a mistake of law relating to a taxation matter, or
(b) the unlawful collection by the Commissioners of an amount in respect of taxation.
(4) Condition 2 is that the interest is not limited to simple interest at a statutory rate.
In determining whether or not this condition is met, all amounts which the Commissioners are liable to pay, or have agreed or determined to pay in respect of the claim are to be considered together.
(5) For the purposes of Condition 1 it does not matter whether the Commissioners are liable to pay, or (as the case may be) have agreed or determined to pay, the interest—
(a) pursuant to a judgment or order of a court,
(b) as an interim payment in court proceedings,
(c) under an agreement to settle a claim, or
(d) in any other circumstances.
(6) For the purposes of subsection (2) the restitution payments rate is to be applied to the gross payment, that is to the payment before deduction of a sum representing corporation tax in accordance with this section.
(7) For the purposes of this section—
(a) “interest” includes an amount equivalent to interest, and
(b) an amount which the Commissioners pay as mentioned in subsection (1) is “equivalent to interest” so far as it is an amount determined by reference to the time value of money.
357YP Treatment of amounts deducted under section 357YO
(1) An amount deducted from an interest payment in accordance with section 357YO(2) is treated for all purposes as paid by the company mentioned in section 357YO(1) on account of the company’s liability, or potential liability, to corporation tax charged on the interest payment, as restitution interest, under this Part.
(2) Subsections (3) and (4) apply if—
(a) the Commissioners have, on paying an amount which is not (when the payment is made) restitution interest, made a deduction under section 357YO(2) from the gross payment (see section 357YO(6)), and
(b) a company becomes liable to repay the net amount to the Commissioners, or it otherwise becomes clear that the gross amount cannot, or will not, become restitution interest.
(3) If the condition in subsection (2)(b) is met in circumstances where the company is not liable to repay the net amount to the Commissioners, the Commissioners must—
(a) repay to the company the amount treated under subsection (1) as paid by the company, and
(b) make any other necessary adjustments;
and any time limits applying to the making of adjustments are to be ignored.
(4) If the condition in subsection (2)(b) is met by virtue of a company becoming liable to repay to the Commissioners the amount paid as mentioned in subsection (2)(a)—
(a) this Part has effect as if the company were liable to repay the gross payment to the Commissioners, and
(b) the amount deducted by the Commissioners as mentioned in subsection (2)(b) is to be treated for the purposes of this Part as money repaid by the company in partial satisfaction of its liability to repay the gross amount.
(5) Subsections (3) and (4) have effect with the appropriate modifications if the condition in subsection (2)(b) is met in relation to part but not the whole of the gross amount mentioned in subsection (2)(a).
(6) In this section “the net amount”, in relation to a payment made under deduction of tax in accordance with section 357YO(2), means the amount paid after deduction of tax.
357YQ Assessment of tax chargeable on restitution interest
(1) An officer of Revenue and Customs may make an assessment of the amounts in which, in the officer’s opinion, a company is chargeable to corporation tax under this Part for a period specified in the assessment.
(2) Notice of an assessment under this section must be served on the company, stating the date on which the assessment is issued.
(3) An assessment may include an assessment of the amount of restitution income arising to the company in the period and any other matters relevant to the calculation of the amounts in which the company is chargeable to corporation tax under this Part for the period.
(4) Notice of an assessment under this section may be accompanied by notice of any determination by an officer of Revenue and Customs relating to the dates on which amounts of tax become due and payable under this section or to amounts treated under section 357YP as paid on account of corporation tax.
(5) The company must pay the amount assessed as payable for the accounting period by the end of the period of 30 days beginning with the date on which the company is given notice of the assessment.
357YR Interest on excessive amounts withheld
(1) If an amount deducted under section 357YO(2) in respect of an amount of interest exceeds the amount which should have been deducted, the Commissioners are liable to pay interest on the excess from the material date until the date on which the excess is repaid.
(2) The “material date” is the date on which tax was deducted from the interest.
(3) Interest under subsection (1) is to be paid at the rate applicable under section 178 of FA 1989.
357YS Appeal against deduction
(1) An appeal may be brought against the deduction by the Commissioners for Her Majesty’s Revenue and Customs from a payment of a sum representing corporation tax in compliance, or purported compliance, with section 357YO(2).
(2) Notice of appeal must be given—
(a) in writing,
(b) within 30 days after the giving of the notice under section 357YO(2).
357YT Amounts taxed at restitution payments rate to be outside instalment payments regime
(none) For the purposes of regulations under section 59E of TMA 1970 (further provision as to when corporation tax due and payable), tax charged at the restitution payments rate is to be disregarded in determining the amount of corporation tax payable by a company for an accounting period.
Chapter 5
Supplementary provisions
357YU Interpretation
(1) In this Part “court” includes a tribunal.
(2) In this Part “statutory rate” (in relation to interest) means a rate which is equal to a rate specified—
(a) for purposes relating to taxation, and
(b) in, or in a provision made under, an Act.
357YV Relationship of Part with other corporation tax provisions
(1) So far as restitution interest is charged to corporation tax under this Part it is not chargeable to corporation tax under any other provision.
(2) This Part has effect regardless of section 464(1) of CTA 2009 (priority of loan relationship provisions).
357YW Power to amend
(1) The Treasury may by regulations amend this Part (apart from this section).
(2) Regulations under this section—
(a) may not widen the description of the type of payments that are chargeable to corporation tax under this Part;
(b) may not remove or prejudice any right of appeal;
(c) may not increase the rate at which tax is charged on restitution interest under this Part;
(d) may not enable any provision of this Part to have effect in relation to the subject matter of any claim which has been finally determined before 21 October 2015.
(3) Subject to subsection (2), regulations under this section may have retrospective effect.
(4) For the purposes of this section a claim is “finally determined” if a court has disposed of the claim by a final determination or the claimant and the Commissioners for Her Majesty’s Revenue and Customs have entered into an agreement in final settlement of the claim.
(5) Section 357YC(8) (which defines when a determination made by a court is final) has effect for the purposes of this section as for the purposes of section 357YC.
(6) Regulations under this section may include incidental, supplementary or transitional provision.
(7) A statutory instrument containing regulations under this section must be laid before the House of Commons.
(8) The regulations cease to have effect at the end of the period of 28 days beginning with the day on which they are made unless, during that period, the regulations are approved by a resolution of the House of Commons.
(9) In reckoning the 28-day period, no account is to be taken of any time during which—
(a) Parliament is dissolved or prorogued, or
(b) the House of Commons is adjourned for more than 4 days.
(10) Regulations ceasing to have effect by virtue of subsection (8) does not affect—
(a) anything previously done under the regulations, or
(b) the making of new regulations.”
(4) In TMA 1970, in section 59D (general rule as to when corporation tax is due and payable)—
(a) in subsection (3) after “with” insert “the first to fourth steps of”;
(b) in subsection (5) after “59E” insert “and section 357YQ of CTA 2010 (assessment of tax chargeable on restitution interest)”.
(5) Paragraph 8 Schedule 18 to FA 1998 (company tax returns, assessments etc: calculation of tax payable) is amended as follows—
(a) in paragraph 2 of the first step, after “company” insert “(other than the restitution payments rate)”;
(b) After the fourth step insert—
“Fifth step
Calculate the corporation tax chargeable on any profits of the company that are charged as restitution interest.
1. Find the amount in respect of which the company is chargeable for the period under the charge to corporation tax on income under Part 8C of CTA 2010.
2. Apply the restitution payments rate in accordance with section 357YK(1) of that Act. The amount of tax payable for the accounting period is the sum of the amounts resulting from the first to fourth steps and this step.”
(6) Schedule 56 to FA 2009 (penalty for failure to make payments on time) is amended in accordance with subsections (7) and (8).
(7) In paragraph 1, in the table after item 6 insert—
“6ZZA | Corporation tax | Amount payable under section 357YQ of CTA 2010 | The end of the period within which, in accordance with section 357YQ(5), the amount must be paid.” |
(8) In paragraph 4(1), for “or 6” substitute “, 6 or 6ZZA”.
(9) The amendments made by subsections (1) to (8) have effect in relation to interest (whether arising before or on or after 21 October 2015) which falls within subsection (11).
(10) Section 357YO of CTA 2010, and the amendments made by subsections (1) to (8) so far as relating to the deduction of tax under section 357YO, have effect in relation to payments of interest made on or after 26 October 2015.
This rule is not limited by the rule in subsection (9).
(11) Interest arising to a company falls within this subsection if—
(a) a determination made by a court that the Commissioners for Her Majesty’s Revenue and Customs are liable to pay the interest becomes final on or after 21 October 2015, or
(b) on or after 21 October 2015 the Commissioners and a company enter into an agreement in final settlement of a claim for restitution, under which the company is entitled to be paid, or to retain, the interest.
(12) In subsections (9) to (11)—
(a) the reference to a determination made by a court becoming “final” is to be interpreted in accordance with section 357YC of CTA 2010;
(b) the references to “interest” are to be interpreted in accordance with section 357YC of CTA 2010.”—(Mr Gauke.)
Brought up, read the First and Second time, and added to the Bill.
Amendment proposed: 93, page 58, clause 42, leave out from beginning of line 1 to end of line 37 on page 60 and insert—
“Graduated rates of duty payable on first vehicle licence
For the purpose of determining the rate at which vehicle excise duty is to be paid on each of the first three years of vehicle licence for a vehicle to which this Part of this Schedule applies, the annual rate of duty applicable to the vehicle shall be determined in accordance with the following table by reference to the applicable CO2 emissions figure.
Carbon Dioxide emissions | Rate | |||
|---|---|---|---|---|
(1) Exceeding g/km | (2) Not exceeding g/km | (3) First full year (£) | (4) Second full year (£) | (5) Third full year |
0 | 0 | 0 | 0 | 0 |
0 | 50 | 10 | 10 | 10 |
50 | 75 | 25 | 25 | 25 |
75 | 90 | 100 | 100 | 100 |
90 | 100 | 120 | 120 | 120 |
100 | 110 | 140 | 140 | 140 |
110 | 130 | 160 | 160 | 160 |
130 | 150 | 200 | 200 | 200 |
150 | 170 | 500 | 500 | 500 |
170 | 190 | 800 | 800 | 800 |
190 | 225 | 1,200 | 1,200 | 1,200 |
225 | 255 | 1,700 | 1,700 | 1,700 |
255 | - | 2,000 | 2,000 | 2,000 |
Rates of duty payable on any other vehicle licence
1GD For the purpose of determining the rate at which vehicle excise duty is to be paid on any other vehicle licence for a vehicle to which this Part of this Schedule applies, the annual rate of vehicle excise applicable to the vehicle shall be determined in accordance with the following table by reference to the applicable CO2 emissions figure.
Carbon Dioxide emissions | Rate | |
|---|---|---|
(1) Exceeding g/km | (2) Not exceeding g/km | (3) Standard rate (£) |
0 | 0 | 20 |
0 | 50 | 40 |
50 | 75 | 60 |
75 | 90 | 80 |
90 | 100 | 100 |
100 | 110 | 120 |
110 | 130 | 140 |
130 | 150 | 160 |
150 | 170 | 180 |
170 | 190 | 200 |
190 | 225 | 220 |
225 | 255 | 240 |
255 | - | 260” |
—(Rebecca Long Bailey.)
Question put, That the amendment be made.
Rob Marris (Wolverhampton South West) (Lab)
I beg to move, That the clause be read a Second time.
Madam Deputy Speaker (Mrs Eleanor Laing)
With this it will be convenient to discuss the following:
Amendment 89, page 4, line 20, leave out clause 9.
New clause 1—VAT treatment of the Scottish Police Authority and the Scottish Fire and Rescue Service—
‘(1) The Treasury shall, within six months of the passing of this Act, publish and lay before the House of Commons a report on the VAT treatment of the Scottish Police Authority and the Scottish Fire and Rescue Service.
(2) The report must include (but need not be limited to) an analysis of the impact on the financial position of Police Scotland and by the Scottish Fire and Rescue Service arising from their VAT treatment and an estimate of the change to their financial position were they eligible for a refund of VAT under section 33 of the VAT Act 1994.’
New clause 2—VAT on sanitary protection products—
‘(1) The Treasury must, within 12 months of the passing of this Act, lay before the House of Commons a report setting out the impact of exempting women’s sanitary protection products from value added tax.
(2) The report must include (but need not be limited to)—
(a) an estimate of the impact on VAT revenue of exempting women’s sanitary protection products; and
(b) an assessment of the impact on the purchase of women’s sanitary protection products of exempting them from VAT, with particular reference to purchasing by women aged under 25.’
New clause 7—VAT on sanitary protection products (No. 2)—
‘(1) Within three months of the passing of this Act, the Chancellor of the Exchequer shall lay before both Houses of Parliament a statement on his strategy to negotiate with the European Union institutions an exemption from value added tax for women’s sanitary protection products.
(2) A Minister of the Crown must lay before Parliament a report on progress at achieving an exemption from value added tax for women’s sanitary protection products within European Union law by 1 April 2016.’
New clause 10—Enforcement by deduction from accounts: review—
‘(1) The Chancellor of the Exchequer must, within two years of the passing of this Act, undertake a review of the impact of Section 47 of, and Schedule 8 to, this Act.
(2) The review must address, but need not be confined to:
(a) the number of cases in which the Direct Recovery of Debts has been used;
(b) the effectiveness of the safeguards; and
(c) the total amount recovered.
(3) The review must include a benefit-cost analysis, including speed of recovery.
(4) The Chancellor of the Exchequer must as soon as practicable lay a report of the review before both Houses of Parliament.’
New clause 11—Impact of removal of CCL exemption for electricity from renewable sources—
‘(1) The Chancellor of the Exchequer shall within six months of the passing of this Act undertake a review of the impact of the removal of the CCL exemption for electricity from renewable sources and lay the report of the review before both Houses of Parliament.
(2) The review must address, but need not be confined to:
(a) the impact on consumers and on fuel poverty;
(b) the impact on energy-intensive industries and on employment in those industries;
(c) the level of carbon leakage in the energy-intensive industry;
(d) the effect on investment in new renewable power generation and on investment in new nuclear power generation;
(e) any effective subsidy provided to, or additional profits accruing to, operators of existing and new nuclear power stations;
(f) what additional measures will be enacted to mitigate the impact on energy-intensive industries of the removal of the section; and
(g) the impact on business investment.’
Amendment 90, page 62, line 2, leave out clause 45.
Rob Marris
It is pleasure, almost 15 years after I was first elected to this place, finally to make it to the Dispatch Box—albeit, for the moment, the Opposition Dispatch Box, but never fear, comrades, we are working on it!
New clause 9 and amendment 89 deal with inheritance tax. They are twins, and I shall address my remarks to those two provisions before going on to address the many somewhat disparate amendments and new clauses in this large group.
New clause 9 is designed to make the Chancellor of the Exchequer undertake, within one year of achieving a Budget surplus, a comprehensive review of the inheritance tax regime. I have to say that it is a somewhat optimistic new clause, given that five years ago, the same Chancellor of the Exchequer was forecasting a surplus any day now. We have now arrived at any day now, and he is forecasting a surplus for the financial year 2019-20. We will see whether that happens. If the Government accept the spirit of the new clause, as I hope they will, they could have a review of the inheritance tax regime now, rather than wait at least five years until the Chancellor achieves a surplus—if he ever does.
Amendment 89 would remove the inheritance tax provisions in the Bill. Inheritance tax is a somewhat unusual tax. It is the least painful tax any of us will ever face, “because you only pay it when you’re dead.” We need to bear that in mind when we talk about this tax. Most estates on which inheritance tax is levied cross the threshold, whatever it might be, either because people have inherited wealth themselves or because they have had a windfall gain from the increase in the price of the house in which they live. There are, of course, those who start out in disadvantaged backgrounds and make a lot of money in their lifetimes; inheritance tax would then be payable on their estates. But one can say with confidence that that does not apply to a great number. At the moment, very few estates pay inheritance tax.
Mrs Anne Main (St Albans) (Con)
I am sure the hon. Gentleman will want to qualify what he said by region. In some areas, such as my St Albans constituency, a large number of people pay inheritance tax. In fact, London is particularly disproportionately affected. He needs to qualify his remarks in that respect.
Rob Marris
The hon. Lady is right, of course, that it varies around the country and that there is a much greater tendency to pay it in London and the south-east—the area she represents—but I stand by my remarks that for many of those people, the liability of their estate to inheritance tax is occasioned by a windfall increase in the value of the home in which they live. Some people improve the houses in which they live, but in the last 20 or 30 years, the great driver for estates falling into inheritance tax liability has been a secular rise in house prices. That is not as a result of people doing up their houses, although of course that happens. And good luck to them. Many hon. Members, including myself—and my wife—own the house in which they live. I, along with others, will have a windfall—and it is a windfall—from the secular increase in house prices.
Alex Cunningham (Stockton North) (Lab)
I congratulate my hon. Friend on his promotion to the Front Bench. Does he agree that these Tory proposals amount to a north-south divide policy? While hundreds of thousands of people in the south benefit from the increase in property values, carry this great wealth and want to leave it to their families, families in the north do not have the same advantage—or very few of them do. Is it not another north-south divide policy?
Rob Marris
I certainly agree with my hon. Friend. We already have enough geographic and regional divisions in this country, and I do not want their number to increase. Of course, when we legislate we must be aware of the different impacts that the measures that we introduce may have in the country of the United Kingdom, both its regions and its nations. However, there are many places in the United Kingdom where few people will pay inheritance tax, and in the country as a whole, without the changes that would be brought about by the Bill—if the House were to pass them, which I hope it will not—it is forecast that 63,000 estates would have a tax liability by 2020-21. According to the House of Commons, the proposed changes would reduce that to about 37,000, the same level as now.
In absolute terms, 37,000 represents quite a lot of estates, but in proportionate terms it is a very small amount—well below 10%—and in the case of many of those estates, the tax is payable because of a windfall. For many people—again, not all of them—that windfall was brought about when they bought their houses with mortgage interest relief at source: MIRAS. Those people acquired an asset which upon their death, after a secular rise in house prices, led to inheritance tax being a liability, and they acquired that asset with the help of the state; in other words, the help of the taxpayer. Now some of them cavil at inheritance tax, which I think is very unfortunate.
The effects of the proposed inheritance tax changes could be wider than the Government may have thought. When we stop and think about it, we must conclude that it is not surprising that many of those who would benefit because their parents have an estate worth more than £650,000 are themselves well-to-do. There is nothing wrong with being well-to-do; all Members of Parliament are well-to-do, and I have been in the fortunate position of being well-to-do for most of my life. However, when a Government propose a tax regime in which they will favour those who are already favoured, we really have to question their priorities.
The Government’s proposals will make inheritance tax more complicated, and it is already fairly complicated. Successive Governments—the Labour Government under whom I was a Back-Bench MP, the Conservative party which was then in opposition, the coalition Government whom we have just seen and, I venture, the current Government, and certainly the current Opposition—have wanted a simpler tax regime, but that is extremely difficult. We have a Finance Bill, the second of this year, which is about a centimetre thick and runs to more than 200 pages. I am not a tax expert or an accountant, but as far as I can tell, it is owing to the cunning of professional accountants who, quite legitimately, provide tax avoidance advice that we have to keep introducing loophole-closing measures that complicate the tax system. The Government are making the inheritance tax regime more complex in a way that is unfair because it favours those who are already well-to-do. The combination of forgone tax revenue and additional complexities does not amount to a desirable policy.
Alex Cunningham
Does my hon. Friend agree that the policy will further escalate the inequality between the people in our communities and throughout the nation? There are people who may work very hard but must depend on the likes of tax credits in order to exist, and have no opportunity to build any wealth whatsoever; and there are people who can inherit a property that may be worth £2 million, and then simply exploit that wealth in order to become even wealthier, to the detriment of everyone else in the country.
Rob Marris
My hon. Friend is right. In the constituency that I have the honour to represent, and in which I have lived for almost all my life, I could find no house worth more than £2 million when I looked in April this year. Indeed, none of them was near that value. There is barely a house that is worth over £1 million in the whole constituency, and of the three Wolverhampton constituencies, the one that I represent is undoubtedly the most affluent. The same will apply across swathes of constituencies: there will no houses worth that amount. The idea that an affordable house, as has now been defined by the Prime Minister, is £450,000 in London or £250,000 outside London is frankly a joke in constituencies like mine. For £250,000 it is possible to get a fantastic house in Wolverhampton. We welcome people in Wolverhampton—come to Wolverhampton: decent schools, good cheap housing, no traffic jams to speak of; fantastic, so come—but £450,000 will buy almost any house in Wolverhampton South West.
Christian Matheson (City of Chester) (Lab)
Does my hon. Friend share my concern that the Government have been unable to drive forward the economy on any basis of productivity and are therefore relying on property price speculation, and that this would be a way to drive up property prices to cover up their failings in other parts of the economy?
Rob Marris
I agree with my hon. Friend, and if I can catch the Speaker’s eye on Third Reading I will be making points along those lines. The true state of our economy, driven by a housing bubble and household debt, is actually quite frightening. In terms of inheritance tax, new clause 9 simply asks the Government, after the Budget is in surplus, to look at the inheritance tax regime. Of course the Government could do it now, and I would welcome a commitment from the Minister, if he is able to make one, that the Government will do so, because the tax breaks in this Finance Bill will be about £940 million a year by 2020-21. That does not seem a wise use of revenue when it is coming in from some of the most well-to-do families—a small number of estates, as I said. It is not a good idea to be in one sense spending money in that way. I appreciate that it is not actually spending money because, technically, it is a case of simply not collecting it in taxes, but in everyday terms it is spending money, because so much of what we do in this House is to do with priorities, and so much of the prioritisation we decide on is predicated on how much money there is with which to do those things.
Christian Matheson
Does my hon. Friend agree that we cannot afford this measure in this Parliament, not least because it will cost, as the Budget Red Book tells us, about £2.5 billion in this Parliament?
Rob Marris
It is difficult to tell what we can afford as the Conservative party, in government since 2010, has consistently failed to meet financial targets for dealing with the deficit. The Opposition agree with the Government that the deficit needs to be tackled, but we disagree on the way in which it should be done. Forgoing £2.5 billion —if that is the exact figure, and I think my hon. Friend is probably right that it is of that order of magnitude—in a very regressive way is something that Labour Members would not countenance, but we need to look at the whole regime, hence the wording of new clause 9.
There will also be complications with the wording of the inheritance tax provisions. There is a feeling of unfairness among some as to the definitions—which I will not go through tonight—of a linear descendent. Many, if not all, Members will know from our own lives, advice surgeries and places we live that the definition of a family and those who are regarded by someone as being a member of their family are somewhat fluid in our society, and have become much more fluid in the last 50 years in terms of social recognition. For example, the Labour Government introduced civil partnership legislation, which I welcome—it is possible this Parliament will extend that to opposite-sex couples—and, commendably, in the last Parliament gay marriage was put on to the statute book. Those are concrete examples, dealt with by this House, of the fluidity and changing nature of family structures, but the provisions in this Bill rather lock in whether somebody is, or is not, regarded as a member of a family. Inheritance tax in this Bill is a bit of a problem, therefore, and I urge the Government to accept new clause 9 and amendment 89, which in a sense is a stand part motion.
I will now turn to value added tax, enforcement by deduction from accounts and the climate change levy—unless any Member wishes a quick run-around again on inheritance tax, but I suspect not.
Alex Cunningham
On the question of equality in our nation, we have seen the Government deliver huge tax cuts for their friends in the City and the hedge fund managers. We would rather that money went to the needy in our society, so that they do not have to rely on loans from the loan sharks that our friends on the Government Benches make some money from as well. Does my hon. Friend agree that the Government’s proposals will do us out of the chance of recovering some of this wealth when these people die?
Rob Marris
I agree that it sometimes seems that the policies of this Government are not only to shrink the state, but to give to those who already have and take away from those who have not, for example in terms of tax credits. I will not be drawn by my hon. Friend on the subject of tax credits, but it does seem a rum state of affairs. It is the sort of thing that drew people like me to join the Labour party, to fight for that kind of equality and to fight against regressive taxation.
Jonathan Edwards
The hon. Gentleman has been inviting interventions on this issue. On new clause 9, why has he tied in the holy grail of a Budget surplus with asking for a review? As he has said, the Government proposals in the Finance Bill will make it more difficult to reach a Budget surplus.
Rob Marris
That is in the interests of having some clarity as to when this should kick-in. The Government could do it now if they chose. They do not need primary legislation to do it, but the proposal for a review of inheritance tax is in the context of the Government now being five years behind the original projections made by the current Chancellor as to when we will be in surplus. We are giving the Chancellor a lot of latitude now. We hoped that there would not be draconian cuts, which are now being planned by the Government, to public spending and that we could, through adopting a growth strategy, get to a Budget surplus with no deficit earlier than 2019-20, but I fear we will not do so. So a review now is fine, but Labour Members are reasonable people and we are giving the Government lots of latitude. They ought to think again on this regressive tax, as on others.
Mark Durkan (Foyle) (SDLP)
On the issue of inheritance tax, does my hon. Friend recognise that it is odd that the Government in this Budget and in the language of the legislation have moved to do away with any concept of child poverty? They are moving on work and family tax credits with very little discussion on their part about the impact on children. When they talk about inheritance tax changes, they use the word “children” a lot, but of course the children they are talking about there are people who are well-off.
Rob Marris
My hon. Friend is quite right. If I may be so bold, in this context, the word “child” means people of around my age and that of my hon. Friend rather than minors. I wish the Government had paid a little more attention to minors and to child poverty. One of the achievements of the Labour Government was that child poverty fell significantly while we were in office. I regret, however, that that Labour Government, under Gordon Brown, cut inheritance tax by introducing the doubler—the Minister referred to this in Committee—whereby the £325,000 personal allowance could be utilised by the surviving spouse if the first spouse to die had not used that allowance. I expressed my regret about that at the time. At that point, when the threshold was around £300,000, only 6% of estates in England paid inheritance tax. Then the threshold was raised to £325,000, and then the doubling up came in. That was regressive and regrettable, but so be it: that is the regime that the coalition Government inherited.
Sammy Wilson
I accept the point that the hon. Gentleman is making, but will he explain why he believes that we are more likely to have a successful review of inheritance tax when we move into a surplus, when the pressure on public finance is less, than when we are in deficit? Does he not think that the best time for a review of inheritance tax—that is, the giving up of tax revenue—is when we have a deficit problem?
Rob Marris
No; I disagree with the hon. Gentleman. We want to achieve economic stability—something that has been sadly lacking over the past seven years and that will probably continue to elude us for the rest of this Parliament—at which point we can pause for breath. This is part of the Labour Opposition’s overall approach: we believe that our Government finances need something called zero-based budgeting. This will be a major undertaking, in which we start by looking at what society needs rather than looking at what it has been spending its money on and simply topping that up, salami-slicing it away or whatever. We need to step back from that, but we can do so only at a time when we have a budget surplus and are not running a current—I stress the word “current”—deficit. That is the right time to look at this question.
I want briefly to talk about new clause 1, which has been tabled by Scottish National party Members, and to which I imagine they will speak later. It seems slightly odd that they wish to evade the consequences of devolution. As I understand it, a decision was taken in Scotland to amalgamate eight police forces and, I think, a similar number of fire and rescue services to create a single police force and a single fire and rescue service. My understanding is that, because they were new organisations, they became liable to VAT, which their predecessor organisations had not been. I quite understand the sentiment behind new clause 1, but it seems a little strange that, having used the powers of devolution which were quite properly passed by this House, the people of Scotland—refracted through their Parliament—should wish to change the rules on VAT. That said, we are heading towards a position of full fiscal devolution—[Hon. Members: “Are we?”] Well, I am not saying that we have got there yet, but we are heading towards it. That is the trajectory, and we would therefore not oppose new clause 1.
George Kerevan
I congratulate the hon. Gentleman on reaching the Front Bench after far too long a wait. I can tell him that we would be more than happy to take over the setting of VAT in Scotland. That could remove the anomaly.
Rob Marris
I thank the hon. Gentleman for that. We shall shortly be having a discussion about the mechanics of setting VAT in the United Kingdom.
New clause 7 has been tabled by my hon. Friend the Member for Dewsbury (Paula Sherriff). New clause 2, tabled by the Scottish National party, is similar but not as good. It was also tabled in Committee. The greater virtue of my hon. Friend’s new clause—in contradistinction to new clause 2—is that she has carefully listened to what the Government said in Committee about the road map, as we say these days, to achieving this worthy goal. She has worded her new clause in the light of the remarks made by the Minister in Committee, and I commend her for that. Her proposal has gained considerable momentum on both sides of the House, for obvious reasons. Of course, those of us on the Labour Front Bench will support it and I urge hon. Members on both sides of the House to do the same. I will not say a great deal more about the new clause—
Sir William Cash (Stone) (Con)
Some of us do have a certain amount to say about it. These are weasel words. The Opposition know perfectly well that they are not going for a full relief, or any relief, and are instead going for a pathetic little report, because of sections 2 and 3 of the European Communities Act 1972. The hon. Gentleman knows it, and we know it. These are weasel words, and the proposal would make no real change.
Rob Marris
I wish no disrespect to the hon. Gentleman, but I am not going to get into a big debate about this subject. It is not a great idea for a man to stand at the Dispatch Box and get into such a debate. On the broader issue of the European Union, it might surprise him to learn that more than half the population of the EU is female. It might also surprise him to contemplate the fact that this measure could be on the shopping list that our Prime Minister takes to Brussels, and that it could gain considerable support—from the Chancellor of Germany, Mrs Merkel, for example.
Wes Streeting (Ilford North) (Lab)
If the new clause were passed this evening, as it should be, it would be interesting if it became the only demand that we were aware of in the negotiations. Would not that be a welcome development? The Prime Minister and the Chancellor have not said anything about their negotiating position yet.
Rob Marris
I will not give way for two reasons. First, the hon. Gentleman can seek to catch the Deputy Speaker’s eye later. Secondly, as I have said, I do not propose to get drawn into a debate on this issue. I support my sisters in the Labour party and around the House, and they are more capable than I am of putting forward the reasons behind the measure being proposed by my hon. Friend the Member for Dewsbury. They are more than capable. They do not need me to do it, and I shall say no more than I have already done.
New clause 10 seeks to place a statutory requirement on the Government to produce a report, within two years of the passing of the legislation, on the effects of clause 47 and schedule 8. In lay terms, clause 47 and schedule 8 will—with safeguards—allow HMRC to nick money out of our bank accounts without a court order.
Of course, under these provisions HMRC would not, in any legal sense, be stealing money from a bank account. Were it to do so, that would be covered by section 1 of the Theft Act 1968—I am not a criminal lawyer, but that is my recollection of it. What HMRC would be doing is something that other people cannot do: it would, with safeguards, be removing money from a debtor’s bank account without a court order and without the agreement of that debtor. That is a very big step forward for our society to agree to, refracted through clause 47. In Committee, the Labour Members tried to persuade the Government not to press ahead with the clause, as did other organisations, but we failed on that. We are not trying that again tonight directly, but we are saying that we take cognisance of the safeguards the Government have introduced and beefed up as a result of representations, and that a report should be produced within two years to see how they are working.
Before I deal with the safeguards, I wish to remind the House of why clause 47, allowing HMRC to go into people’s bank accounts without a court order, has been introduced. One major driver is HMRC’s fears about revenue loss through non-compliance. In an earlier Budget speech, the Chancellor said:
“I am increasing the budget of Her Majesty’s Revenue and Customs to tackle non-compliance.”—[Official Report, 19 March 2014; Vol. 577, c. 785.]
That was welcome: there is too much non-compliance going on, some of it blatant, some of it immoral avoidance but not illegal evasion, such as large corporations squirreling away money in tax havens and in places such as Luxembourg; and there are people who owe money to HMRC but fail to pay, and so HMRC has to take steps to recover that money.
Another major reason given by HMRC, which might trouble the hon. Member for Stone (Sir William Cash), was as follows:
“The current processes for recovering debts…can be costly”.
That was said on page 2 of the consultation document, which contains an introduction by the Financial Secretary to the Treasury—the words I read out were not his but they were contained in a document whose preface he wrote. Paragraph 2.31 on page 9 goes on to say that
“a county court judgment…can be a slow and expensive process.”
In clause 47, the Government are therefore saying, “We find the court system a bit slow and a bit costly, so we are going to have our own system to take money out of people’s bank accounts, with safeguards.” That is echoed in clause 48.
Where someone wins at court, there is a calculation to be made as to how much they are owed on a debt. I believe the basis for calculating what is known as the judgment debt rate goes back to about 1837, but the Government are not having that either in clause 48. Under the interest rate provision in clause 48, and in clause 47 on HMRC taking money out of bank accounts without a court order, we have one rule for them and one rule for the rest of us. We have to ask ourselves: are they right about the court system? Is it a slow and expensive process? I have not practised law for almost 15 years, but I try to keep up with it and I think the process is getting slower and more “costly”. That is because it has been starved of money by this Government and their predecessor Conservative-led Government.
Alex Cunningham
I hope my hon. Friend will indulge me further on the question of equality. Not everybody can go into court or argue with HMRC, as they do not have the skills and understanding always to take on all these intricacies of debts, claims and this, that and the other. Where people do get to court, they find protection there for them, because they can argue their case in front of a judge and make various points, and the judge can actually aid them. These people cannot afford to have legal representation, because there is no legal aid any more, and so they are in a better position because the judge can actually help them a little.
Rob Marris
I agree with my hon. Friend on that. It is no coincidence that my hon. Friend the Member for Walthamstow (Stella Creasy) is in her place tonight, as she has done sterling work on trying to stand up for the financially disadvantaged. I thank her for her work on so-called “payday lenders”, because when I tried as a Back Bencher under the last Labour Government to amend a Finance Bill to give the Government the power—just the power—to cap payday loan rates, I could not get a Labour Government to go even that far. She has done magnificent work because, as my hon. Friend the Member for Stockton North (Alex Cunningham) said, this is to do with protecting the financially vulnerable. That is why it is a big step forward. I congratulate the Government on introducing the safeguard that an assessment must be made of the vulnerability or otherwise of the alleged debtor and that that assessment must be recorded in writing.
Mr Steve Baker (Wycombe) (Con)
I can scarcely believe my ears. I think that the hon. Gentleman is congratulating the hon. Member for Walthamstow (Stella Creasy) on helping a Conservative-led Government do more to protect the poorest in our society than a Labour Government would do. Have I heard him correctly?
Rob Marris
In that particular respect, the hon. Gentleman has heard me correctly. However, if he had heard my earlier remarks, he would also be aware of my great unease at many other policies put forward by the current Government as well as by the previous Conservative-led Government. But in the narrow respect to which he refers, he did understand me correctly.
Stella Creasy (Walthamstow) (Lab/Co-op)
Does my hon. Friend agree that a Government who voted three times against a cap on the cost of credit should not be lecturing the Opposition on how to protect the vulnerable? Perhaps if they had listened earlier to the concerns expressed from the Labour Benches about people who are vulnerable and who have personal debt in this current economic climate, this country would have made much more progress.
Rob Marris
I agree that progress can be pitifully slow under Conservative-led Governments, and that sometimes those Governments are very slow learners. With regard to the work that my hon. Friend has done, which has an echo in the safeguards under clause 47, she has persuaded the Government to be less hard-nosed and to be more “listening” about financial vulnerability than they had previously been and much credit for that success must go to her for her work with charities and others.
New clause 10 seeks in a very reasonable and moderate way to have a review of the effects of clause 47. The review would cover the total amount recovered, and whether it was as expected. It would cover the number of cases dealt with: would it be 11,000, because at one point the Government thought that it might be 19,000? It might also provide some measure of the effectiveness of the new procedure. I say to the Minister that we on the Labour Benches do not like the procedure, because it smacks of hypocrisy—of the Government, not of him personally. It is a case of, “It’s one rule for them and another for us. The court system is not working, so we will do a workaround on that.”
I now wish to turn to new clause 11 on the climate change levy, and to amendment 90, which would delete clause 45 on the CCL. In a sense, the proposal is a double negative. If clause 45 were deleted, the exemption would be restored. Again, I urge the Government to look at both these measures, which retain, certainly for the moment, the exemption on the climate change levy and, as stated in new clause 11, look at the effect of the abolition of that exemption. As I understand it, there was no consultation to speak of before the measure was announced. In contradistinction, when a fundamental change to the tax regime of combined heat and power units was introduced, that industry got two years’ notice of exemptions. In this case, this year, there was 28 days’ notice, which is next to no notice at all, because these things have long lead times.
I accept the Government’s figure that a third of this exemption is claimed by overseas producers—if only that were not the case. When many, if not all, western countries address the issue of greenhouse gas emissions, which is the nub of what we are talking about, they tend to offshore the problem. Carbon dioxide intensive manufacturing, using lots of non-renewable fossil fuels, gets relocated by capitalists to places such as China and India, making it look as if the CO2 emissions per capita in the United Kingdom are falling quite dramatically, but if the CO2 emissions in the United Kingdom were to include those for which UK residents and consumers are responsible, we would see a rather different picture. Of course Labour Members are not happy about a third of this exemption money going overseas, but in one sense that is all part of offshoring. As far as one can see, successive Governments have been turning a blind eye to the offshoring of greenhouse gas emissions to China and India and so on, but when we are talking about measures to lessen that, no offshoring is to be allowed under this Government. They should think again.
I am not intimate with the industry—this is after all a finance debate and not an energy debate—but I accept that the cost of the CCL exemption in the five years of this Parliament could be in the order of £4 billion. We are talking about a lot of money. It is symptomatic of this Government being penny wise and pound foolish—if one can be penny wise with £4 billion—because they are cutting the exemption too soon, before the industry reaches self-sufficiency. If the industry were treated like the nuclear industry, we would have 100 years of subsidy before deciding whether the technology worked and it was self-sufficient. I am not suggesting that, but what we have is an industry in which the UK has been pretty successful. Indeed, it is a desirable industry. It is a renewables industry which, on all the evidence of which I am aware, is likely to grow in future years around the world, not shrink. We had some technological lead and a skilled UK workforce, but then the Government take us a step back with what they do at 28 days’ notice to the CCL exemption. I understand that prospective onshore wind projects are, almost as we speak, being abandoned, which is regrettable. That is not to say that every one of those projects should proceed, but it is regrettable if the whole industry is shrinking.
As I understand it, the impact assessment for the changes to the CCL exemption and the feed-in tariff is that there will be 1 million more tonnes of CO2 produced in the UK each year, which seems to be going in the wrong direction. What other financial incentives are there to encourage UK non-domestic users—I am talking about business and the public sector, not households—to use renewables? Secondly, in what ways are the renewables obligation and contracts for difference more efficient and more effective?
Alex Cunningham
This whole issue cannot be divorced from carbon capture and storage and the need for the Government to confirm their support for the two projects in the competition—I think we are due a decision on that in the new year. After that, we need to encourage industry with industrial CCS, especially on Teesside where my constituency sits and where, nearby, we have just lost a large section of the British steel industry.
Rob Marris
It is a tragedy what is happening to steel production around the country, and energy prices are part of the mixture behind it. They are as high as they are partly because we have not got to grips with technology like carbon capture and storage, and that is shackling companies in our country.
Sammy Wilson
Does the hon. Gentleman not see the contradiction in saying that the Government should be looking for ways to encourage high-intensity energy users to use more renewables, which are three times more expensive than producing electricity from gas, while lamenting the decline in energy-intensive industries in the UK?
Rob Marris
I disagree with the hon. Gentleman. The difficulty is that we have high energy prices because we have not invested in new technology to bring them down. For example, if we had cracked the holy grail of carbon capture and storage on a commercial basis—it is already cracked on a scientific basis—this country would be quids in, because of all the coal we have.
Sir William Cash
The short response to what the hon. Gentleman is saying is that massive subsidies deployed in other countries are being authorised by the European Commission, but we do not get them. As the hon. Member for East Antrim (Sammy Wilson) said just now, there is an increasing failure in renewable energy because it is too expensive and the subsidies are a complete disaster zone.
Rob Marris
The hon. Gentleman is right that the European energy market and the production of energy within the European Union are a bit of a mess. The United Kingdom is part of that mess because we are in the European Union, but it is a mess here anyway because we have not tackled energy security. Again, the problem started under the previous Labour Government and I berated them for it at the time. I was berating a Labour Government on energy security before I lost my seat in 2010, and on returning to this House five years later, so far as I can tell almost nothing has been done on that front apart from the poisonous deal—in many senses of the word—backed by China and EDF for new nuclear power stations in this country.
One can see a bit of a pattern with what is happening with the removal at 28 days’ notice of the climate change levy exemption for electricity from renewable sources used by non-domestics—non-doms, as it were. The Liberal Democrat policy was for the percentage of taxation to come from environmental taxes to keep rising year on year, and when the Liberal Democrats first came up with that crazy idea in about 2007 I pointed out that it was a bit self-defeating. That has been formally abandoned by this Government, which is not necessarily a mistake, but in the context the issue is what has or has not replaced that policy. Support for large onshore wind is being cut, and support for photovoltaics is being ended one year early. The Government’s policy is to lessen air passenger duty, and they aim to abolish it and to expand airports. That is not good news for the environment. The policy on zero-carbon homes for 2016 is being scrapped, not just diluted. There is a massive nuclear subsidy, which we heard about last week with the visit from China. What will our nuclear industry be built on? State support from China and from France.
Alex Cunningham
I should have declared that I was chair of the all-party group on carbon capture and storage, and I am also chair of the all-party group on energy intensive industries. My grandfather was a miner, so I am pleased to hear the word “coal” mentioned in the Chamber. We have huge resources, particularly under the North sea close to Teesside. Does my hon. Friend agree that we need to see investment now in coal gasification if we are going to provide the natural gas needed by companies such as GrowHow, the UK’s only remaining fertiliser producer?
Rob Marris
I did not know that my hon. Friend had gathered so many accolades, but I thank him for the work he has done on these energy matters, which is particularly important for his constituency interests and for our country. As I said, if we could get the holy grail of carbon capture and storage, our country would be quids in because of the amount of coal we have. I am sadly old enough to remember what was called town gas; I do not know whether my hon. Friend remembers it. Town gas was made from coal, produced and piped, before we discovered abundant natural gas in commercial quantities under the North sea. Yes, we could go back to that, but we need the technology.
Instead, we have a massive subsidy for nuclear energy. Leaving aside the safety issues for the moment, that subsidy is just twice the price per kilowatt hour guaranteed with indexation. Who is proposing it? A combination of France and China—China with, as I understand it, a reactor that has not yet been built anywhere in the world, and France, through EDF, with the wonderful record we see at Flamanville in Normandy, where the reactor is now three times behind schedule at twice the predicted cost and still has not opened. There is a similar story with a similar reactor, also being helped by France, in Finland.
The Government are contemplating huge subsidies in a panic over energy security, which of course will not guarantee energy security as it will take so long to build a new fleet, as they are pleased to call it, of nuclear power stations. Meanwhile, as my hon. Friend the Member for Stockton North points out, we have the craziness of all this abundant coal yet quite insufficient Government-funded CCS research and development through which we could proceed to the gasification of coal as North sea gas is running out.
Alex Cunningham
My hon. Friend may be surprised to learn that I spent 17 years of my career in the gas industry, so I know very well what town gas is. I was pleased to play a part in seeing natural gas come to large parts of the country. It does not matter whether subsidies are for wind, for panels on people’s roofs or whatever else; this is also about the creation of jobs. If we get carbon capture and storage right, a place like Teesside could start to replace the highly skilled jobs we have seen going down the pan over the past few weeks.
Rob Marris
I quite agree with my hon. Friend. We want those highly skilled jobs and we want the cheaper energy that one hopes we can get from that technology. We need the Government to kick-start research and development investment to develop that technology. However, I must caution my hon. Friend. There is only so far I can go in agreeing with him. Yes, we want those jobs, and quite a lot of them will be highly skilled, but it is a dead end for us as a country always to have subsidised jobs. That is the obvious thing to say, but it is a dead end. We need a plan to get from where we are, without energy security and without technological development, to the sunlit uplands where we have that technology and development, and where they are self-sufficient and commercially viable. That will need some support from Government, and the removal under clause 45 of the CCL exemption for electricity from renewable resources used by non-doms is a step in the wrong direction.
The Department of Energy and Climate Change Minister Lord Bourne of Aberystwyth wrote to me on 26 August saying that the Government had committed to delivering on the national infrastructure plan published in December 2014, which contained a number of priority investments. He went on to list some of them. One is rail electrification, and we know what has happened to that—it is on pause. Another is low-carbon energy such as nuclear; we know the cost of that, which is enormous. A third is low-carbon energy such as renewables, but clause 45 is going in the wrong direction on that. Lord Bourne also cites energy efficiency measures such as smart meters, but the evidence on them is mixed, to say the least. Before Conservative Members jump up, I know that it was a Labour Government who started down that route and it struck me as a very odd thing to do at the time.
The final point that Lord Bourne mentions, which will please my hon. Friend the Member for Stockton North, is carbon capture and storage. We need to go down that route, but as I say, we need a bit more help from Government, and the measure in clause 45 goes in the wrong direction—at least, we are uncertain what direction it is going in as there has not been a whole bunch of consultation on it as far as I can tell and I am not aware of an impact assessment.
On 8 July—Budget day, I believe—HMRC put out a consultation document on the subject, which said that one of the factors being examined was the “operational impact” in pounds. It stated:
“Changes in HMRC costs are estimated to be negligible and would fall as part of the existing operational cost of administering CCL. The government will consult Ofgem and NIAUR”—
that is, the utility regulator—
“over summer/autumn 2015 to establish the costs and other impacts on the regulators of removing the exemption.”
That is a consultation, as I understand it, only on the impacts on the regulators, but that might shed some light on the impact on the industry and on employment. I hope that when he responds to the debate, the Minister can address that point.
Sir William Cash
I do not think new clause 7 is strong enough. It just asks for progress. We are not doing enough. Let me explain why.
The hon. Member for Wolverhampton South West (Rob Marris), who presumably helped to draft this proposal, knows perfectly well that he is trying to find a way of satisfying those who would like to see a serious attempt made to reduce the VAT on these products. They are clearly necessary and the tax on them should be reduced in the way that has been proposed. Unfortunately, however, he also knows that because of sections 2 and 3 of the European Communities Act, it is impossible to do that without getting the agreement of all the other member states. There is a variation as between other member states and ourselves to the advantage of those states, the net result of which is that supporters of new clause 7 are not going to get that agreement and they know it.
I am completely on the side of those who want to see a total elimination of VAT on these products.
Stella Creasy
I note with pleasure the hon. Gentleman’s support for the idea that tampons, as they are called, and sanitary towels are an essential. I am an avid follower of many of his debates in Parliament, and I know that he has raised concerns before about the European Union. Having discovered his support for this proposal, I wonder whether he can update us on when he last raised in this House the issue of VAT on tampons.
Sir William Cash
I am not going to say that I did, but I put through an Act of Parliament, the International Development (Gender Equality) Act 2014, both to protect women and to promote their interests, with massive support from all parts of the House, so I want no suggestion that I am backward in coming forward on these issues.
New clause 7 contains weasel words. It does not solve anything. It is not in the interests of the United Kingdom not to deal with the problem properly.
Kate Hoey (Vauxhall) (Lab)
I have raised the issue over a number of years, and I am pleased that we are debating it tonight. Does the hon. Gentleman agree that this is one of the ridiculous things that the European Union does, and that we need to get back in our own country control of how we levy VAT, which is why we should vote to leave the European Union?
Sir William Cash
I entirely agree with the hon. Lady’s last remark, for the reasons that she has given. We need to get back control over our own power to make laws, levy taxation and deal with all the matters which we do not need to go into today. The supremacy of this House affects tax, spending, and the way in which we run our own country. We have a right and a duty to return to the people of this country the right to govern themselves. This happens to be an extremely good example of the kind of thing that would help women in a way that I would much like to see.
Stella Creasy
I am pleased to hear the hon. Gentleman talk about his concern for global gender inequality, and his support for the idea that tampons are an essential and therefore should not be zero-rated. There is another way to read the amendment, is there not? Were we to pass it and to propose these matters at the European Union and secure zero-rating on tampons across the whole EU, he would be showing solidarity with his sisters in France, Belgium, Germany, Italy—indeed, he could be helping many more women by supporting zero-rating across the European Union.
Sir William Cash
If there were a cat in hell’s chance that we would get this through the European Union, I would entirely endorse the hon. Lady’s sentiments. I would like to see the changes. The problem is that everybody on the Opposition Benches and the Government know quite well that they are not going to be able to achieve that with the kind of progress report that is mentioned in the new clause. It would be a great opportunity now to propose a provision that would override European law to make sure that we could achieve the objectives that she and I clearly share.
Stella Creasy
I thank the hon. Gentleman for giving way again. I do not want to pursue this, not least because I am avidly waiting for the speech from my hon. Friend the Member for Dewsbury (Paula Sherriff), which I think will be compelling, but may I give him a spark of hope? It is not just on these shores that there are women—and men—fighting for zero-rating on tampons; there are others doing so in France. The proposal was put forward just this summer. Should he choose to vote with us and support the new clause, he will be joining many people across the European Union. I want him to have hope that we can win this at the European level, rather than the despair that he currently feels.
Sir William Cash
My final remarks on the issue are these: that is wishful thinking. What is needed is not a report, but action—action to return to this Parliament the right to determine its own levels of taxation. I regard the proposals in the new clause as aspirations without substance, yet I agree with the underlying principle, which can be implemented only by an effective legislative change to the Finance Bill, whereby we take back control over our own affairs and govern not only the men but the women of this country in the way in which they would like.
Paula Sherriff (Dewsbury) (Lab)
New clause 7 is tabled in my name and supported both by my hon. Friends and by a number of Members on the Government Benches.
It is time to end the tampon tax once and for all, and we have the chance to take a step towards achieving that today. It is absurd that in Britain tampons and sanitary towels are taxed as luxuries, not essentials, and not treated as a public service activity or medical provision by EU law. Almost 250,000 people from across the country have signed up to a call for that to change, and it is about time they were heard in Westminster and Brussels. Quite simply, a tax system that lets someone dine on crocodile steak on their private jet without paying a penny, when we cannot survive a period without the Treasury taxing us for it, cannot be a fair one.
That is why the Minister’s predecessor, Dawn Primarolo, urged on by many of my predecessors on these Benches, reduced the rate to 5% under a previous Labour Government, and it is why Laura Coryton and other feminist campaigners are running a campaign to finish the job with a zero rate now. Hon. Members can still sign up at change.org/EndTamponTax.
Periods are a fact of life and it is not as though women have a choice. Many were shocked to see Kiran Ghandi run the London marathon without a tampon to highlight the fact that too many women around the world do not have access to sanitary products. But that is the point—this is a basic matter of biology and it is time to end the taboo.
We can buy tampons in this country, but we are taxed for doing so. This is an issue for all women, but, as with so many things, it hits the poorest the hardest. Imagine being homeless when that time of the month comes. Think about what it is like to face a period without even having a bathroom.
Liz McInnes (Heywood and Middleton) (Lab)
My hon. Friend refers to the plight of the homeless. As I am sure she is aware, homeless shelters can request free condoms from the NHS, but not free sanitary products. Does she agree that it really is time we dealt with that indignity, because homeless women face enough challenges already?
Paula Sherriff
I completely agree that homeless women face enough challenges without the added burden of periods without sanitary products.
Some great work is being done by food banks, and student unions, such as those at Leeds University and Sheffield University, have started selling sanitary products at cost price in order to avoid VAT, but this is an issue where the Government need to lead from the front. The Minister told us in Committee that he was sympathetic to this, but we do not need to be patronised with tea, sympathy and platitudes; we demand action. He told us that his hands were tied and that change would require difficult negotiations and EU reform, but the Prime Minister has just promised us that he will undertake just such negotiations, and that he will be able to deliver just such EU reforms. This issue, which affects the majority of people across Europe, could hardly be more difficult to achieve than the rest of his demands.
Frankly, VAT on tampons is the vagina added tax. It is a tax on women, pure and simple. Therefore, instead of going to Brussels to water down our protections at work, the Prime Minister has an opportunity to deliver a victory for women across the continent. This issue transcends party politics, and I am pleased that the amendment has received cross-party support, from other parties on the Opposition Benches and from some Members on the Government Benches. I sincerely hope that Members on both sides of the House will support taking steps to axe the tampon tax tonight.
Sir William Cash
The hon. Lady refers to people across Europe, no doubt meaning the European Union. The only problem is that if we cannot get unanimity among all member states, we will not get any change at all. From that point of view, the most important thing is to fight and fight again to ensure that we get what we want, but also to guarantee that we bring back the powers to this House.
Paula Sherriff
I am not sure whether the hon. Gentleman is suggesting that we should do absolutely nothing about this huge inequality that affects more than half the population. We have an opportunity to take a significant step forward for women and families this evening. We turned our clocks back on Sunday. Let us not turn them back even further tonight, period.
Mrs Main
I am pleased to have an opportunity to discuss this matter, because we need to examine why we cannot do something about it—if we really cannot. I know that I would not be in your good books, Mr Deputy Speaker, if I brought in some props to illustrate my argument, so I will have to ask you to use your imagination, which I am sure is prodigious. Imagine that I have laid out on the Bench beside me a selection of products, including pantyliners, maternity pads, mild bladder weakness pads and incontinence pads. They would all look fairly similar and would be made from similar materials, but some would have a designed difference. In other words, they would be taxed.
I call that tax a femi-tax. I know that there has been a lot of alliteration, with references to a “tampon tax”, but it is somewhat perverse that in a selection of products that look pretty similar, and that are perhaps interchangeable, some should incur tax simply because they are associated with a woman’s bodily function. To me that seems unreasonable and totally illogical.
When I looked into the matter, I found that incontinence aids do not attract tax because they come under a different tax regime. It is assumed that they are intended for use by people who have illnesses, who are elderly or who are disabled. However, those of us who watch too much television—I am probably in that category—will have seen plenty of adverts for products for those “Oops” moments, as they have been described, and they do not show geriatric, disabled or elderly people; they show sassy young ladies and women of a certain age who are still attractive to members of the opposite sex. Therefore, let us assume that this is some sort of contrivance. Those products, should a woman choose to use them to ensure that she does not have an embarrassing “Oops” moment, do not attract VAT. I cannot see why the products a woman might choose to use, even if they might also be used by the elderly, the infirm and the disabled, are not regarded for tax purposes as the same as any other product she might choose to use. That is the illogicality we must tackle today.
I understand the alliteration of the “tampon tax”, but I think that phrase is misleading. If those products were laid out, most people would struggle to identify which ones incur VAT. This contrivance, because this only affects a woman’s bodily function, whether she has had a baby or her normal monthly period, means that it is that function that is taxed. I think that it is unreasonable that we cannot at least appear to deal with the matter.
I want this to be discussed tonight because I want to understand why we cannot deal with the matter. I would like to say that we could go to Europe and make all sorts of bluster and noise, but I would like the Minister to tell us tonight whether he agrees about that illogicality and whether he agrees that this is indeed a femi-tax—a tax on women’s bodily functions, but not on other bodily functions. If he has sympathy with that view, I would like him to explain to the public why we cannot look at these products and say, “They all look pretty similar and they all have similar functions in absorbing fluids, so why has someone somewhere decided that we cannot choose to make them all exempt?” It seems ridiculous that a woman could buy an “Oops” moment product—I do not want to advertise any particular brand—and use it for sanitary protection and that that would be cheaper. It might not be quite as effective, but it would be cheaper. I think that it is absolutely ridiculous that a similar-looking product intended for personal hygiene, such as a pantyliner, would be taxed differently. I do not understand it.
I would like the Minister to explain why we as a country would want to persist with that illogicality in taxation. If he has a reason—I suspect that my hon. Friend the Member for Stone (Sir William Cash) has hinted at this, but I want to hear it from the Minister—that is associated with us being bossed around and told what to do by a conglomeration of countries that I have never voted for, then we need to start raising these issues. If Europe insists on taxing women through a femi-tax, I would like them to explain why.
Wes Streeting
Perhaps this will help the Minister. Does the hon. Lady agree with the point the Chancellor made to the Treasury Committee last week that there needs to be a debate within Europe about the tax regimes affecting eurozone countries and those affecting non-eurozone countries? Will she therefore support the Chancellor in those discussions, and will she support negotiations that are about a sensible conversation with our European partners and allies, rather than bluster?
Mrs Main
I agree, and I am pleased that there are hon. Gentlemen who are not too cowed to take part in this debate. I am old enough to have read Ms Greer’s “The Female Eunuch” in the ’70s, when this was a hot topic. It was about how women can face up to the fact that this is just part of being a woman, not something shameful to be hidden away. Therefore, we need to have a discussion, without bluster or embarrassment, about why we cannot take back control and have fairness in our society in this country.
George Kerevan
I remind the hon. Lady that under the sixth directive, which sets out the tax rules in the EU, the anomalies that she mentions between different kinds of medical products, including tampons, are precisely the evidence we need to take to the VAT Committee in order to get a derogation that would allow us to move to the zero rate for all these products. In advancing her line of argument, would she like to ask the Minister why the Government have never asked for that derogation, which is perfectly possible given the evidence she has raised?
Mrs Main
The Minister may well explain that to the hon. Gentleman, but I personally do not want to have to go cap in hand asking for derogations. I would like this country to decide that it is a ridiculous illogicality to have different tax rates on similar-looking pads that could be used for interchangeable purposes. I would not wish to have to go and ask, “Please, European Union, can you allow us to do what we would like to do, which is to free up our women from this taxation that only affects them: a femi-tax?” I would like us to have the ability to do it.
I hope that the Minister will explain to all hon. Members here and to all the women out there in the country why, if they go and buy a mild incontinence, bladder weakness or “Oops moment” pad—call it what you like—and use it as a sanitary towel, they will not be taxed, because they do not understand it, and nor do I. It is time that we stood up to the European Union. If it does not like us doing that and having to ask, “Please can we have permission for a derogation?” then perhaps we need to consider this matter when we are deciding whether we wish to stay in the European Union.
Alison Thewliss (Glasgow Central) (SNP)
Members may have seen the images circulating on the internet of groups of world leaders with the men photoshopped out, where Angela Merkel and Hillary Clinton cut lonely figures. A version has even been done of the House of Commons. I imagine that some of these Benches would look pretty bare this evening if we took away the men.
That is a stark reminder that despite much progress, we still have a long way to go before gender equality is realised. That is desirable not just for its own sake but because without women the issues that disproportionately affect women do not get resolved. VAT on essential women’s sanitary products is one such issue: it affects only women. I dare say that if it did affect men, it would have been resolved long before now. Every month when I purchase a box of tampons or towels, the Chancellor benefits. Women, on average, begin menstruating at age 12 and continue until age 52. That represents a significant sum of money spent by every woman in the country over their lifetime. This seems particularly unfair for younger women who may not even be old enough to work. That is why our new clause mentions women under 25, who will most likely be in lower-paid jobs or not yet working at all.
I do not know of any woman who exclaims on a monthly basis, “I have my period—what a luxury!” For women, these items are not treats, and they are certainly not optional. Any number of female colleagues here today may have their period and nobody knows, and that is quite right. But people would certainly know all about it if, like the brave London marathon runner, Kiran Gandi, we came into this House deliberately forgoing sanitary protection. That is no doubt an uncomfortable prospect for male Members of this House, but I would say, “Good. I did not come here today, or any day, to make you feel comfortable but to challenge any status quo that I feel is unjust, and I am not done yet.”
I want to highlight the particular case of maternity pads. As the hon. Member for St Albans (Mrs Main) said, it is illogical that incontinence pads are zero rated but maternity pads are not. Such pads are essential for women who have just had a baby; they are absolutely essential for post-birth lochia for up to 10 days after birth. I do not understand why these items are not treated as medical items and similarly zero rated.
Sir William Cash
Can the hon. Lady explain—I am genuinely curious—whether these matters have been raised in the Scottish Parliament and what is the attitude of the Scottish Government?
Alison Thewliss
As I suspect the hon. Gentleman well knows, the Scottish Parliament does not have jurisdiction over this matter, but the SNP feels sufficiently strongly about it that we put it in our party manifesto for this place, and the First Minister has been vocal in speaking out in support of zero rating for sanitary products. We would very much like this to happen, and we will give any support that we can in the Scottish Parliament as well as from our Benches here.
This issue has been very protracted over many years, and this House cannot resolve it alone, but we can make a start. VAT has already been reduced by a previous Labour Government, and we have a good deal of cross-party support here tonight. I think that we can do much better than the Prime Minister, who, during the election campaign, described this as a “difficult” issue and said that he “can’t remember the answer”. The answer, of course, is that we can take a lead on this. In June 2015, the European Commission, which is yet to have a female President—perhaps that would make a difference on such issues—gave an answer that was not entirely positive. It set out the background to its reasons why this cannot be done, but it also said:
“As part of its upcoming work on a definitive VAT regime based on the destination principle, the Commission will assess the functioning and possible improvements to the system of reduced rates.”
So we have an opportunity to get involved in this debate to say that this is an important issue for us as a nation and for women across Europe.
We have an opportunity and an obligation to try again to resolve this issue. Members may not know this, but the Republic of Ireland entered the European Union at the time of a 0% rating on sanitary products that it was able to retain in much the same way as we have derogations in different areas, so there is already a precedent within the EU of a zero rating in a European member state. I urge the Government to take a lead on this for women across these islands and across the EU. Let us end this bloody unfairness.
Mr Bernard Jenkin (Harwich and North Essex) (Con)
This debate is like history coming back to me, because not only does the hon. Member for Glasgow Central (Alison Thewliss) now represent the constituency that I stood for in 1987, but I was first made aware of this issue by the hon. Member for Walthamstow (Stella Creasy), who, when she was an A-level student in my constituency, berated me for the inequality of this tax. Ever since, I have been convinced that it is an unjust tax. Indeed, on that occasion I raised the matter in the shadow Cabinet, which was then under the leadership of William Hague. I got a very frosty and uncomfortable reception for raising such a matter in a semi-public meeting, including from some of our right hon. and hon. Friends who are female and hold extremely senior positions in Government to this day.
That demonstrates an important point about how attitudes change. Whatever we might have agreed to in our original agreements with the European Union that lock this tax in place, albeit reduced by the previous Labour Government to the minimum of 5%—I celebrate that—we are now, within the European Union, operating in a system based on a different principle—the principle that taxes should be harmonised as part of the single market. I refer the House to article 113 of the treaty on the functioning of the European Union, which says:
“The Council shall, acting unanimously…adopt provisions for the harmonisation of legislation concerning turnover taxes, excise duties and other forms of indirect taxation to the extent that such harmonisation is necessary to ensure the establishment and the functioning of the internal market and to avoid distortion of competition.”
So taxation has crept into the idea of being part of the single market. At the point at which this country signed up to the Common Market, or even at the stage of the Single European Act or of the Maastricht treaty, this principle crept into the acquis communautaire of the European Union rather than being something that was expressly agreed by this House.
I very much hope that the Government will negotiate something fundamental on this particular tax, and I am looking forward to what the Minister has to say about it. However, I make no apology for raising the far more general principle that different taxation regimes in different countries represent different social settlements and the development of our societies in different ways at different paces. That is why we are separate nations and separate peoples with separate democracies.
The attempt to use the pretext of the single market to harmonise taxes is one of the most democratically regressive manoeuvres the European Union could adopt. France puts VAT on food and children’s clothes, but this country would not put VAT on such items. Ever since we adopted the cheap food policy following the abolition of the corn laws in the 1840s, that has been part of the fabric of our social settlement. It is the right of an individual nation state to continue to evolve its social settlement, and the conduct of Government and the imposition of taxes are inseparable from that democratic social settlement.
The treaties as currently formulated are a denial of national democracy. This House should not have to go and beg 27 other member states in order to change a rate of tax on an issue that we think is socially important. This is a matter of national democracy, and that is why the treaties are unfit for purpose.
Mr Jenkin
That is absolutely correct. Having observed the history of 40 years of membership of the European Union, as it is now called, we know that it is not going to stay like this. The European Union will continue to develop. The trend of taking more taxation powers away from the member states, in the name of the single market, is enshrined in article 113, so it will continue to do so. Yes, we have a veto, but the European Court of Justice tends to accelerate the pace of tax harmonisation just when we do not expect it to do so. It is the ECJ that extended VAT to certain items and categories of goods when we did not expect it to do so.
The group of amendments also addresses the renewables obligation incentives and seeks to adjust the feed-in tariff regime. Why are we able to reduce taxation on renewable energy products to only 5%? It is because of the European Union. Why could the previous Labour Government not abolish VAT on fuel, which they said they wanted to do after it had been applied by the Major Administration? It is because of the European Union.
Tim Loughton (East Worthing and Shoreham) (Con)
I agree with everything my hon. Friend is saying, although I am slightly alarmed by his statement that the shadow Cabinet is a semi-public meeting.
Surely the harmonisation of tax fails on two fronts. First, different countries treat these products at the higher rate, the lower rate or at no rate. Secondly, on equality of treatment, is my hon. Friend able to think of any other product that is taxed so discriminately that it affects only one half of the population of the European Union, who just happen to be women? Is that not the most discriminatory and iniquitous measure that the EU has come up with?
Mr Jenkin
My hon. Friend makes an interesting point and raises the spectre of a case to bring before the courts—perhaps even the European Court of Justice—on the basis of discrimination. Perhaps that would be one way of resolving this particular problem.
I am shamelessly using this example as an opportunity to make a far broader and more important constitutional point.
Hannah Bardell (Livingston) (SNP)
I am glad the hon. Gentleman has admitted to his own shame, because it seems somewhat shameful to fudge the issue. We may not have all the powers to change the situation, but this House has an opportunity to send a clear message to Europe on something that is very wrong and about which so many people feel strongly. I cannot believe that the hon. Gentleman is using that as an excuse to not support us on an issue for which there is clear cross-party support.
Mr Jenkin
I point out to the hon. Lady that my name is on new clause 7. I support it, but I will wait to hear what the Minister has to say before deciding whether to vote against my own Administration. I am sure she will understand that. There have not been many rebellions among the SNP yet. The point about being a political party in this House is that we are all individuals and we are all allowed to do what we choose. In fact, that is our responsibility.
Sir William Cash
Surely what this really boils down to is that the European institutions intend to—and actually do—tax women on these products in order to get the money to run the very system that is discriminatory.
Mr Jenkin
Our problem with the EU’s VAT directives is that they are a one-way street. Once the EU has adopted powers to regulate a particular tax, that power cannot be taken back by the member states. We are then left begging the EU as to whether we can set the tax rates for which the British people vote, as opposed to setting them ourselves. It strikes me as ironic that the Scottish National party wants independence from the United Kingdom in order to do its own thing, but it is happy to go on giving up more and more power to the European Union, so it will have even less freedom and less voice than it has in the UK.
The problem is that once VAT rates on any product are set above 5%, the European Union does not allow any member state to reduce them to below 5% again. We therefore have an anomaly whereby there is a zero VAT rate on sanitary products in the Republic of Ireland because it has never charged VAT on them. Had we started from the principle of charging no VAT on sanitary products, we would be in the same position as Ireland, but because we already charged it we cannot take it away. What a mess.
Jess Phillips (Birmingham, Yardley) (Lab)
I wonder whether the hon. Gentleman recognises all the good things the European Union has done for women. As somebody who has had to suffer periods and pay this unfair tax, I was also afforded maternity rights that I would never have had if it had not been for some of the pressures exerted by the European Union.
Mr Jenkin
I certainly acknowledge that what has happened in other member states has influenced what has happened in this country, but the hon. Lady enjoys no rights in this country that we could not have afforded ourselves through our own political processes. The question of the possibility of leaving the European Union is about taking back control over those policies, not deciding them in a different way from that which she would like. Long may we continue to agree on the importance of equal rights for women in as many areas as possible—in fact, in every area that we can possibly legislate on.
Pauline Latham (Mid Derbyshire) (Con)
Does my hon. Friend agree that this tax is very unfair because it is not about the equality of sexes? The tax is not equal because men do not need any of these products. If we had thought at the very beginning that this would impact on women only, I am sure people would have thought much harder about putting tax on sanitary products, which every woman, mainly, needs for a long period in their life. It is not fair.
Mr Jenkin
I am not going to give way again.
I congratulate the hon. Member for Dewsbury (Paula Sherriff) on tabling new clause 7. She may be a little surprised at how many Members support it, but, sadly, we have to have this debate not because it is the British Government’s policy to levy the tax, but because it is the EU’s policy to do so. That is a fundamental freedom and control that we should bring back to this House in the future.
Jess Phillips
I feel the need to make all sorts of declarations of interest in this debate, having used sanitary products pretty much all my life.
I wish to pay credit to a number of women who have brought this subject to the House over the years. Without women in this place, I am certain that this issue would never have been raised, although I am delighted that so many men interested in Europe are in the Chamber to talk about it. Dawn Primarolo, a working-class woman brave enough to dare to speak up in Parliament about the taboo subject of women’s periods back in the year 2000, should be commended.
Today, when such topics are far easier for us to discuss, I have already received a number of sideways glances from colleagues around the estate on speaking about the subject and there is a certain desire among Conservative Members to say the word “products” instead of tampons. I know from speaking to my right hon. and learned Friend the Member for Camberwell and Peckham (Ms Harman) today that, at the time, it was considered vulgar and even shameful that Ms Primarolo brought forward the subject. She was brave. Today, our brave woman prize goes to my hon. Friend the Member for Dewsbury (Paula Sherriff). Regardless of what has been said on the other side of the House, doing nothing achieves nothing.
It is completely ridiculous that women are taxed, even at a 5% rate, for a product which, in my experience, is more than essential. The fact that we still have the tax is probably down in no small part to the fact that most of the people in the House and in our sister Parliaments all across the EU do not have wombs. The reason why we must force the Government to have a conversation with our European partners is that, without force, I fear that they will be too squeamish to talk about women’s periods. But they should not be: every person in the House exists only because their mother had a period. Today, with half term, Parliament has been teeming with children—my own have been on the slides in Portcullis House—who all exist only because their mothers had periods. It is nothing to be scared of, and nor should any man or woman ever feel that we should not talk about periods.
Such a revision in taxation may seem a marginal change, but it would make a huge difference to the women in this country. Having worked in a women’s refuge, I know that the things we had to stock up on the most—because they presented a challenge to the budgets of the women in our care—were nappies, tampons and sanitary towels.
Cat Smith (Lancaster and Fleetwood) (Lab)
Does my hon. Friend agree that VAT is a very unequal tax and that it hits the poorest women in our communities hardest?
Jess Phillips
I totally agree. When you have no money left, having fed your kids and paid your bills, the cost of a product such as Tampax is a real issue for people.
Let me be clear: tampons and sanitary towels are essential, and everyone in the House knows it. I will not tell how I know it. I am sure there are plenty of mishaps that the women in the House could all talk about, including no doubt those that have happened even on these Benches. This tax is a tax on women and girls. I started my period when I was 10 years old, so I have paid the tax for 23 years. If the House will excuse the pun, it is a bleeding scandal.
Mr Baker
This problem of taxation on tampons and other sanitary products is one that, quite rightly, excites a great degree of anger and controversy, but the solution to the problem is uncontroversial. It is perfectly obvious that we are all agreed in the House that we should get rid of the tax on tampons and other sanitary products. The reason why this is a subject of interest to so many is that the House is of course prohibited from doing so by EU law.
Stella Creasy
Will the hon. Gentleman clarify why he thinks that purchase tax, which was also applied to tampons before our entry into the European Community, was not similarly egregious to women?
Mr Baker
Indeed. That is precisely the point. It is not because we are spinning-eyed nutcases that we wish to get excited about Europe; it is because we find, again and again, that the European Union obstructs us from solving real problems in people’s lives.
On this occasion, it so happens that the hon. Member for Dewsbury (Paula Sherriff) deserves all our congratulations on forcing the issue. I am very glad that my name appears on new clause 7. I must say that those who are attacking us for signing the new clause are probably going some way to diminishing the support they will receive. We are all in the House because we wish not to send messages but to take action that serves our constituents. I would like to break the news to some Members of the House that approximately half the electors of Wycombe are in fact women, and I am very happy to do the best I can to represent them in this place.
It seems to me that there are five courses of action available to the Government. The first is to do nothing. That is clearly untenable. We are in the House today because doing nothing is untenable. Some course of action must be taken to resolve the problem.
Sir Edward Leigh (Gainsborough) (Con)
On a point of order, Mr Deputy Speaker. In the other place not two minutes ago, their Lordships voted for a Labour amendment to in effect kill off—[Interruption.] Not for 100 years has the House of Lords defied this elected House. This is a serious matter, and I ask you or Mr Speaker to make a statement to protect the rights of the elected representatives—not just for us, but for the people of this country.
Mr Deputy Speaker (Mr Lindsay Hoyle)
Sir Edward, as you well know, it takes both Houses to agree. The subject has come before this House and I am sure that this is not the end of the matter, but you have certainly enabled us to be informed.
Wes Streeting
Further to that point of order, Mr Deputy Speaker. The very fact that the hon. Member for Gainsborough (Sir Edward Leigh) raised that point of order in the manner he did underpins the importance of Members of this House—I believe the majority of them are also opposed to the changes—trooping through the right voting Lobby to ensure that there is in fact an alignment of opinion between the two Houses, even though the Government Whips colluded last week to ensure—
Mr Deputy Speaker
Order. I am not getting into a debate on the merits or not of the subject. I have given my answer and I am sure that all hon. Members have taken it on board. I want to get back to the debate. We still have a lot of speakers to come.
Mr Baker
In ascending order of difficulty, there are another four things the Government could do. The first is to do what new clause 7 would impose on them, which is to negotiate within the existing EU framework to deliver a zero-rating on tampons and sanitary products. The second would be to renegotiate the power to set such taxes. I commend that to the Minister, and I hope he will comment on the Government’s willingness to repatriate all tax powers, particularly VAT, back to this country. The third is to legislate, notwithstanding the European Communities Act. It seems to me that that would be a bold move, but I would certainly support it to end the problem swiftly, and I hope that Members on both sides of the House would support that. The final thing that could be done would be for us to leave the European Union and, as my hon. Friend the Member for St Albans (Mrs Main) said, decide for ourselves in this House matters of taxation that apply to all our constituents.
This evening, I want to listen extremely carefully to what my hon. Friend the Minister says. It is quite clear that we can no longer go on saying that this issue of the taxation of tampons and sanitary products is too difficult to push through all the member states and the European Commission. Clearly, action must be taken that is robust and dynamic. I must say to those who criticise us for being Eurosceptics that we know we are taking a risk. Unlikely as it seems, the Commission and the member states may well rise to the occasion and solve the problem. Well, good on them if they do. I should be very glad indeed to see no tax on these products right across the European Union.
Louise Haigh (Sheffield, Heeley) (Lab)
I imagined that the hon. Gentleman and some of his colleagues would welcome the Government’s being able to report to the House in February or March next year whether it was the Commission, other member states or poor negotiating powers that had failed to achieve this measure. Would he not welcome such transparency?
Mr Baker
I remind the hon. Lady that I have added my name to the new clause. My point is that this situation cannot continue any longer, and I hope the Minister will say that the Government accept the principle that tampons and sanitary products should be zero-rated. I hope they will explain why they are not able to bring such a measure before the House, and that the Minister will commit robustly to advancing this cause in the interests of women in the UK and across Europe this year and in future. We should get the whole thing cleared up as soon as possible.
Stella Creasy
It is genuinely a pleasure to follow the hon. Member for Wycombe (Mr Baker). However he got to support the new clause tabled by my hon. Friend the Member for Dewsbury (Paula Sherriff), I am grateful, because tonight we have an opportunity to make progress on this issue.
I am also pleased to see the hon. Member for Harwich and North Essex (Mr Jenkin) and hear his story of our meeting back in 1993—more than 20 years ago. That offers a parable for tonight’s debate, and an opportunity for the hon. Member for Stone (Sir William Cash) to have hope when it comes to difficult issues. The hon. Member for Harwich and North Essex is right to recall that, as a newly elected MP, he came to my school to speak to the girls on a wet afternoon, and got a grilling from one member of the sixth form. I am sad that the debates we had about child poverty and access to further education did not make such an impression on him, but I am delighted and genuinely humbled to hear that he took the issue that we raised back to the then shadow Cabinet for debate. As he knows, at the same time my headteacher threatened to exclude me should I ask the MP any more difficult questions.
The parable that I think that offers for negotiations in Europe is simple: we may need courage to raise difficult issues with a respected authority figure, but—I say this to the hon. Member for Stone—look at what happens when such issues are raised. People who we think might disagree with us, in fact turn out 20 years later to be champions for social and progressive change.
Sir William Cash
In 1993 we were conducting the entire Maastricht referendum in order to get the results that the hon. Lady wants on this particular matter. At that time, we realised that if we did not sort out the European Union properly, we would never get the kind of equality that she is now demanding.
Stella Creasy
The idea that if we do not ask a question we shall never find out the answer is an issue that is on point tonight, and one reason why this eminently reasonable and sensible new clause should garner support from across the House. This debate has not happened at the European level, and, given what happened 20 years ago, my point is that when we ask such questions and challenge people, we can be amazed at the results we secure.
This debate is not about VAT or even the European Union. I recognise that the hon. Member for Wycombe was too young to take part in the vote to join the European Community, but my point in mentioning the purchase tax is that it is a bit of a red herring to think that this is about the European Union. Tampons and sanitary towels have always been considered a luxury. That is not by accident; that is by design in an unequal society in which the concerns of women are not treated as equal to those of men. Even if we were not in the European Union, there is every possibility that a purchase tax would be applied to sanitary towels and tampons but not to other products.
Sir William Cash
The International Development (Gender Equality) Act 2014 was nothing to do with the European Union. Some of us believe passionately in the same sorts of arguments that the hon. Lady is putting forward, and that is by no means exclusive to issues of the European Union.
Stella Creasy
I will come on to issues of gender and equality on an international level, but I give the hon. Gentleman warning that I will not take any more interventions from him unless he uses the terms “sanitary towels” and “tampons”. It is important to use appropriate wording in the House.
The inequality that women have faced in having to pay this tax has existed for generations. The question for us all is what we can do to change that, which is why I add my name to those who have congratulated the former Member for Bristol South, Dame Dawn Primarolo. She is a hero to many of us for her persistence in fighting to reduce the rate of VAT on sanitary towels and tampons in the European Union in 2000. I have talked to her at first hand about those negotiations—she had to use the appropriate terms and explain that if we did not resolve this issue, men and women could be sitting next to each other, with women experiencing their periods and the difficulties that can come from that, but without that same protection because of the cost of these products. Her work was visionary.
Talking to Dame Dawn Primarolo, it became clear that this is not about VAT rates but about VAT descriptions. I am looking forward to hearing what the Minister has to say about this, because there is common agreement that we wish to resolve this issue and a recognition that in 2015, a tax on women—a femitax, a vagina tax, or whatever we want to call it—is unfair. The issue can be resolved not necessarily by considering VAT rates, but by considering the way that VAT is described and ascribed to certain products. That is where the inequality has come from—the concept of what is a necessity.
Stella Creasy
I will of course give way to the hon. Gentleman. It is like 20 years ago.
Mr Jenkin
I do not remember the hon. Lady giving way 20 years ago. She was at the very fine Colchester county high school for girls, which is a grammar school. In parenthesis, I am delighted that, through the reforms we are pursuing, this Government are doing more for educational opportunities for the least advantaged than any Government in living memory.
Why does the hon. Lady think that Dame Dawn Primarolo was unable to remove the 5% VAT on tampons and sanitary towels when she succeeded in reducing the things that we had discretion over? Why did she not take this initiative to the European Union? It was because she found that the Government of the day felt that they had other, more important fish to fry in their negotiations with the European Union. We should get away from such an unsatisfactory give and take to national interests by leaving the European Union.
Stella Creasy
I thank the hon. Gentleman for mentioning the school that I attended. I was incredibly lucky to get there, having failed the 11-plus the first time I took it. I shall always be against selection because I recognise the benefits that I received from being able to take that exam a second time and get that education. That school taught me to do my homework, which is why I know that one of the rules and challenges of this issue is that zero-rated VAT is different from reduced rate VAT. At the time, Dawn Primarolo found that the issue was not about unwillingness but about the way that the rules on what a zero-rating—as opposed to a reduced rating—could be applied to had been changed. That is why she was able to secure a reduction in VAT to 5% from 17.5%—I am sure that the hon. Gentleman will agree that that was progress—but this issue is about the way that products are described.
I am sure that the Minister knows his history of value added tax, how a product is described and what is described as a “necessity”. It is important to have a concept of what is currently described as a “necessity” and is therefore zero-rated. I wonder whether Conservative Members will agree that when we change these definitions, progress can be made.
For example, Jaffa Cakes are zero-rated. I am not a fan of Jaffa Cakes—let it be known that if I am offered a Jaffa Cake, I will refuse. I do not consider them to be essential to my life; I can give or take them. I recognise that razors are zero-rated, and judging by many Conservative Members the opportunity to shave every day is a human right. They are cleanly shaven, and I am sure they would be concerned to be charged a higher rate of VAT. Pitta bread is zero-rated—we can probably all agree that that is a necessity. What is the kebab without a good pitta bread around it? It is a necessity. When we start looking at what is described as a “necessity” and what is a “luxury”, we see the inequalities in this debate. As I said earlier, those inequalities existed long before we joined the European Union and long before we started to work on value added tax.
The question for all of us is not how to have similar rates of taxation, but how to recognise the similar descriptions. That is the way that this issue can be resolved in the European Union. It is also why working with our colleagues in other countries matters to us. I come back to the concern expressed by the hon. Member for Stone about gender inequality, because he is absolutely right: our sisters in France are paying 20% on their tampons and sanitary towels because they do not have the reduced rate. This is therefore not about sanitary towels and the rate of taxation across the European Union; it is about the way in which different countries have interpreted the concept of necessity and essentials.
Stella Creasy
I have been very clear with the hon. Gentleman. Unless he is prepared to talk about the actual products that we are discussing, I will not take any more interventions from him, but if he is indicating that he can say the word, I will happily give way.
Sir William Cash
With respect to the question of sanitary towels and tampons, may I simply make this point? I recognise that the hon. Lady really knows what she is talking about, so I would like to know whether, in her experience, there is a similar problem internationally, outside the European Union, that perhaps comes from international organisations? Could she please explain whether there is anything in that?
Stella Creasy
And people say that progress cannot be made in this Chamber or that there cannot be cross-party agreement! The hon. Gentleman is absolutely right. In fact, 10% of girls in Africa do not go to school when they have their periods because they do not have appropriate sanitary protection, so he is right to be concerned about this. What I am saying—let us see whether we can tempt him to make further progress—is that feminism should be without borders; in which case we should be concerned about inequality in the tax rates and VAT that our sisters pay in a range of countries, including those in the European Union.
Tonight we have an opportunity, here in the British Parliament, to show solidarity across the continent and make sure that this issue is part of the negotiating process. Because let us be honest, it was never part of the negotiating process in this House prior to joining the European Community. It was only part of the negotiating process because of Dame Dawn Primarolo. It is a red herring to think that this is about the European Union; rather, it is a recognition that the time has come to end these inequalities. Our sisters in France tried to bring forward legislation just this summer and were defeated. What a strong message of social progress we could send from the British Parliament today by passing this proposal and sending our Prime Minister to have that difficult conversation and to say, “How do we clarify the way in which essential items are categorised across the European Union? How do we make this work for 51% of our population?”
I am sensing from the hon. Member for Stone that he does care about these issues deeply and does recognise the inequality. If he has frustration tonight, it is simply that he is not seeing progress happening quickly enough. Let me reassure him that, whether it takes 20 years or two hours of debate, it is possible to make progress. I urge him to support our new clause, so that we can send our Prime Minister to the European Union with something worth fighting for. We can all hear back from him in February whether he has made progress and been able to say to our French, German and Italians counterparts that tampons and sanitary towels should be treated as necessities in 2015. I am sure that when we hear that message from the Minister tonight, he will give us great succour—that he will use the appropriate terms and bring us all into the 21st century by supporting the new clause as well.
Craig Mackinlay (South Thanet) (Con)
May I give my respects to the hon. Member for Dewsbury (Paula Sherriff) for bringing this debate to the House? I have heard some very interesting figures this evening—in particular, that 250,000 people have signed previous amendments and discussion points about this issue over the years, and I know that there have been all sorts of discussions about this very issue for as long as I have been in Parliament.
I am not surprised that new clause 7 has attracted cross-party support, with many Members, both female and male, from the Government, SNP and, obviously, Labour Benches supporting it, and so they absolutely should, because this has always been, and will always be, a wholly illogical tax. We heard some interesting detail from my hon. Friend the Member for St Albans (Mrs Main). I would not know the difference between various products if they were laid out, yet some would be zero-rated and some would be taxed at the lower rate, although this is not just a female issue. I think she described some of these items as “Oops-a-daisy” products, and if there is a male “Oops-a-daisy” product, it would be zero-rated, so we can immediately see these anomalies in the tax system. Nappies have always been zero-rated because they relate to children. Indeed, one of the anomalies that we have enjoyed compared with much of the European Union—how long that will last, who knows—is that children’s products and food continue to be zero-rated, no matter how luxurious the food might appear to some.
Madam Deputy Speaker (Natascha Engel)
Order. The hon. Gentleman must remember that he is speaking through the Chair. I have made no proposals today.
Craig Mackinlay
My sincere apologies, Madam Deputy. [Interruption.] You have taken me way off track now.
In conclusion, the hon. Member for Glasgow Central made an appeal earlier for a message or plea to come from this place to the European Union. I think we have heard that from many Labour Members, too. I am afraid this goes back to the very old times of taxation without representation. Messages are all very well, but surely this sovereign place should be able to choose to set the rate of sales tax or VAT on products such as tampons and sanitary towels. I am afraid that it rather reduces the status of this House to one of being a colony of old, pleading with an empire power.
Alison Thewliss
The Prime Minister has been traipsing around Europe of late begging and pleading with European leaders all around the place. Would it not perhaps have been useful for him to have raised this issue then and saved himself another visit?
Craig Mackinlay
I certainly hope his visits around various European capitals have an awful lot on their agenda. Following today’s debate, I hope this issue will be one such item. The issue is one of exclusivity in setting VAT rates on products important to us in this place, not elsewhere.
Mr Jenkin
In response to the hon. Lady’s intervention, is not the point that there are so many issues we want our Prime Minister to raise in the European Union? There is an increasing number of myriad issues, such as how much contribution we make, the free movement of people and how we control our borders. It is these little things—I say “little” mistakenly, because of course it looms large as an equality item in our minds—that get set aside in favour of other things. This is a rotten way of running a continent.
Craig Mackinlay
I agree with my hon. Friend. I hope progress can be made on very many areas, not least on this one.
We should not be like a colony pleading with an empire power. This is clearly a rate that should be set here. I thank again the hon. Member for Dewsbury for raising this issue, which, important in itself, has opened a Pandora’s box on who governs this country.
Roger Mullin
I rise to speak to new clause 1, which also relates to VAT. I pay tribute to everyone who participated in the previous debate, particularly my hon. Friend the Member for Glasgow Central (Alison Thewliss) who, in Committee, was the first to raise this issue and moved new clause 2. At that time, we were favoured with support from the Labour Benches. They can look forward to us reciprocating that support this evening.
On Second Reading, I focused on the fire and rescue service and its punishment by the UK Government in relation to VAT. I should now like to focus in some detail on Police Scotland, which came into being in 2013. I should say that I have a prejudice in supporting the police, as I am a former academic adviser to the Scottish Police College, and have contributed in the past to training programmes for chief officers, police super- intendents and, most recently, crime analysts.
A key reason for the creation of Police Scotland was, according to the Scottish Government:
“Establishing a single service aims to ensure more equal access to national and specialist services and expertise such as major investigation teams whenever and wherever they are needed.”
Allow me to give a few examples of the effect of creating a single force. Assistant Chief Constable Malcolm Graham, speaking as recently as 29 September 2015, stated:
“Since the advent of Police Scotland, every murder committed has been detected.”
He is overly modest. Such has been the improvement in homicide detection that they have opened old, unsolved cases from when there were eight smaller forces and have already solved five of them. Police Scotland has improved the investigation of rape and sexual crimes across the entire country and is now able to treat rape as seriously as murder. The National Child Abuse Investigation Unit has been established as a specialist unit to support the investigation of complex child abuse and neglect across Scotland. Police Scotland has also been able to tackle intellectual property crime much more effectively, recovering about £20 million in criminal assets and making about 70 arrests. The result has been improvements on areas such as cross border co-operation and terrorism, as I discussed in Committee.
The Government, however, say we must abandon the improvements resulting from Police Scotland to satisfy some old rules established in the Value Added Tax Act 1994. Reflecting on the debate we have just had, this is one area on which the UK Government have it entirely within their power to act reasonably on a matter related to VAT. They have chosen to provide VAT exemptions to other public bodies elsewhere in the United Kingdom, while at the same time completely denying the right of the Scottish police and fire and rescue service to achieve an exemption.
Speaking to the Justice Committee of the Scottish Parliament last November, Chief Constable Sir Stephen House said:
“I do find it bewildering that we seem to be the only police service in the United Kingdom that is charged VAT. None of the 43 forces in England and Wales pay it. And the answer seems to come back from the Treasury, ‘oh, that’s because you’re a central government organisation’. Well, you’ve got the Police Service of Northern Ireland, they don’t pay VAT. And you’ve got the National Crime Agency and they don’t pay VAT—but we pay VAT. I just don’t understand the logic of it and I frankly don’t think the Scottish public would understand it either.”
Consider what the Government have been willing to do on VAT. At the stroke of a pen, the Government made central Government-funded academy schools in England exempt from VAT. For goodness sake, even the BBC does not have to pay VAT. When it suits the Government, and previous British Governments, they have little difficulty in allowing exemptions.
In Committee, the Minister said:
“If the Scottish Government are now reconsidering their position and wish to discuss how the service can be eligible once again for VAT refunds, the Treasury will happily engage with them to advise.”––[Official Report, Finance Public Bill Committee, 17 September 2015; c. 24.]
It is not the Scottish Government who need to reconsider their position, but the UK Government. Although we are talking significant sums for Police Scotland and the Scottish fire and rescue service—in total, in excess of £30 million per annum—it is a mere pittance compared with the overall UK budget. There is no economic rationale for continuing to deny VAT exemption. The Government seem simply to lack the decency to care about policing and fire and rescue services in Scotland. So much for the party of law and order. So much for the respect agenda. Its attitude has about it the stench of duplicity and blind prejudice.
Barbara Keeley (Worsley and Eccles South) (Lab)
I was not going to speak in this debate, but I have decided to join in because it is a vital matter. I worked with other Opposition Members in this debate during the first day of Committee, when I was the sole representative of the shadow Treasury team. It was an important debate then, but I think we have really moved it on today. The hon. Member for Glasgow Central (Alison Thewliss) and my hon. Friend the Member for Halifax (Holly Lynch) spoke well on this subject in Committee, and I want now to touch on some of what they said.
New clause 7, introduced by my hon. Friend the Member for Dewsbury (Paula Sherriff), is an important new clause that has enabled a hard-hitting and sensible debate on the VAT rate for tampons and sanitary products. As others have said, they are not luxury products, but, as we noted in Committee, some bizarre products are VAT exempt. As my hon. Friend the Member for Halifax found out, alcoholic jellies, edible sugar flowers, exotic meats, such as crocodile and kangaroo, and the amazingly named millionaires’ shortbread are apparently all VAT exempt. I am sure everyone agrees that alcoholic jellies are a luxury product, while tampons and sanitary products, which are vital products for women, are not.
As I said, we had a good debate in Committee. My hon. Friend the Member for Dewsbury, the hon. Member for Glasgow Central and my hon. Friend the Member for Halifax all spoke well, and I support what they said, but what did the Minister say? I hope we can change how he feels about this matter. At the end of the debate, he said:
“We are supportive and we would like the rate to be as low as possible”,
which was very good and supportive, but he also said that
“without wider EU reform and greater flexibility…it will be a challenge.”
Importantly, however, he also said that
“were we able to progress further, I would be sympathetic”.––[Official Report, Finance Bill Public Bill Committee, 17 September 2015; c. 26.]
I think the Minister should be supportive, given that a number of his hon. Friends want him to be.
I wish to add my name to the list of those who have praised Dame Dawn Primarolo’s early campaign to reduce the VAT rate by 5% in 2000. Fifteen years ago, that was a brave thing to do in the House. Plenty of Members tonight have been willing to talk straightforwardly about this, but 15 years ago there were not as many women in the House and it would have been difficult to talk about. I am in her fan club and glad to thank her for the campaign she ran.
This VAT rate, which we have had since 2000, is unfair to women and families. It might be a challenge for the Minister to negotiate with the EU on this matter, but I hope that he and the Prime Minister are equal to it and can take it on. There have been many things they have been happy to challenge in their EU negotiations, and many of his hon. Friends have indicated that they also want him to take on this challenge. I am sure he is up to it, as he is well steeped in these matters, and it is clear from this debate that he has support from both sides. I urge hon. Members to support the new clause and give him a reason to take on this challenge.
Wes Streeting
This debate is in great contrast to that taking place in the House of Lords. Here we are debating a cut to inheritance tax, while the unelected House is championing the interests of working people by doing something that many more Government Members should have done: put their consciences in their feet and marched through the correct Lobby.
We know from evidence already debated that the changes to inheritance tax will effectively cost the Exchequer £940 million by 2020-21. As the great Nye Bevan once said,
“the language of priorities is the religion of socialism”.
To Government Members who ask where our priorities lie, I say: they will always be in championing the interests of hard-working people and trying to improve the lot of the low-paid. For this reason, new clause 9 would delete the Government’s proposed changes to inheritance tax. That says exactly where our priorities are and where they should be. It is humiliating for the Chancellor and Prime Minister, having claimed at the recent Conservative party conference to be these great centrist modernisers, that it is in fact the House of Lords that has had to do what the elected House of Commons should have done last week, and still has the opportunity to do in debates taking place tomorrow and on Thursday.
The “Conservative modernisation project mark 2” is now dead in the water, but let us remind Tory Members of “modernisation project mark 1”. We remember the Prime Minister promising “the greenest Government ever” when he was running with the huskies and hugging hoodies, yet here we see clause 45 of the Finance Bill, which will remove the exemption from the climate change levy for electricity produced by renewable sources from 1 August this year—it will be backdated. Conservative Members need to decide whether they are going to be the “true blue” Conservatives that we have seen represented in the unlikely forum of a debate on tampons and sanitary products, or whether they are the party of the centre ground and the working man and woman.
Cat Smith
My hon. Friend mentions his environmental credentials, which I share, and also mentions sanitary products such as tampons and sanitary towels. Does he recognise that menstrual cups and moon cups are more environmentally friendly sanitary products and should also be included in this debate?
Wes Streeting
In this as in other respects, I have always favoured a woman’s right to choose. It is, of course, for women to decide which is the appropriate form of sanitary product. My hon. Friend is quite right that the moon cup does indeed have the environmental benefits that she mentions. I was glad to add my name in support of new clause 7 proposed by my hon. Friend the Member for Dewsbury (Paula Sherriff), which would tackle this issue. I am glad to see so much cross-party support, but I am disappointed to hear some of the language used this evening about our partners in Europe.
Apparently, according to the hon. Member for Harwich and North Essex (Mr Jenkin), this is the most iniquitous measure that the European Union has put in place. No wonder there is such representation in the Chamber. I hope that the Out campaign is not going to be predicated on VAT on sanitary products, as proponents are likely to find it a struggle to get wider traction. I find it objectionable that so many Conservative Members talk about negotiating with our European partners as “begging”. It is no different from our constituents coming to lobby us and having a reasonable conversation with us. If this is how the renegotiation strategy is going to work, we really are in trouble as a country.
Wes Streeting
Well, we have the European Parliament and the Council of Ministers, which are accountable to their respective Governments and, of course, the Commission itself is in many ways accountable. I would like to see reforms to some of the accountability mechanisms, but as the old saying goes, “you’ve got to be in it to win it”. On Europe, as on climate change, inheritance tax and the debate taking place in the other place on tax credits, we have seen in virtually every clause debated this evening that this is not the new modernised Conservative party; it is the same old right-wing Tories. They have hung their Chancellor and Prime Minister out to dry, and I hope that the Opposition’s reasonable, centre-ground amendments will be supported by Members from all parts of the House.
Kate Hoey
I welcome new clause 7 and hope that everyone can unite in supporting it. I do not think it goes far enough, but it is a great step forward, and I would like to congratulate my hon. Friend the Member for Dewsbury (Paula Sherriff) on introducing it. Many people watching the debate tonight—and I hope many millions of women will be watching it—will have started to ask why we still cannot proceed on the basis of what I think everyone in the Chamber believes, which is that sanitary towels and tampons are not a luxury and we should have the right to decide the level of tax on any product in this country. The people who have listened tonight will know that whatever we say about negotiations and working with our EU partners—let us not forget it is the EU, not Europe—we will not be able to win the argument because the reality is that the European Union wants to maintain control of how we run our affairs in this country. This is the beginning of a hugely important debate on the referendum, and important issues of this kind would never be recognised by the European Union. I hope that the Prime Minister will go and at least negotiate, although I do not think he will get anywhere.
If the Minister really believes in democracy in this country, and given that our Parliament wants this tax reduction, why do we not just do it? What would the EU do if we did? I hope that every Member will support new clause 7 tonight.
Mr Gauke
It is a pleasure to respond to the debate. Let me begin by congratulating the hon. Member for Wolverhampton South West (Rob Marris) on his debut at the Opposition Dispatch Box—and what a debut it was, consisting of a speech lasting more than an hour. In the time that is available to me, I shall attempt to respond to his speech and, indeed, the many other speeches that we have heard this evening, but let me first deal with the measures that we are discussing.
New clause 9 would require the Chancellor of the Exchequer to undertake a comprehensive review of the inheritance tax regime within one year of a current budget surplus. Amendment 89 would remove clause 9 from the Bill, as a result of which the additional transferable nil-rate band for all individuals who leave their home to direct descendants would not be introduced. Clause 9 represents a commitment that was made in the Conservative party manifesto—a promise made to the British people—and recognises that more hard-working families face an inheritance tax bill than has been the case at any time since the introduction of the system nearly 30 years ago.
Last year, 35,000 estates had an inheritance tax liability. It has been forecast that that figure will nearly double, rising to 63,000, in 2020-21. Thousands more worry about leaving their families with inheritance tax bills when they die. The additional transferable nil-rate band will simply return the number of estates with an inheritance tax liability to 37,000 in 2020-21, broadly the same level as in 2014-15. I remind the Opposition that that level is still higher than the level in any year between 1997 and 2010. Furthermore, we have ensured that the wealthiest will make a fair contribution to the public finances through inheritance tax. It will not be possible for the largest estates to benefit from the new allowance. It will be gradually withdrawn by £1 for every £2 that the estate is worth over £2 million.
Those who support amendment 89 demonstrate that they do not understand those who wish to save, pay their taxes, work hard to own their own homes, and pass them on to their children and grandchildren without facing a hefty tax bill. We believe that it is right for people to be able to pass on their homes to their descendants rather than the taxman.
The hon. Member for Wolverhampton South West expressed what sounded like concern about the fact that no properties in his constituency—or very few—would be affected. He also said that he opposed measures taken by the last Labour Government to introduce the transferable nil-rate band. I remind him that in the year in which those measures were introduced, 4.3% of estates paid inheritance tax. If we do not act, some 11% will pay it by 2019-20.
Given the comments that we have heard from the Opposition Front Bench, suggesting that they wish to raise more revenue from inheritance tax, I rather suspect that their desire for a review is connected with their perception of it as a potential cash cow. If I have misunderstood, I am happy to withdraw what I have said, but that seems to me to be the direction in which Opposition Members want to go.
Rob Marris
It is not a question of inheritance tax being a “cash cow”; it is a question of whether we maintain the regime that we have now, and the revenue that it brings in, or move to the much more generous regime that the Government wish to introduce.
Mr Gauke
The regime as it stands will affect more properties than it did under any of the Labour years. The reality is that if we do not take action, inheritance tax will hit more and more estates. It will be a tax that will be much more widespread than was previously the case. If that is the position the Labour party holds, that is the position, but I think we should be aware of what it is.
Mrs Anne-Marie Trevelyan (Berwick-upon-Tweed) (Con)
I put my name to this amendment because I have long thought that this is a bizarre and discriminatory tax on sanitary products and it needs sorting out. Perhaps in the 1970s, when I am sure the Minister like myself was at school, the luxury goods description still made sense as many women were not using a product which has now transformed our ability to be freed up from the monthly restrictions of periods. Many girls at school with me were off games every month because they did not have access to what is now considered a completely normal part of our sanitary products and frees young women to be sportswomen. I ask the Minister to be brave, to think about this and to stand up for all young women.
Mr Gauke
I am grateful to my hon. Friend for her remarks, and I will address that point in a moment.
New clause 7 would require the Chancellor of the Exchequer to
“lay before both Houses of Parliament a statement on his strategy to negotiate with the European Union institutions an exemption from value added tax for women’s sanitary protection products”
within three months of the passing of the Act. It would also require a Minister of the Crown to
“lay before Parliament a report on progress at achieving an exemption from value added tax for women’s sanitary protection products within European Union law by 1 April 2016.”
This debate has highlighted the ongoing campaign to zero-rate or exempt from VAT tampons and other sanitary protection products. As we have heard tonight, that campaign has cross-party support. In the case of the hon. Member for Walthamstow (Stella Creasy), that support goes back many years to when she was at school. My hon. Friend the Member for Bristol North West (Charlotte Leslie) has also campaigned on the issue for many years, and my hon. Friend the Member for Berwick-upon-Tweed (Mrs Trevelyan) has raised it tonight and on other occasions, as have many other hon. Members.
As the hon. Member for Worsley and Eccles South (Barbara Keeley) pointed out, this Government sympathise with the aim of the new clause. As we have also heard, however, the UK does not have the ability to extend zero rating to new products unilaterally. We have more extensive zero rating than most, if not all, other member states, but any change to EU VAT law would require a proposal from the European Commission and the support of all 28 member states. Without that agreement, we are not permitted to lower rates below 5%. None the less, as this debate illustrates, there is considerable cross-party support for the UK to abolish VAT on sanitary products. To that end, I undertake to raise the issue with the European Commission and with other member states, and to set out the view, which has been reflected in this debate, that it should be possible for a member state to apply a zero rate to sanitary products. In that context, I thank the hon. Member for Dewsbury (Paula Sherriff) for raising the matter tonight. We have seen on both sides of the House a demonstration of the belief that that flexibility should exist.
Sir William Cash
My hon. Friend used the word “permitted”. We do not have the capacity to effect a change such as this, because of the European Communities Act 1972. He knows that, the Opposition know it, and Members on the Conservative Benches know it. Will he now commit not only to talking about this but to doing something about it? It is a hugely important cross-party issue. Will he please take on board the fact that we insist on legislating on our own terms in this House? We want to govern ourselves.
Mr Gauke
I do not want to conceal from the House the fact that we do not have flexibility in these circumstances. Nor do I want to conceal the challenge that we would face in reaching agreement on this. Other member states take a different approach. As the hon. Member for Walthamstow has pointed out, it was striking that the vote in the French Assembly just a couple of weeks ago on an attempt to move the rate down from 20% to 5.5% was defeated. I do not wish to pretend that this would be a mere formality; other member states do take a different approach to this issue.
Paula Sherriff
If the Minister is pledging to start negotiations, will he also give us a clear commitment to come back and update the House, and if so, will he tell us exactly when he will do so?
Stella Creasy
It is incredibly welcome to hear that the Minister is going to raise this matter, but may I press him to be a bit clearer about which environment he will raise it in, and about when we will hear back? Will he also confirm that the European Commission can produce a zero rating if it is declared to be in the public interest to do so? Will he commit to raising that point as part of his negotiations with the European Commission? We all recognise the points that have been made about the technicalities of VAT, but there is a public interest exemption that he could use in his negotiations, is there not?
Mr Gauke
Doing full justice to that question in the five minutes available for me and for the hon. Member for Wolverhampton South West would be a challenge. This has been part of the VAT regime since 1973, but on this specific area, as we have heard, time has moved on and it is right that we look again at it.
Mr Gauke
It is not just a matter of the EU law; the UK courts would ensure that we have to comply with the law, one way or the other. I suspect that my hon. Friend the Member for Stone (Sir William Cash) would be happy to explain the position to the hon. Lady, but it would not be lawful for us to reduce that rate.
Mr Baker
I have listened extremely carefully to my hon. Friend and he knows how seriously I take this issue. Will he reassure me directly that he will specifically press the European Commission to bring forward measures to zero-rate tampons and sanitary products right across the EU?
Mr Gauke
Yes, I will make those representations to the European Commission to allow member states to have the flexibility to do that, which I think is the key issue here.
On the climate change levy, let me briefly explain the policy rationale, as we have debated this on a number of occasions. The climate change levy renewables exemption was misaligned with today’s energy policy, providing indirect support to renewable generators when the Government are now investing in more effective policies that target them directly. Together, policies such as the renewables obligation and the feed-in tariff will provide more than £5 billion-worth of support to renewable electricity generation in 2015-16 alone. I do not believe the report on this clause is necessary. The Chancellor has already written to the Chairman of the Treasury Committee in August setting out the environmental analysis of the summer Budget in 2015.
On enforcement by deduction from accounts, we believe that we are introducing a necessary measure and that we have struck the balance correctly. I am grateful for the remarks made by the hon. Member for Wolverhampton South West in pointing out that the safeguards are strong. I know he still has concerns about the measure, but the safeguards are strong and we believe we are striking the right balance.
To conclude, I urge the House to reject new clauses 1, 2, 7—if it is pressed to a vote, and I hope it will not be—10 and 11, and amendment 90.
Rob Marris
On inheritance tax, the Government have not gone far enough. It is not a problem to us that 11% of estates might face it, as that is still a tiny minority, and if the Government were worried about preserving assets, they would have done a lot more about social care for the elderly and what that takes out of their houses. On new clause 1 and VAT on the Scottish police, that was indeed a decision of the Parliament in Scotland, but simply saying, “They were warned” is not good enough. I understand and support the SNP on new clause 1. On new clause 7, I salute the Minister for coming a very long way, but he has not come far enough. The same applies on new clause 11.
Question put, That the clause be read a Second time.
John McDonnell (Hayes and Harlington) (Lab)
On a point of order, Mr Speaker. In the light of the votes in the other place this evening, the Chancellor has, I believe, informed the media that he will bring forward measures to respond to the Government’s defeats. It is the responsibility of Ministers, as you know and as you have ruled, to make this sort of announcement to this House first. While there are indeed Treasury questions tomorrow, given the level of interest from Members in all parts of the House and the significance of this matter, I am asking that the Chancellor make an oral statement to this House tomorrow, promptly.
Mr Speaker
I am grateful to the shadow Chancellor for his point of order. Those on the Treasury Bench will have heard what he has said. It is open to a Minister to do that tomorrow. Given that a Treasury Minister is present on the Treasury Bench, he is welcome to rise to his feet if he wishes.
Mr Speaker
So be it; the House will understand. It is not a matter for the Chair; I am simply playing fair. It is a matter for the Government, and the Minister could speak now if he wished, but he is not under any obligation to do so. The point of order has been heard. The hon. Member for Hayes and Harlington (John McDonnell) will be in his place tomorrow—and so will the Chancellor be—and we will await the development of events.
Kirsty Blackman (Aberdeen North) (SNP)
Further to that point of order, Mr Speaker. Given the result of the vote in the other place tonight, I would appreciate it if, in addition to Treasury questions tomorrow, the Prime Minister could assure the House that he will not flood the other place with more cronies and donors.
Mr Speaker
Perhaps I can just say to the hon. Lady and the House that, while I hear what she has to say, the late Lord Whitelaw was the author of a vintage phrase in British politics. As he put it, “I tend to prefer to cross bridges only when I come to them.” It seemed to be a very sagacious utterance by Lord Whitelaw. All I will say to the House now—as much for the benefit of those outside this place as of Members—is this. Two sentences: first, the parent Act specifies that the Government cannot make the regulations unless a draft has been approved by both Houses. I think we can all agree upon that. Secondly, it is up to the Government to decide how to proceed. We will leave it there for now.
Third Reading
Mr Gauke
I beg to move, That the Bill be now read the Third time.
I would like once again to briefly outline the provisions of this Finance Bill. These measures demonstrate the Government’s commitment to support working people, support business and protect the public finances by tackling tax avoidance and evasion. They mark the next steps on our path to economic security, building on the economic foundations laid in the last Parliament and continuing our long-term plan for the economic stability and prosperity of this country.
Let me turn first to the support that the Bill provides for working people. This Government are committed to the principle that hard-working people should keep more of the money they earn. That is why, following the measures introduced in the last Parliament, 27.5 million individuals saw their typical income tax bill reduced by £825, but we want to go further. This Bill increases the tax-free personal allowance to £11,000 in 2016-17 and to £11,200 in 2017-18. We will also increase the higher rate threshold, from £42,385 in 2015-16 to £43,000 in 2016-17. The Government also believe that individuals working 30 hours a week on the national minimum wage should not pay income tax. That is why we are enshrining it in law that once the personal allowance has reached £12,500, it will always be at least the equivalent of 30 hours a week on the national minimum wage.
It is a basic human aspiration to pass something on to one’s children, an aspiration the Government are committed to supporting. The Bill will help people to provide for their families after they have gone by phasing in a new £175,000 per person transferable allowance, when a person’s home is passed on at death to their direct descendants. By the end of the Parliament, the effective inheritance tax threshold for married couples and civil partners will therefore be £1 million.
Mr Gauke
My hon. Friend is right. Whereas the previous Labour Government doubled the 10p rate of income tax, this Government and the coalition Government increased the personal allowance very substantially from below £6,500 to the levels I have set out this evening.
I turn now to the support that the Bill will provide to business. We want to provide certainty to businesses, increase investment and improve our infrastructure, because that will drive growth and job creation in the coming years. First, it is clear that we need a business tax regime that is stable, competitive and fair. This is essential to make the UK more competitive and to support growth. In the previous Parliament, the main rate of corporation tax was cut from 28% to 20%, which led to more businesses coming to the UK to carry out their activity. Given the global competition that the UK faces, we must go further. This Bill cuts the corporation tax rate to 19% in 2017 and to 18% in 2020, saving businesses more than £6 billion in 2021 and giving the UK the lowest rate of corporation tax in the G20. The Bill also sets the annual investment allowance at the permanent higher level of £200,000. This will provide long-term certainty to businesses and encourage them to invest in plant and machinery.
Finally, I would like to turn to the measures in the Bill that tackle tax avoidance and evasion, tax planning, compliance and imbalances in our tax system. Hon. Members will recall that the summer Budget announced a raft of measures to tackle those who do not pay their fair share of tax. The measures will collectively raise £5 billion a year by 2019-20. I am proud to say that the Bill will implement a number of those measures and will make an important contribution to the further £37 billion in fiscal consolidation that is required over the course of this Parliament to run a budget surplus by the end of this Parliament.
Mr Gauke
Let me make a little progress.
First, the Bill ensures that investment fund managers cannot exploit tax loopholes to avoid paying capital gains tax. We will also address a tax planning risk in which corporate groups could exploit tax rules for asset transfers between connected parties. This ensures that profits are brought to tax.
Finally, the Bill modernises HMRC collection powers by allowing HMRC to recover tax and tax credit debts directly from a debtor’s accounts. This measure will tackle those who seek to play the system and who are avoiding paying their fair share of tax, which they can afford to pay. This measure will also, of course, be subject to robust safeguards and the most vulnerable will be protected. Taken together, these measures will protect our public finances and send a clear message that everyone in Britain must pay their fair share of tax.
George Kerevan
In terms of helping business, would the Minister care to comment on press reports this morning that the Government are planning to abolish research grants to industry and replace them with loans, on which interest would be paid?
Mr Gauke
That is not a measure contained in the Bill. Let us be clear: as a consequence of the Bill, the UK’s competitive position has been strengthened, not least in a reduction of the rate of corporation tax from 20% to 18%, a measure I am delighted to say that the Labour party supported in Committee.
Before I conclude, I want to thank hon. Members on both sides of the House for their scrutiny of the Bill. In particular, I want to thank members of the Committee, who provided diligent but efficient scrutiny, concluding our proceedings in just nine hours. This smooth and efficient running was due in part to the support of the Whips, my hon. Friend the Member for Central Devon (Mel Stride), the hon. Member for St Helens North (Conor McGinn) and, before him, the hon. Member for Scunthorpe (Nic Dakin).
I also want to thank the Opposition. We did not always agree in full, especially on the need for a fair number of reviews, but I was grateful for their insightful and reasonable scrutiny and their gracious support where we did agree. Finally, I want to thank the Economic Secretary to the Treasury, my hon. Friend the Member for West Worcestershire (Harriett Baldwin), and the Exchequer Secretary to the Treasury, my hon. Friend the Member for East Hampshire (Damian Hinds), for their support in setting out the Government’s case, and my hon. Friends on the Back Benches for their valuable contributions.
In conclusion, the Bill supports working people and business and protects our public finances, and it marks the next step forward in securing the country’s economic security. I therefore commend it to the House.
Rob Marris
This is a mixed Finance Bill. It contains some measures with which the Opposition agree: the changes to personal allowances; the welcome increase in the annual investment allowance; the surcharge on banks; the provisions to encourage more to be spent on research and development; the provisions on carried interest—though they do not go far enough; and the anti-avoidance provisions for enterprise investment schemes, venture capital trusts and controlled foreign companies.
But the Bill also discloses some wrong priorities, which I shall list in no particular order. The changes to inheritance tax—it will not surprise Members to hear me mention this, in the light of our debate earlier—are a giveaway to the most well off in our society. The cut to corporation tax is a beggar-my-neighbour, downward, low-tax regime competition measure aimed at covering up the failures on productivity. We disagree with lowering the bank levy rate. The provisions on vehicle excise duty take us backwards by favouring gas guzzlers and penalising drivers of less dirty vehicles. Some 16 or 17 years ago, journalists would have called the marked increase to insurance premium tax a stealth tax.
The changes to the climate change levy are a step backwards that indicates the Government have lessened their commitment to the environment and can no longer make the laughable claim to be the greenest Government ever—it is one of a host of changes indicating that they are not serious about our environment. We disagree with the provisions on the direct recovery of debt that allow HMRC to take money out of someone’s bank account without a court order. They are doing this because they find, as so many people do, that the court system is costly and slow, but rather than change the court system, for which they are responsible, they are simply introducing a different rule for themselves. They have done the same in clause 48 with interest on judgment debts. It is one rule for them and another rule for the rest of us.
I warn the Government: they are straining our constitution. Late last week, they tabled about 75 amendments for Report stretching to 40 pages and dealing with highly technical matters, which suggests that they are not entirely sure what they are doing. Last week, we also saw the longest Standing Order in living memory detailing the changes to English votes. This is not a great way to treat our constitution.
Then we see the potential constitutional tussle with the House of Lords over tax credits, brought about by this Government’s decision to proceed with a fundamental change to tax credits, which will cost working families thousands of pounds, by using a statutory instrument rather than putting the provisions in this Finance Bill. Clearly, this Finance Bill, like all Finance Bills, would never have gone near the House of Lords. This Government tried to box clever by putting the tax credit changes in a statutory instrument and they have been caught swimming without trunks when the tide went out. It is a constitutional tussle that we did not need and it would not have happened if they had put those provisions in the Finance Bill.
We need to see this Finance Bill in the context of the economy. It is great news that employment is up, albeit that too many of the jobs are low paid and insecure. It is great that, at last, we have some economic growth that extends outside London and the south-east. Before Conservative Members start cheering too much, there are ill winds blowing domestically. The deficit on the balance of payments, at 6.5% of gross domestic product, is the highest in peacetime. Inflation targets have been missed, and productivity stalled, which the Government try to mask with a change in the corporation tax rate. GDP per capita, after six years of the Conservatives leading a Government in this country, is still in recovery. Living standards are, at last, starting to rise, which is welcome, but this is happening in the private sector, not in the public sector, where the Government continue their wage freezes. Living standards have stalled for five years because of the—
Philip Davies (Shipley) (Con)
On a point of order, Mr Speaker. The hon. Member for Wolverhampton South West (Rob Marris) is droning on about all sorts of stuff. My understanding is that Third Readings are supposed to be about what is in the Bill, not just a general drone about the economy. Will you rule on that, Mr Speaker? [Interruption.]
Mr Speaker
Order. I was listening closely, and allowing the hon. Member for Wolverhampton South West (Rob Marris) some latitude, but the thrust of the point of order is correct. I should emphasise that this is not a portmanteau debate for the airing of a miscellany of grievances. This is a relatively narrow Third Reading about what is in the Bill, upon which I know the hon. Gentleman will now dilate for the remaining two and a half minutes.
Rob Marris
I thank you for that guidance, Mr Speaker. I prefaced my remarks by saying that I was putting the Finance Bill in the context of the economy in which it takes place. That is what I said, as Hansard will show. I think that the context of the Finance Bill is important, Mr Speaker, because otherwise one cannot judge whether the provisions are adequate for the country in which we live.
Mr Speaker
I entirely understand the point, but there are two minutes left, so the context has to be very pithily stated before the hon. Gentleman gets on to the substance.
Rob Marris
It will be, Mr Speaker. I was on to my peroration before the hon. Member for Shipley (Philip Davies) raised his point of order.
The national debt is up by 60% at the end of the tax year, so what is all this about protecting the next generation? The Government have missed their targets for five years, and they have been privatising debt for the next generation when it comes to student loans and costs for home buyers. We have a household debt bubble growing. This Government have slashed public investment and are substituting it with the private finance initiative. The measures in this Bill will not be sufficient to address the problems our nation is facing. What we need is public investment—and we need it in housing, in energy and in skills. This Government have mishandled the economy, and trouble will be brewing unless they change course. They should invest in infrastructure and skills.
Roger Mullin
In a style becoming familiar to this House, let me say that Barbara from Kirkcaldy says:
“This Finance Bill is a disgrace to hard-working people”,
and I always agree with my wife! It is a deliberate slight on the people of Scotland, and it deserves and will get no support from SNP Members. The Government have once again denied the rightful exemption of VAT for our emergency services. Once again, they are harming the environment, and once again they are favouring the rich. We oppose this Bill.
Mr Speaker
Thank you, Mr Mullin. There are 12 seconds remaining, but no hon. Member is getting to his or her feet. Time is running out, the moment is arriving—and I do believe that we are going to have the vote.
Business without Debate
Mr Speaker
With the leave of the House, we shall take motions 9 to 24 together.
Ordered,
Armed Forces Bill
That Oliver Colvile, Judith Cummins, Byron Davies, Kate Hollern, Nusrat Ghani, Kevin Hollinrake, Kris Hopkins, John Howell, Mr Kevan Jones, Jack Lopresti, Kit Malthouse, Kirsten Oswald, Mr Gavin Shuker and Ruth Smeeth be members of the Select Committee on the Armed Forces Bill.
Communities and Local Government
That Angela Rayner be discharged from the Communities and Local Government Committee and Liz Kendall be added.
Culture, Media and Sport
That Steve Rotheram be discharged from the Culture, Media and Sport Committee and Julie Elliott be added.
Defence
That Conor McGinn be discharged from the Defence Committee and Phil Wilson be added.
Energy and Climate Change
That Melanie Onn and Ian Lavery be discharged from the Energy and Climate Change Committee and Rushanara Ali and Tom Blenkinsop be added.
Environmental Audit
That Holly Lynch and Jeff Smith be discharged from the Environmental Audit Committee and Mary Creagh and Geraint Davies be added.
Environment, Food and Rural Affairs
That Sarah Champion be discharged from the Environment, Food and Rural Affairs Committee and Angela Smith be added.
Health
That Rachael Maskell, Liz McInnes and Emily Thornberry be discharged from the Health Committee and Mr Ben Bradshaw, Julie Cooper and Emma Reynolds be added.
Home Affairs
That Anna Turley and Keir Starmer be discharged from the Home Affairs Committee and Naz Shah and Mr Chuka Umunna be added.
Justice
That Richard Burgon, Sue Hayman, Nick Thomas-Symonds and Christina Rees be discharged from the Justice Committee and Mr David Hanson, Dr Rupa Huq, Andy McDonald and Marie Rimmer be added.
Petitions
That Justin Madders be discharged from the Petitions Committee and Jim Dowd be added.
Public Accounts
That Clive Lewis, Nick Smith and Teresa Pearce be discharged from the Committee of Public Accounts and Chris Evans, Caroline Flint and Bridget Phillipson be added.
Science and Technology
That Liz McInnes and Daniel Zeichner be discharged from the Science and Technology Committee and Stella Creasy and Valerie Vaz be added.
Treasury
That Bill Esterson be discharged from the Treasury Committee and Rachel Reeves be added.
Women and Equalities
That Tulip Siddiq and Cat Smith be discharged from the Women and Equalities Committee and Siobhain McDonagh and Mr Gavin Shuker be added.
Work and Pensions
That Debbie Abrahams be discharged from the Work and Pensions Committee and Steve McCabe be added.—(Bill Wiggin, on behalf of the Committee of Selection.)
Nuisance Calls
Patricia Gibson (North Ayrshire and Arran) (SNP)
I am delighted to have secured a debate on this important issue following my early-day motion 223 entitled “Calling time on nuisance calls”, which was launched at the end of June and attracted support from Members from across the House. I am also pleased that so many Members are staying for this debate so late in the evening. That is an indication, if any were needed, that this issue affects constituents in every part of the United Kingdom.
Very soon after the election, a number of constituents raised this matter with me in exasperation and despair at the fact that they were unable to find peace and quiet in their own homes because of the constant torrent of nuisance calls at all hours of the day and evening. These calls fall into three types: live marketing calls; recorded marketing calls; and abandoned, silent calls. They ask: do you want a conservatory? Would you like to save money on your gas, electricity, broadband, credit card and so on? Have you had an accident in the past X years? Have you claimed payment protection insurance money to which you are entitled? Would you like to take out a convenient loan? The list goes on and on.
We know that such calls are not just a nuisance—they are much more than that. They cause real distress, anxiety and upset, particularly to the elderly and the vulnerable, who simply cannot ignore their ringing phone because it is often the single most important means of friends and family keeping in touch with them.
Jim Shannon (Strangford) (DUP)
This subject clearly transcends issues of party or region. In my constituency, there have been a number of these phone calls in the past few months to the vulnerable, the elderly, the young and the educationally disadvantaged—those four categories of people have been taken advantage of. Not only are they receiving nuisance calls, but they are losing money. Does the hon. Lady feel that legislation needs to be put in place to ensure that they are not losing money to these scams, which are occurring across the whole of the United Kingdom of Great Britain and Northern Ireland?
Patricia Gibson
The hon. Gentleman makes an important point. I was going to discuss the fact that we know that the way in which our data are used and passed on leaves the consumer without any real control. Studies have shown that there is evidence to suggest that certain groups in society are deliberately targeted.
Research undertaken by Which? tells us that eight out of 10 people said that cold calls were an annoying feature of their daily lives, with a worrying one third admitting that they found such calls intimidating and 56%—more than half—saying that they were discouraged from answering their phones. Make no mistake, the scale of this problem is huge and the effect on the lives of many of our constituents demands our attention.
Henry Smith (Crawley) (Con)
I congratulate the hon. Lady on securing this Adjournment debate. Many of these calls, which affect all of our constituents, up and down the country, originate abroad. Does she have any idea as to how we can bear down on nuisance calls from companies based outside this country, in addition to dealing with the calls from this country?
Patricia Gibson
There is talk and co-operation going on, with Ofcom leading the way, looking at what can be done at European and international level. Beyond that, it is a case of knocking heads together to see how we can better regulate and control the data that leave this country.
Registering with the Telephone Preference Service is the obvious first step for those who feel that their lives are blighted by nuisance calls. Although that is an important tool, it cannot stop all unsolicited calls.
Stephen Gethins (North East Fife) (SNP)
Does my hon. Friend agree that this issue particularly affects many older people? My constituency postbag is full of correspondence from older people who are concerned about nuisance calls.
Patricia Gibson
My hon. Friend is absolutely right. Not only do old people suffer more anxiety and distress about these calls, but they seem to be targeted—the research would seem to bear that out.
Ofcom estimates that the TPS can stop only about a third of nuisance calls, and that is because the issue of consent can be very confusing for consumers; it is not always clear that they have given their consent for their data to be passed on to other parties by ticking or not ticking a box on a form. In addition—
Several hon. Members rose—
Patricia Gibson
Let me make some progress and then I will give way. In addition, there is often a lack of clarity about the sheer range of other parties that people may have “agreed” to share their data with. As a result, those who register with the TPS may still be subject to a barrage of nuisance calls. Perhaps most worryingly, the evidence from StepChange Debt Charity is truly chilling: one in three of its service users—people who are in severe financial difficulty—has received an unsolicited marketing call offering a payday loan. It is absolutely shocking that unsolicited marketing calls for high-risk credit are encouraging financially vulnerable households to spiral deeper into problem debt. Before seeking advice, 15% of people said that they went on to take out further loans, borrowing an average of £980. That is not all. People who have already taken out a payday loan are significantly more likely to be targeted by nuisance calls or texts for payday loans. According to a report by the Children’s Society, 42% of people with a payday loan are contacted at least once a day, compared with only 11% of those who do not have a payday loan.
Chillingly, more than 1 million British adults say that they have been tempted to take out high-interest credit such as a payday loan as a direct result of an unsolicited marketing call or text. I urge the Minister to use his influence to persuade the Financial Conduct Authority to bring forward stronger rules to tackle the unsolicited marketing of high-risk credit products, such as payday loans. More must be done.
Following the Government’s action plan and the subsequent Which?-led taskforce, which reported in December 2014, a series of recommendations for Government regulators and businesses focused on finding solutions that work within the existing legislative structure. That includes director level responsibility and also requiring businesses to show their numbers when they call. Ofcom wants all communication providers to stop charging for caller line identification display. Only BT and Virgin now do so, but it is hoped that all providers will make such a move following the forthcoming EU framework review.
Businesses need to make public commitments to tackling nuisance calls. It is also important that consumers have much greater control over their personal data. Indeed, it is essential that, if and when consumers give their consent to be contacted by companies, it is clear to the consumers that he or she is doing so and, further, that it is easy for the consumer to revoke that consent should they wish to.
Mr David Nuttall (Bury North) (Con)
The hon. Lady is making a compelling speech on this subject. Does she agree that it would be very helpful if every time someone made such a call as this, they were required to say exactly how they had come by that information and on what basis they were relying on the consent of the person whom they were ringing?
Patricia Gibson
The hon. Gentleman makes an excellent point, and the Minister would do well to pay much attention to it.
Consumers are often targeted by nuisance calls, because, at some point, they ticked the box, or more commonly failed to tick the box. I am talking about a teeny, tiny box at the bottom of a page of tiny writing, which the consumer often does not even see. This gives consent to companies to contact them by telephone and pass on their personal details to third parties.
Let us not forget scam calls, the goal of which is to defraud consumers. Indeed, work done by some local authorities suggests that as many as 15% of nuisance calls to vulnerable customers are, in fact, scam calls. It is yet another sign that the consumer has very little control over their personal data. Who knows where the data can land as they pass through hands that are not always scrupulous?
Dr Lisa Cameron (East Kilbride, Strathaven and Lesmahagow) (SNP)
Does my hon. Friend agree that it is not only older adults who are at risk from these unscrupulous callers, but vulnerable people who have mental health problems or learning difficulties?
Patricia Gibson
Absolutely. A whole range of people in society need the protection of the law and tighter regulation in this area.
Mobile phone users have not escaped this plague. In fact, many mobile phone users are simply unaware that they can register their mobile number with the TPS, and only 3% have done so.
My own local authority, North Ayrshire council, is doing some excellent work to help protect vulnerable consumers. It has invested in 10 call blockers and, out of 32 local authorities in Scotland, it blocks the third highest number of nuisance calls. The call blocking device ensures that only trusted sources can get through and it stops nuisance callers in their tracks before the residents’ phones have the chance even to ring. One consumer has had slightly more than 2,000 calls blocked in a four-month period. Although that is to be applauded, it is a disgrace that any one household would be subjected to such a barrage of nuisance calls.
Stuart Blair Donaldson (West Aberdeenshire and Kincardine) (SNP)
With automated messages, my hon. Friend will be aware that one can often press 9 to remove oneself from the list. Does she agree that telling a cold caller to remove one’s number from the list should be enough for them not to call anymore?
Patricia Gibson
Absolutely. The difficulty, though, is that a person’s personal data are out there among a host of organisations that will further continue to pester them.
It is essential that the Government reconsider whether the rules about how our data are collected, used and traded need to be tightened. We must get the balance right between enabling decent businesses to carry out direct marketing activity when consumers have given their consent for their personal data to be used and preventing the abuse of their data by unscrupulous businesses. I also urge the Government to lead a cross-sector business awareness campaign to ensure that companies know their responsibilities as regards marketing calls and texts and to consider how future legislation could tackle nuisance marketing.
Martin John Docherty (West Dunbartonshire) (SNP)
Does my hon. Friend recognise the impact of the charitable sector’s cold calling on our communities? These discussions should also include the Office of the Scottish Charity Regulator and the Charity Commissions for England and Wales and for Northern Ireland to ensure that charities recognise their duty of care to the vulnerable and the elderly.
Patricia Gibson
My hon. Friend makes an excellent point. This should include all organisations that choose to use cold calling as one of their tools.
Senior executives need to be made more responsible for the actions of their companies. Although the Government have committed funding to an awareness campaign, more action is required and there is, in my view, an important role for the Financial Conduct Authority. It is time that the responsibility was no longer placed so heavily on the victims of nuisance calls and businesses who engage in this practice should be held more accountable for the genuine distress and anxiety they cause to consumers.
The Minister for Culture and the Digital Economy (Mr Edward Vaizey)
I thank the hon. Member for North Ayrshire and Arran (Patricia Gibson) for calling this important debate on nuisance calls. It is interesting that in the previous Parliament, nuisance calls were raised a great deal by Mike Crockart, the then Liberal Democrat Member for Edinburgh West, who is sadly no longer in this House. Without wishing any disrespect to Mike Crockart, whom I miss on many levels, the hon. Lady’s comprehensive and well-balanced speech showed that the issue of nuisance calls has a worthy new champion from Scotland. Although she quite rightly called for further action, she acknowledged that there has been some action in the recent past.
Tackling nuisance calls is a priority for us. It is an issue that I have worked on for several years now and it is a very difficult problem to tackle. I echo what the hon. Lady said in her speech about the pernicious nature of nuisance calls to elderly or vulnerable people, who are much more likely to suffer from this plague as they are at home when the phone rings.
Carol Monaghan
Does the Minister recognise that I get post from constituents, particularly elderly constituents, who talk about the vital link that is their phone being a source of anxiety and even about getting rid of the phone line from their home?
Mr Vaizey
That is exactly the point. For many elderly and vulnerable people, their phone is their lifeline. Not only are they at home and plagued by nuisance calls but, in many cases, they want to answer the phone as they do not know whether or not the call is important. They also obviously want to be able to use their phone as freely as possible to contact loved ones and additional support services.
That is why about two years ago I started to co-ordinate the action that was being taken in respect of nuisance calls, calling together the two regulators, the Information Commissioner and Ofcom, as well as numerous stakeholders, including the telephone companies and the internet service providers, and many charities and campaigning groups. Again, I echo what the hon. Member for North Ayrshire and Arran said in her excellent speech: we must strike a balance, and we should remember that underneath the plague of nuisance calls lies the legitimate activity of decent businesses, as she called them, wanting to make perfectly appropriate marketing calls and in many cases having the proper consent to do that.
Drew Hendry (Inverness, Nairn, Badenoch and Strathspey) (SNP)
Does the Minister agree that more needs to be done to make sure that the default position on any marketing form, especially those online, should be that consent is not given unless it is actively selected by the person filling in the form?
Mr Vaizey
Consent is a difficult issue, which I will deal with later in my remarks. We keep the topic of proper consent under consideration. The issue of whether appropriate consent has been given, even though a person is registered with the Telephone Preference Service, is a classic example of why we need to keep the topic of consent under review.
We have considered many different aspects of the problem and how we can tackle it. We have looked at legislative and non-legislative issues which can make a difference. Early in the previous Parliament we increased the monetary penalties available to the regulators. The fine that could be levied by Ofcom increased in 2010 from £50,000 to £2 million, and in 2011 we allowed the Information Commissioner’s Office for the first time to impose monetary penalties of up to £500,000.
We have improved the signposting for consumers, so much better information and cross-referencing is available on the Information Commissioner’s website and the Ofcom website, and Which?, which has campaigned a great deal on the problem, provides a simple process. [Interruption.] The Opposition spokesman, the hon. Member for Newcastle upon Tyne Central (Chi Onwurah), is making comments from a sedentary position. If she wants to intervene at any point, I will happily give way to her.
Mr Speaker
The Minister should not encourage the hon. Lady in a parliamentary error, for it would be a parliamentary error for an Opposition spokesperson to intervene from the Front Bench in an end-of-day Adjournment debate—a fact of which I should have thought a constitutionalist such as the hon. Gentleman would be keenly aware.
Mr Vaizey
Having got good marks from you earlier today for a short answer to an urgent question, I now find myself back in your bad books, Mr Speaker. When you were shaking your head earlier, I thought it might refer to the quality of the hon. Lady’s intervention. I am delighted to be corrected and informed that it was merely a constitutional shake of the head, rather than a verdict.
We moved quickly to ensure that Ofcom and the Information Commissioner’s Office could share information with each other. Those rules came into effect in July 2014. This has enabled Ofcom and the ICO to collaborate much more effectively in the identification and co-ordination of efforts to tackle those who make unsolicited marketing calls.
Chris Philp (Croydon South) (Con)
Last year my wife and I were involved in a minor road traffic collision, and for a year afterwards we were bombarded by calls essentially soliciting us to commit fraud by claiming to have suffered an injury which, in fact, we had not suffered. Will the Minister consider banning such outbound calls which solicit members of the public to make fraudulent claims?
Mr Vaizey
I certainly would not condone anyone encouraging anyone to make a fraudulent claim. That would probably be a crime, although I would not want to comment on the individual case that my hon. Friend raises. He points to another important aspect. One of the struggles that we have in dealing with nuisance calls are the numerous regulators that get involved. For example, the claims management regulator is responsible for payment protection insurance calls, which were generated when the PPI scandal broke, and as the hon. Member for North Ayrshire and Arran (Patricia Gibson) pointed out in her speech, the Financial Conduct Authority also has a strong role to play, so it is important that we co-ordinate with the various regulators involved in the issue.
In talking about co-ordination and the ability of Ofcom and the Information Commissioner to share information, I should stress that I am delighted that last month we made a machinery of government change—known as a MOG—to bring the Information Commissioner’s Office into the Department for Culture, Media and Sport, so we now have both regulators within one Department. I am also delighted to say—this might raise even more of a cheer—that we have had a ministerial change. Baroness Neville-Rolfe, another Minister in the Department, is now formally responsible for the policy on nuisance calls, although obviously I will continue to answer questions on the policy in this House, because I take great interest in the issue.
Alison Thewliss (Glasgow Central) (SNP)
The staff in my constituency office are bombarded with nuisance calls—sometimes up to 15 a day—from unscrupulous businesses trying to sell them things they do not want. Has the Minister considered the impact nuisance calls can have on small businesses?
Mr Vaizey
I think that small businesses can be impacted in exactly the same way that individuals can. Although we often focus in these debates on elderly and vulnerable people, and quite rightly, we should also remember that, as my hon. Friend the Member for Croydon South (Chris Philp) indicated, many people from every walk of life can be plagued by nuisance calls. That includes not only individuals, but small businesses, which is why it is so important to continue to tackle this nuisance.
The other key change we made this year was to lower the legal threshold for what constitutes a nuisance call. Previously we had the difficult situation in which a nuisance call had to cause significant harm and distress. It was often the case that even when the Information Commissioner’s Office carried out enforcement action and imposed a fine, the company concerned appealed and was able to show with relative ease that their calls had not caused significant harm and distress. We have lowered that threshold, so it should now be much easier to take enforcement action and impose fines. Many hon. Members might say that, looking at the record, not enough has been done, but lowering the threshold should make it easier.
Ofcom has also introduced a new standardised approach to call tracing. That is now in routine use by the ICO and Ofcom, and it will be improved by the end of this year. We are also looking at how to make it more difficult for callers to use voice over internet protocol to facilitate an invalid calling line identification.
Peter Grant (Glenrothes) (SNP)
Does the Minister agree that as well as the misuse of personal data, which my hon. Friend the Member for North Ayrshire and Arran (Patricia Gibson) referred to, there is an issue about how data are collected in the first place? I have noticed over the past year or so that it is becoming much more common when accessing services online—online is often the cheapest and most convenient way to access services, or indeed the only way—whether an obligation-free insurance quote or free wi-fi, for providers no longer to give the option to give consent. In other words, if a person does not give consent, they are not allowed to access the service. Have the Government any plans to legislate specifically against that nefarious practice?
Mr Vaizey
We are looking at the data protection regulations, and I am sure that we could look at the example the hon. Gentleman raises, which is not one that I have come across in detail. That is another reason why Baroness Neville-Rolfe now has responsibility for our policy on nuisance calls, because she is also responsible for data protection and work on the digital single market, so it is a coherent policy brief. [Interruption.] I am hearing more sedentary remarks from the hon. Member for Newcastle upon Tyne Central, who is nodding her approval at the effective work that the Government are doing in these areas. I am extremely pleased that she recognises how well the work is going.
Rachael Maskell (York Central) (Lab/Co-op)
Although a lot of work is being done within the Department, the reality is that victims are still receiving numerous calls every night, which is having an impact on their wellbeing. A constituent wrote to me only last night, having received nuisance calls from half-past 8 in the evening right through to 11 o’clock at night. Should calls not be restricted, as my constituent suggests, to a limited window in the evening so that people are not interrupted for the rest of the evening?
Mr Vaizey
There are plenty of perfectly valid suggestions about how we can tackle nuisance calls. However, to be blunt, we are dealing with unscrupulous companies based both here and abroad who will stop at nothing to bombard consumers with these calls. Even if we did introduce such legislation, it would not stop the most unscrupulous companies. That is why it is so important, first, to be able to report these calls, and then to trace them. We will consult on calling line identification to make it absolutely certain that legitimate companies display their number when they call someone. We have worked with the Direct Marketing Association to produce a code of conduct to which companies can sign up. I am sure that any legitimate company that wants to carry out legitimate marketing activity would restrict its calls to what anyone in this House would regard as common-sense hours.
One reason we have seen this huge increase in nuisance calls is the use of technology that allows automated calling, so we need to combat that technology with our own technology. I was delighted that in the Budget before the election the Chancellor announced a £3.5 million nuisance calls budget. That includes the marketing mentioned by the hon. Member for North Ayrshire and Arran, but also a challenge fund to allow people to purchase call-blocking technology. We are looking at network-level solutions because we want to ensure that we can block some of these calls at source. Indeed, a company that has been in the news for all the wrong reasons, TalkTalk, has deployed network-level solutions that have blocked hundreds of millions of nuisance calls.
Rachael Maskell
Will the Minister define what he means by “common-sense hours”? I do not really know what that term means.
Mr Vaizey
I would not expect any legitimate company to call a consumer at 11 o’clock at night. We could debate this back and forth, but I will write to the hon. Lady about the work we have done with the Direct Marketing Association.
We have also worked with Ofcom on call tracing, helping to trace calls where calling numbers are withheld or disguised. Ofcom has now agreed a new standardised approach to call tracing across and between network providers in the UK and abroad, and that was implemented earlier.
I do recognise the concerns expressed by the hon. Member for North Ayrshire and Arran, and I am very pleased to see so many hon. Members in the House at this late hour to support her. We have worked on this through changing legislation and working with providers. I will continue to update the House on this. The nods and smiles from the Opposition spokesmen, the hon. Members for Newcastle upon Tyne Central and for Makerfield (Yvonne Fovargue), encourage me in my belief that we are doing the right thing and making an impact.
Question put and agreed to.
Motion in the names of Chris Grayling and Dr Therese Coffey relating to the Electoral Commission
(9 years ago)
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The Deputy Leader of the House of Commons (Dr Thérèse Coffey)
I beg to move,
That the Committee has considered the motion, That an humble Address be presented to Her Majesty, praying that Her Majesty will reappoint Anna Carragher as an Electoral Commissioner with effect from 1 January 2016 to 31 December 2020.
It is great privilege to serve under your chairmanship, Mr Stringer.
Anna Carragher has served as an electoral commissioner since 1 January 2015. Her current term of appointment ends on 31 December. The Speaker’s Committee on the Electoral Commission has produced its second report of 2015, which relates to the motion.
Commissioners are appointed under the Political Parties, Elections and Referendums Act 2000, as amended by the Political Parties and Elections Act 2009. Under the Act, the Speaker’s Committee has a responsibility to oversee the selection of candidates for appointment to the Electoral Commission. Commissioners are appointed for a fixed term, but the committee may recommend their reappointment where appropriate. The committee is not regulated by the Office of the Commissioner for Public Appointments but it has chosen to follow OCPA recommended best practice in its supervision of appointments. The OCPA code of practice for appointments to public bodies, which was published in April 2012, provides that no reappointment may be made without a satisfactory performance appraisal.
The committee’s second report confirms that evidence of Anna Carragher’s performance was submitted to the committee by Jenny Watson, the chair of the Electoral Commission. Ms Watson indicated that Ms Carragher’s understanding of the complexities and sensitives of Northern Ireland’s politics and society had been of immense value to the commission. She noted a number of issues facing the commission on which Ms Carragher’s knowledge and understanding of Northern Ireland would be particularly valuable, such as the impact of the recent local government reorganisation in Northern Ireland and the move to greater transparency of loans and donations. Jenny Watson indicated that Ms Carragher has demonstrated acute understanding of the commission’s wider priorities and had been able to draw on her experience of Northern Ireland in contributing to discussions on matters such as individual electoral registration.
The Speaker’s Committee reported that, having considered Ms Watson’s submissions, it was content to recommend Ms Carragher’s reappointment. Once the committee has reached a decision, statute requires that the Speaker consults the leaders of the political parties represented at Westminster on the proposed reappointments. The statutory consultation provides an opportunity for the party leaders to comment but they are not required to do so. Their responses were published by the committee as an appendix to its report. Where the leader of a political party has changed since the consultation took place, new leaders have been approached to comment on this appointment, and no objections have been received.
If the appointment is made, Anna Carragher will continue to serve on the Electoral Commission until the end of 2020. I am sure that her expertise will continue to be appreciated by the commission in a period that will include the European Union referendum. I hope that Anna Carragher has the support of the Committee and of the House.
Melanie Onn (Great Grimsby) (Lab)
I will make some brief comments. The Labour party endorses, with full support, the reappointment of Anna Carragher as electoral commissioner with special responsibility for Northern Ireland. I further acknowledge the support from party leaders across the spectrum, including the Democratic Unionist party, the Ulster Unionist party, the Liberal Democrats, the Labour and Co-operative party, the Scottish National party and the Conservative party.
Question put and agreed to.
Westminster Hall
Westminster Hall is an alternative Chamber for MPs to hold debates, named after the adjoining Westminster Hall.
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Term-time Leave
(9 years ago)
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Westminster Hall is an alternative Chamber for MPs to hold debates, named after the adjoining Westminster Hall.
Each debate is chaired by an MP from the Panel of Chairs, rather than the Speaker or Deputy Speaker. A Government Minister will give the final speech, and no votes may be called on the debate topic.
This information is provided by Parallel Parliament and does not comprise part of the offical record
Steve McCabe (in the Chair)
Mr Speaker has agreed that for this debate members of the public may use handheld electronic devices in the Public Gallery, provided that the devices are on silent. Photographs, however, must not be taken.
Steve Double (St Austell and Newquay) (Con)
I beg to move,
That this House has considered an e-petition relating to term-time leave from school for holiday.
It is a pleasure to serve under your chairmanship, Mr McCabe. I understand that this is your first time in the Westminster Hall Chair. It is my first time opening a debate here, so hopefully we can learn together.
It is a pleasure to open this debate on a controversial and unpopular policy that has provoked much public interest, as we can see from the number of members of the public present. The debate is the result of an e-petition calling for parents to be allowed to take their children out of school for up to two weeks for a family holiday; it has been signed by more than 120,000 people. I am leading the debate because I am a member of the Petitions Committee, but I also have a keen interest in the issue and have been campaigning about it for the past 12 months or more. I have been contacted by, and have spoken with, hundreds of parents, tourism-related businesses, charities and campaigning organisations about the issue. In my opening statement, I hope accurately to represent the views of all those people, while making it clear that I share those views.
To begin with, I want to make it absolutely clear that I support the aim that children should attend school regularly. Education is vital, but it is not the only important thing in a child’s upbringing. Although I support that aim, I fundamentally disagree that telling parents when they can and cannot take their children on holiday is a job for the state.
During the election campaign, I became increasingly aware of the policy’s detrimental effects; in my view, its wider economic and social impact outweighs the positive effect on school attendance. I represent the constituency of St Austell and Newquay in mid-Cornwall, and the policy’s impacts are especially felt in Cornwall and other places that depend heavily on tourism. I will lay out three main reasons why the policy is wrong and counterproductive and why it needs to be reviewed.
We have heard an awful lot about fairness in politics over the past few years. My first reason is that, sadly, the policy is blatantly unfair to a number of groups. The first group are those unable to take a holiday during school holiday times, including many who work in tourism and other sectors. Many small tourism-related businesses in Cornwall are too busy to allow their staff to take a holiday during the peak holiday season; many are owner-run and have to make money while people are on holiday. People with such work cannot, therefore, afford to close and take a holiday themselves during the season. In fact, the introduction of the policy has made things even worse for tourism businesses because the season is now even more concentrated, into six or seven weeks of the school summer holidays. That places even greater demand on the businesses during the peak season and makes it even more difficult for them to allow staff to take a holiday.
It is not, however, only those who work directly in tourism who are affected; it is also those who work in the public sector in tourism areas. For example, our local police in mid-Cornwall have for many years restricted police officers’ ability to take holiday during the peak season due to the increased demand for policing in the area. The policy effectively tells people who cannot take a holiday during school holiday times that they cannot have a family holiday, and that seems completely unfair.
The policy is also unfair in other ways—on people who cannot afford to pay for a holiday during the peak holiday season, for example. We all know that holidays taken during the peak season, whether in this country or abroad, are out of the reach of many families on low incomes; in fact, many families we would consider to be on middle incomes struggle to pay the peak season prices. There have been calls for the Government to intervene and bring some sort of regulation into the holiday market, but we have to accept that that is incredibly unlikely—we live in a free market economy and prices are set by supply and demand. But surely we can expect the Government not to introduce policies that make the matter worse, and it is worth noting that that is precisely what is happening.
The restriction on term-time holidays has had the unintended—I am sure—consequence of increasing demand during school holidays and pushing prices up during the peak season. Holiday resorts in Cornwall say that because there is greater demand during the peak weeks and they are also losing business during what we call the shoulder weeks, they are having to increase prices in the peak weeks to make up the difference. The cost differential between term-time and school holiday prices is widening. Far from helping the lower-paid to have a holiday, the policy is exacerbating the situation.
Another group that the policy is unfair to are the many families who rely on charities for a holiday. I have been contacted by a number of charities that have for many years taken groups of disadvantaged families on holiday during September. They do it then because prices are lower and they are often able to get a good deal on a holiday park during periods of lower demand.
An example close to my heart is an organisation called Cornwall One Parent Support. I have been involved with the charity right from its beginnings, almost 20 years ago, since when it has provided support for single-parent families, including taking them on a cheap, subsidised holiday in September. It has often taken groups of up to 40 families away for a week. The holiday provides a great opportunity for the parents and children to have a break and experience a holiday they would otherwise never be able to enjoy. However, since the introduction of the policy, the organisation cannot run the holidays in the same way, as the families are prevented from taking their children out of school. The policy is unfair to a great number of families, and sadly it is the lowest paid and most disadvantaged who appear to be losing out.
I also believe that the policy is detrimental to family life. As a matter of principle, I do not believe that it is the role of the state to tell parents when they can take their children on holiday. Every child is unique, and it should be for parents to decide what is right and best for their child. Some parents will decide that the best thing is for their child to be in school at all times; others will decide that the benefit of a family holiday—the experience of travel, new cultures and meeting new people—is more beneficial than being in school for that week. It should be, however, for the parent to make the choice.
Steve Brine (Winchester) (Con)
It is, of course, the state’s right and responsibility to see that children get a proper education, and we know that being in school clearly leads to that. I do not think that the signatories to the petition are saying that taking children out of school for family holidays is an absolute right, and I wonder whether there might be a compromise to be reached for children in the early years of primary school—reception, year 1 and year 2. Would my hon. Friend suggest that the rules could be relaxed for those years?
Steve Double
I agree with my hon. Friend. The vast majority of parents—if not all of them—want a good education for their children. The issue is not about a competition between education and family; it is that many parents, including me, consider that family holidays and the experiences they bring are part of a child’s education. One of the sadnesses of the policy is that it has pitted school and education against family, when we want them to work together for the benefit of the child and to do what is right and best for that child.
If we view education as just what takes place in the classroom, we rather miss the point; education needs to be about much more than that in a child’s life. The point that my hon. Friend made about flexibility is absolutely right—we need some common-sense flexibility brought into this issue. Parents want their children to be in school regularly, and that is what the Education Act 1996 asks for. Let us not forget that the 1996 Act gives parents the option to home educate, which seems to be a bit of a contradiction given the application of the strict rules that I am discussing.
Many parents have contacted me on this matter. It is a widely held view that a child’s upbringing and education are about more than what happens in the classroom. Clearly, formal schooling is a central and critical part of any child’s education, but it is not the only important element. The breadth and variety of experiences that children can gain from travel can enrich and deepen their view and appreciation of the world. I know that from my own upbringing. The times when I travelled with my parents shaped and developed my understanding of the world in a way that the classroom teacher would never be able to provide.
There is a deeper, more concerning aspect of the policy’s impact on families. The policy sends out the message that being in the classroom is somehow more important than being with their family, which is something I fundamentally cannot support. No matter how good a school or individual teacher is, being in school can never be more important, more valuable or more beneficial in a child’s life than a positive and healthy family situation.
We all know that we are living busier and busier lives these days; the pressure and stresses of daily life put more demands on family life than ever before, so the time that parents have with their children is more precious than ever before. The benefit of that week or two away—away from the pressures of life and the domestic and mundane responsibilities of home—can be an oasis for any family, offering the opportunity to regroup, to refresh their relationships and to strengthen the family bond. I know the cliché is often used, but the quality time parents can spend with their children on a holiday can be one of the most positive things a child can experience in the madness of today’s world.
Neil Carmichael (Stroud) (Con)
I just wonder whether the weekend is not an option for families to spend some quality time together. The real danger of allowing parents to take their children out at any point during term is that it interrupts their time at school, in the classroom.
Steve Double
Of course, weekends can play a part, but I again make the point that for many parents, the weekends these days are full of a great deal of activity. That week away, where a family can get away from the pressures of life and concentrate on their time together, is valuable.
Dr Lisa Cameron (East Kilbride, Strathaven and Lesmahagow) (SNP)
On that point, in the broader sense we need to understand that many parents, such as those who work in our health service, work shifts and may have to be present during summer time. Not everyone can have their holiday at the same time, because we need to keep our health service running.
Steve Double
I absolutely agree. Gone are the days when our society was neatly packaged into the week and the weekend. The lines are very much blurred these days.
To reiterate the point, that week or two away from it all as a family cannot be replaced by the odd day here and there that parents may be able to get. If the choice for a family is a holiday during term time or no holiday at all, parents should have every right to decide that a family holiday would be more beneficial for their child than being in school for that week. I know from my many years as a school governor that the single most important factor in any child’s life is a positive and stable relationship with their parents, along with the degree to which their parents are involved in their life and upbringing.
The policy is not only preventing families from taking a holiday together. I have been contacted by dozens of families offering accounts of how their children have missed out on family events as the school would not authorise them to miss a day or two. One family told me how their child missed out on seeing their cousin compete in a sporting world championship as their school said the cousin was not a close enough family member for the child to be allowed to go. A four-year-old was refused permission to attend his grandmother’s 60th birthday celebrations as it would have meant taking the Friday off school to travel. I would welcome clarification from the Minister. My understanding of the 1996 Act is that there is no requirement to put children in school until after their fifth birthday. If a child is in school before their fifth birthday, do the strict rules apply to them?
The Minister for Schools (Mr Nick Gibb)
I am listening carefully to the powerful speech that my hon. Friend is making. In answer to his question, once a child is registered at a school, he or she is subject to the same rules as children who are of compulsory school age.
Steve Double
I am grateful to the Minister for clarifying that point.
Other parents have told me of children missing out on scores of significant family celebrations. In fact, there seems to be a bit of confusion on what constitutes an exceptional case where headteachers are allowed to grant an authorised absence. Headteachers are being put in the impossible position of having to make choices about children attending family events—quite frankly, those are decisions that parents should be free to make. Headteachers have told me that even when they do exercise their judgement and authorise an absence, they then risk the spectre of Ofsted criticising that decision. Pitting family life against the classroom, as the policy sadly does, is one of its most regrettable aspects.
Nigel Huddleston (Mid Worcestershire) (Con)
My hon. Friend makes some valid points that I have also heard in my constituency about the confusion over what constitutes exceptional circumstances, and he gave some good examples. Is he aware that 90% of those surveyed by the National Association of Head Teachers said that they would appreciate clearer guidance from the Government as to what constitutes exceptional circumstances? Perhaps that guidance might help.
Steve Double
I was aware of that survey. It raises the point that if the policy is to be continued—clearly, I hope it will be reviewed—there needs to be much greater clarity for headteachers on what constitutes exceptional circumstances. That especially needs to be applied to Ofsted, because I am hearing from headteachers that when they make a judgment call that they believe they are allowed to make and authorise the absence, those decisions are then queried at best, and perhaps criticised in other cases, by Ofsted. Parents want a constructive relationship with the school, where together they can decide what is right and best for the child.
My final point is on the policy’s economic impact. I was disturbed to learn that no economic impact assessment was made before the policy was introduced. In fact, when the matter was brought before Parliament in March 2013 by way of a statutory instrument, the explanatory note stated:
“An impact assessment has not been provided for this instrument as no impact on businesses or civil society organisations is foreseen.”
Unfortunately, that simply is not the case. The impact of the policy on the tourist industry, particularly in Cornwall, has been significant, as it has elsewhere in the country. Many tourist-related businesses are reporting a significant drop in revenue in the shoulder months of May, June and September, which used to be times when many families would come to towns such as Newquay to stay.
Scott Mann (North Cornwall) (Con)
I have been contacted by the Federation of Small Businesses, which has highlighted the concerns of many hoteliers, retailers and businesses that are affected by the six-week period. Has my hon. Friend been contacted by the FSB?
Steve Double
I have not been contacted by the FSB, but I am grateful to the Newquay chamber of commerce, and to its chairman, Rachel Craze, who was the first person to bring this issue to my attention about 12 months ago and has helped me in liaising with businesses in Newquay to understand the significant impact on them. Only last year, Visit Cornwall produced a report on the Cornish economy that stated that Cornwall had lost an estimated £44 million as a result of the policy. Individual businesses have told me that their revenue for June this year was 40% down on what they had previously come to expect. Others have told me that they have had to lay off staff, reduce staff hours and cut back on stock purchases.
A tourist business cannot be run based on having only six or seven weeks’ peak business during the school holidays. For most businesses, the shoulder months make the business viable. Some businesses are faced with the choice of having to stop catering for the family sector and completely shift their focus, or close.
It is also reported that owners of holiday lets are now changing to full residential letting because they simply cannot get enough lettings out of the holiday season. That reduces the capacity of the holiday trade in the peak season, and the knock-on effect is felt by surrounding businesses. The policy is damaging tourism in this country. As it was wrongly stated when the decision was taken that there would be no impact on business, clearly it should now be reviewed.
The policy is unfair; it undermines the place of the family and damages our economy. It is clear to me and many others that it needs to be reviewed. When the Government have been challenged on this matter, their response has been to say that headteachers have discretion. As has already been pointed out, there is a need for much greater clarity. Another suggestion from the Government was to allow schools to stagger their holidays, but I do not believe that would work. We have tried it in Cornwall. In some ways, it makes the matter worse, because if one school changes its holidays and another school nearby does not, and a parent has children in both schools, they simply end up with a childcare problem during a different week. Discussions have taken place on helping schools around the country stagger their holidays, but I do not believe that has come to anything. Perhaps the Minister can confirm where the Government are on that.
The petition calls for the Government to allow flexibility and to allow headteachers to grant up to two weeks’ holiday per school year for a family holiday. We are not talking about a free-for-all or giving parents carte blanche to take their children out as and when they like. We are talking about parents agreeing in conjunction with the school when they believe it is right for them to take a family holiday. Headteachers need to be given flexibility to authorise a holiday. Most parents would accept that there would be times when it would be entirely inappropriate to take a holiday: in years 10 and 11, and perhaps in year 6 as well. There might even be times during the school year when the school could say it was not a good time to be away. We need a constructive relationship between the school and the parents, not the tensions that currently seem to exist.
The vast majority of parents simply want the right to decide for themselves what is right and best for their own children. As I said at the start of my speech, I do not believe it is the role of the state to dictate to parents in the way that is happening, so I simply call on the Minister to review the policy. As no impact assessment was made when the policy was introduced, the Government should carry out an assessment now and consider the impact that it is having on the tourist industry and on family life. We should allow parents the right to bring up their own children in the way they believe is best.
Scott Mann (North Cornwall) (Con)
I welcome you to the Chair, Mr McCabe, and I thank my Cornish colleague, my hon. Friend the Member for St Austell and Newquay (Steve Double), for spearheading this debate. He has been instrumental in making the public aware of today’s debate and the general debate in wider circles about allowing children to be taken out of school to go on holiday. As an MP for a key tourist destination, I know how the current policy is detrimental to my constituents and the economy of North Cornwall and of Cornwall as a whole.
There are various reasons why I support calls for allowing children two weeks off in term-time. First, I do not feel it is right for the state to tell parents when they can and cannot take their children on holiday, as my hon. Friend said. As a parent, I would not do anything to negatively affect my child’s education. However, I am also confident that were my child to come out of school for a holiday, she would have a broader understanding of the world and a memorable experience that she could take back and share with her classmates. I am confident that parents in my constituency would not do anything detrimental to their child’s education; they could take them out and the educational trips would be mind-broadening.
When it comes to holidays, headteachers should regain the say over when pupils can go on holiday. The whole point of a headteacher is to run the school and remain accountable to parents, so why are we not giving parents the ability to choose and headteachers the freedom to decide? I can allude to one instance on Padstow ’Obby ’Oss day—a popular day for merriment in Padstow and in Cornwall generally—when a young person was denied leave to go out on a day that is so big for the area. Holidays and days off can be incredibly educational for children. Granted, children do learn a lot when they have high attendance in school, but two weeks’ maximum is a drop in the ocean compared with the total amount of time that they are in school. Headteachers need to be able to use discretionary powers on holidays. A headteacher has a huge understanding of the importance of education for a child.
Scott Mann
I would be flexible on that. We simply need to give parents the ability to take their children out of school at some time during those years. I am not a wealthy man. I cannot afford to take my child away on holiday year after year. If we can give people the ability to save up for holidays and have a week or a couple of weeks in the sun, they will benefit from that. If a child has been out of school for too long because of sickness or holiday, we should allow headteachers to say that it is not appropriate for them to take time out for a holiday, but if someone has high attainment records and has demonstrated that they are prepared to do some educational work when they are on holiday, they should be granted it.
We believe in a free market economy. When demand goes up, prices go up. However, it is wrong to deny families on lower incomes the opportunity to go on holiday simply because of a week’s schooling. Schools need to embrace the fact that children go on holiday. They should encourage children to write diaries, take photographs and bring back souvenirs to show their school friends. Holidays are beneficial not only to them, but to their peers. What better way to learn about the world and its history or geography than to have a person in the classroom to illustrate the area they have been to?
The current policy of not allowing children to go on holiday during school time is also hitting the Cornish economy hard. It has been estimated that the west country has lost £87 million a year, with Cornwall seeing an 8% drop in visitors and revenue down by £44 million in 2014. We need that money to continue to invest in Cornwall’s tourism economy to ensure that people remain in employment. I have many constituents who work in the holiday and tourism industry, and they need to work at the very time when their children are not in school.
Such a restrictive policy means that our tourism sector has to cater for a holiday season that sees huge volumes of people visiting my constituency over six weeks, but outside that time we no longer have huge numbers of people coming down. It is very frustrating and places huge demands on business owners over those six weeks. It also creates problems with the recruitment of seasonal staff and adds to congestion on the roads. A much more flexible approach would be to allow parents to choose to holiday before or after the summer holidays, which, in economic terms, would help us to extend the tourist season.
Parents need time out. They want to go away and make memories with their children. Why should we deny people that for the sake of a few days off school? Ultimately, I support the calls being made by fellow MPs and the 120,000 people who signed the online petition. Parents should be allowed to take their children out of school and go on holiday. I hope that the Minister understands my views and will consider changing the policy.
John Pugh (Southport) (LD)
I congratulate the hon. Member for St Austell and Newquay (Steve Double) on securing this important debate, which is not entirely about tourism in Cornwall—it goes much wider than that.
I declare an interest. I never took any of my four children out of school during term time. That probably had something to do with the fact that I was a teacher. My employer would have regarded it rather dimly.
There is a legitimate debate to be had about how much time a pupil needs to spend in school and how valuable that time is. In life, there is always a trade-off between quantity and quality. The Minister can point to the fact that the Chinese spend more time in school than we do and make progress rapidly. We reach the same point, but they get to it somewhat earlier. University technical colleges have longer school days and their pupils make more rapid progress, although I do not know whether they get further in the long run. Against that we can set the example of the great public schools of England, which sometimes have ridiculously long summer holidays. If a pupil is in the cricket team, they are hardly in during the summer term anyway. Their results appear to be quite commendable, so we cannot draw general conclusions.
I am rather sad at the general perception that it is ultimately damaging to take children out of school at all times and on all occasions, except in very exceptional circumstances, which certainly do not include holidays. Most parents accept that school is valuable and important and want their child to be there. If they put in a request to take their child out for a time, they do so reluctantly. The Government struggle with this, but I think most parents are reasonably good judges of their own child’s interests and that most requests are put in only at the margins of the school year. These days, pretty much all parents juggle their working life with school time. If their children are at multiple schools with holidays at different times, they find the task formidable.
What is to be done if a parent feels that it would be desirable and not too damaging if their child was out of school during term time? I suggest that the answer for the school and for parents is simply to allow flexibility, which was the generally agreed answer until quite recently. There are exceptional circumstances, which will sometimes involve holidays or other events of family importance. That, however, does not appear to be the view of the Department for Education and Ofsted, which seem to take the rather Gradgrind approach that a child should never miss an hour in school, otherwise the consequences might be fatal.
As I said, I was a teacher. I have not taught for 14 years now, but I had a fairly long teaching career. I have to say that not every hour in school is that educational. Towards the end of the summer term, when exams are done and people are tired, and when the days are hot and the pupils sleepy and looking forward to the summer, one cannot always say that time in school is absolutely precious and could never be forfeited under any circumstances. Equally, most holidays are educationally very productive. After all, that is why so many schools organise holidays. Strangely enough, they sometimes start such holidays towards the end of school time because they recognise the benefits they bring to pupils.
Children improve on holidays. They certainly improve faster on holiday than they do in the last few weeks of school. I recently had the benefit of taking all five of my grandchildren on a holiday to France for two weeks. We did not go around museums, nor did I lecture them about things such as French literature or test their maths, but they came back far more developed after two weeks away than they had after the previous term. I could actually see the difference. They are small children and the development that took place was there for all to see.
The Minister will undoubtedly say that there is an anxiety that for some children there will be some sort of tail-off in the summer. There is a tail-off among certain groups because of the long summer holidays, which some people see as something of an anachronism. Real holidays, subject to the headteacher deciding that that is what is taking place, are life-enhancing and educational. How would we distinguish between real holidays and school-shirking or lesson-skipping, which the Minister would legitimately fear? I do not have a clear answer to that, but I am certain that if we want to make that sort of judgment, it should be done not through the DFE or Ofsted, but based on local information. Local schools should be allowed to make their decisions. We certainly must not poison the relationship between the school, the parents and the child by imposing fines.
A common-sense solution is being urged, through the petition and eloquently by the Members who have spoken so far. I hope that the Minister, having seen some of the errors that the Government have made through their Gradgrind approach, will review the legislation and commend a more sensible regime to schools.
Derek Thomas (St Ives) (Con)
I thank my fellow Cornish MP, my hon. Friend the Member for St Austell and Newquay (Steve Double), for introducing the debate so well.
I fully understand the Government’s intention behind the legislation on taking children out of school during term time. I am sure that every Member present and throughout the House understands the need to address absence from school and to reassure people that the education of their children in school is hugely important. I am glad to live in a country where education is free, good and easily accessible. We do not want to do anything to undermine that value and the priority given to education. It is fantastic that our children have the opportunity to go to school and learn and grow into young people who are able to enter the world of work.
I also understand how children being absent and not taking part in their normal class or group at school can affect the learning of the whole class and its progress over the school year. We are not trying to undermine the Government’s intention to support schools in dealing with absence, and we recognise the contribution that children make to their class. Nevertheless, we are asking for change.
I too am a Cornish MP, and we have seen a huge problem in Cornwall. Part of the problem is how the legislation is interpreted. I have two small children in school. They have cousins of a very similar age, but their schools interpret the law differently. My children’s school is very strict. I have to confess that I took them out of school without permission so that we could go to a family wedding. I needed to take them out on the Thursday to travel to a Friday wedding, and we were not permitted to do that. My children’s cousins’ school, however, regularly allows holidays and provides educational material for the parents to use while they are away. That different interpretation causes tension among schools and among families. Whatever the Government choose to do after this debate, they should provide clear guidelines to schools about their intention for the legislation.
I think something has been lost. Before the legislation and guidance on school holidays were introduced, schools worked very well on this matter. I took my son on holiday for a week away from school, and the school provided a stuffed toy—if I remember correctly, it was an elephant called Elmer, although I may be wrong about that. We were encouraged to take Elmer to different places during the holiday, take photos and send postcards back from Elmer. When my child went back to school, he was able to talk about the experience. The class discussed where Elmer had been and learned important and interesting things about each visit he made. That has been lost, because that can no longer happen.
I am glad that we have a former teacher here who is able to confirm that in parts of the school year, learning—certainly formal learning—drops off. I have done a lot of school assemblies and been involved with schools for probably 20 years, and I have often been frustrated, because there used to be a time in the school year, often after the SATs finished, when formal education changed and parents could take advantage of it to take their children on holiday. That is no longer allowed, yet some schools still have a more informal attitude towards teaching in the latter weeks of the summer term. There are good reasons for that, but it is a shame that parents are not allowed to take their children out of school during that time.
I am concerned because, although the Conservative party does not want to intrude on families—we often say that families know best—I believe that this legislation does so. Some families in Cornwall, as we have heard, are not able to take their children on holiday during peak school holiday time because of their jobs. They may work in the public services or run business that rely heavily on the school holidays for their income. By introducing this legislation, we have intruded on those families and told them that they are not able to take their children on holiday.
My hon. Friend the Member for Stroud (Neil Carmichael), who has left the Chamber now, spoke about weekend holidays, but that would not work in Cornwall because families would spend the whole weekend stuck on the A30, which would be a completely inappropriate and unfortunate way of spending their holiday. I therefore do not accept the argument that weekends can be used to go on holiday; that would not work. I have to travel for longer than any other MP to get here on a Monday, and we cannot assume that weekends are an alternative.
As my hon. Friend the Member for St Austell and Newquay said, the cost of taking a holiday during the school holidays is prohibitive for many families. Like my hon. Friend, my constituency neighbour, I come from one of the poorest areas in the country. Our average wage is considerably less than the national average.
That brings me on to the disruption to business. Businesses in my constituency have closed since the legislation was introduced because the owners are no longer able to run them all year round. The business they get in the summer, at half-term and even at Christmas is not enough for them to continue their work, so they have had to close their business and lay people off as a result. The impact on our local economy is considerable, and I am sad that the Government were unable to look at that before they introduced the current advice.
Last summer was phenomenal for the holiday industry in Cornwall. We had more visitors than we have had for many years. Our summer season has been compressed into the six-week school holiday period, and I do not know how long the holiday industry will survive in Cornwall, because the A30 was gridlocked pretty much continuously every day. If I travelled to Cornwall, using the precious holiday I have with my children, and got stuck on the A30, I do not know whether I would choose to do that again next year and the year after. The situation indirectly affects the potential of Cornwall’s tourism businesses, because if people cannot go on holiday to Cornwall because of the increased traffic on the roads, they will choose to go elsewhere. The holiday companies that cannot operate during the summer will close, and the businesses that rely on the summer trade will lose business and may not be able to continue.
I urge the Government to look carefully at this issue. We are not asking for parents to be able to compromise their child’s learning. We are asking the Government to look at the impact that this measure has on our tourism and family life. We seek an agreement that would allow holiday to be taken outside holiday time in a way that contributes to the child’s learning. We are asking the Government to relax the legislation, not to backtrack on their good efforts to address habitual absenteeism. It is very important that we address the issue of parents who regularly take their children out of school for no good reason; we recognise that that has a detrimental effect on the classroom. However, we ask the Government to recognise that parents are able to complement their child’s education with a school holiday. We need a change in the law, and schools need clear guidelines and absolute clarity about the Government’s approach. All schools need to use the same guidelines for their children.
Melanie Onn (Great Grimsby) (Lab)
Is the hon. Gentleman aware that the National Association of Head Teachers surveyed its members, and 90% said that they would welcome additional guidance?
Derek Thomas
That has already been discussed, but the hon. Lady is absolutely right to bring it up. The headteacher at my children’s school would love the Government to say, “This is what we want from your school,” and for Ofsted to reflect that in how they judge the school. I believe that an allowance of up to two weeks a year would not be detrimental if, as has been said, it is at a quiet time for formal learning. Children’s holidays should be celebrated and made part of the learning of the child who goes on holiday and of the class, which, the following week, is able to look at where that child and Elmer have been.
Dr Daniel Poulter (Central Suffolk and North Ipswich) (Con)
It is a pleasure to serve under your chairmanship, Mr McCabe. I pay tribute to my hon. Friend the Member for St Austell and Newquay (Steve Double) for securing this debate and for raising the issue of the petition. I commend my other hon. Friends and hon. Members who have spoken for their thoughtful contributions. There have been a number of contributions, and the issues and arguments appear to me to be as follows.
Several points were made about the guidance given to headteachers on how to implement the regulations. Hon. Members discussed the potential impact on tourism and the seasonality of work—in Cornwall, in particular, but also in other areas of the country with a tourist trade. Hon. Members mentioned the potential impact on public sector workers who may have their leave cancelled during those periods. Although that is certainly true during the summer holiday period, other holiday periods are available to public sector workers—I speak from experience. Hon. Members also spoke about the issue of affordability and the effect that inflated holiday prices during school holidays can have on certain families.
I want to talk about the educational case that underpins the current regulations. Although there are clearly concerns about the regulations, I will talk about why they are in place and outline some of the issues at stake. Fundamentally, they are about doing the right thing by children. There is clear evidence that absence from school is detrimental to school performance and leads to lower levels of attainment. Absence data from the academic year 2012-13 and previous years indicate that pupils with no absence from school during key stage 4 were nearly three times as likely to achieve five A*, A, B or C grades at GCSE. Even a small amount of absence from school can reduce performance. Indeed, 44% of children with no absence at key stage 4 achieve the English baccalaureate, which is the gold standard package of GCSE qualifications including English, maths and science. That figure falls by a quarter to 31.7% for pupils who miss up to 14 days of lessons over the two years that they study for their GCSEs—that equates to about one week per year.
There is therefore clear and well-established evidence that missing lessons equals lower achievement in schools, and that is why the policy is in place. The policy is well intended and is there to ensure that all children have a good education.
John Pugh
The hon. Gentleman is talking about absence generically, but the evidence clearly includes two sorts of absence: the occasional absence, which people talk about and has extenuating circumstances, such as holiday absence; and systematic, regular absence. Do the data show any difference? The data will show clearly—I am only guessing; he may correct me if I am wrong—that children who are underperforming because of absence are not those who are taking the odd week off in exceptional circumstances because their parents have asked, but children who are repeatedly absent for one reason or another throughout the term and the year.
Dr Poulter
The hon. Gentleman makes a good point. The data are generic—we know that there is a link between absence rates for all reasons and lower attainment at school. Of course we would expect pupils who are missing school regularly and not turning up for reasons such as truancy to do less well at school than those who attend regularly—there is other evidence to support that. That is the hon. Gentleman’s point, but my understanding of the data is that, generally, higher rates of absence equal lower levels of attainment.
When putting regulations in place—perfect ones are difficult, but they are there for the right reasons—we need to look at something the Minister alluded to in an intervention on my hon. Friend the Member for St Austell and Newquay. Were we to facilitate routinely two weeks of holiday for pupils during term time, over a pupil’s school career that would represent about 24 weeks of extra holiday in school time—almost half a year of extra holiday and of lost learning time being facilitated by law. That is not something that anyone ought to want to facilitate in Government regulation. Such a situation would clearly be detrimental to a child’s development, future life chances and chances at school.
Regulations are difficult to make, but there is a reason why they are in place. We have failed to discuss the level of discretion available to headteachers at the moment and I will come on to that. It is right to have given discretion to headteachers, who may look at the circumstances involved, but there might be an issue to do with refreshing some of the guidance. Perhaps the Minister will talk about that in his response.
The background to the legislation is that parents are not now able directly to authorise absence themselves; they must do so with facilitation from the headteacher. The initial framework of the regulations was put in place by the then Labour Government in 2006 and changed by the coalition Government in 2013. Under the new regulations, headteachers may not grant leave of absence during term time unless there are exceptional circumstances.
The matter is therefore one for the headteacher. A fine for an unauthorised absence is possible, but discretion has been given to the headteacher to look at the circumstances, and they have done so in a number of cases. Clearly, in our increasingly multicultural country—something we celebrate—different religions have certain celebrations at different times of the year. Certain schools and headteachers recognise that and use those exceptional circumstances of religious celebration to exercise their discretion.
We need to look at what we want in regulation—a duty that is in effect permissive, allowing such absence, or one that allows the headteacher to look at the circumstances, making it the rule that leave should not be given without exceptional circumstances. A permissive duty would in effect allow an extra half year of holiday and missed school in pupils’ lives, so the legislation has probably come down on the right side of the argument: in support of the headteacher’s having discretion.
Melanie Onn
I appreciate the hon. Gentleman’s point about a permissive duty and the responsibilities held by headteachers. Is there not also a substantial argument to support headteachers’ being given guidelines to allow for consistency, as the hon. Member for St Ives (Derek Thomas) mentioned? Should there not be an enhanced framework to support those headteachers to make such decisions and to make things a bit clearer across the board?
Dr Poulter
I completely agree. The hon. Lady mentioned earlier how a number of headteachers are confused about what circumstances they may consider exceptional. My hon. Friends have made similar points. Given a survey of teachers that indicates concerns about how to act and how to interpret the regulations, there is clearly something that to be said for the need to refresh the guidance so that teachers have clearer guidelines. I am sure that the Minister will address that in his remarks.
Councillor Roy Perry, chairman of the Local Government Association’s children and young people’s board, said:
“The current rules tie families to set holiday periods.”
He added that the system does not easily define what
“would class as a special occasion”,
and does not take
“into account a parent’s work life”—
a point made earlier in the debate. I believe that headteachers would benefit from clearer understanding and guidance to inform their decision on exceptional circumstances.
The other issue raised in the debate was about having staggered school holidays, which touches on a number of matters, including the business concerns. The regulations apply to England, but I was recently fortunate enough to visit Scotland, where there are clear differences in school holidays between neighbouring areas—for example, Fife had a longer October break than Edinburgh. Such flexibility might be desirable and deal with some of the concerns. That needs to be looked at.
Making legislation and regulations can be difficult. The balance is on the right side in this case, which is not actively to facilitate school-time absence, but to make it an exception, although guidance could do with being looked at. The answer might lie in clearer guidance, or in a degree of staggered school holidays. Clearly and fundamentally, we need to look after the children. Better guidance for headteachers would be better not only for the headteachers themselves, but for parents, in enabling them to understand the benefits of the policy. The policy is designed to help children receive a good education and to provide them with the best possible start in life.
Michelle Donelan (Chippenham) (Con)
I echo the gratitude expressed to my hon. Friend the Member for St Austell and Newquay (Steve Double) for introducing a debate that carries the British public with it. There is considerable support for his opinion among my constituents —the issue cropped up regularly on doorsteps during the election and has reached me subsequently in correspondence and in surgeries.
The existing situation is simply not fair. The changes in September allow headteachers to have discretion over emergency circumstances, but the term is subjective, so different schools judge those circumstances differently. One family in my constituency who had been through a traumatic time requested two weeks away together to get over their personal loss. They were not given that. In fact, they were fined, despite the fact that they promised, and did, keep up with their children’s primary school education while away. In other areas, I hear of cases where children were granted permission in similar circumstances. That seems unjust; it seems that in effect we have created a postcode lottery situation.
I have two primary concerns. First, why is so much money and administration being used to fine those parents who are not really neglecting their children’s education or enabling truancy? Should we not be targeting those resources on those actually abusing the system and damaging their children’s education and chances?
Secondly, the policy punishes servicemen such as those who work at MOD Corsham. They often work inflexibly and can be deployed during school holiday time; their leave periods may not align with the school holidays. It also punishes the hard-working families whom we were elected to represent, especially those on low incomes who simply cannot afford to go away during the holidays.
The Department stated that it is not denying any family a holiday, but the reality is different, because poorer families are denied that chance. For what? To stop them from travelling? We must not underestimate the value of travel. Different places, cultures, customs, activities and people all enrich and enhance a child’s education. They also enable children to be more tolerant and help produce well rounded individuals. We must ask ourselves whether that is also an educational objective. The issue is not just about grades.
I question the key argument the Department gave in its formal response to the petition, which was that taking children out of school during term time lowers attainment levels. That is true, but the figures used in the response were based on children who were absent for 15% to 20% of the time, or primary schoolchildren absent for 31 days. The petition does not suggest 15% to 20% absence; it discusses a period of just two weeks.
The figures indicate that less than two weeks’ absence can affect GCSE students, so surely it would be best to introduce changes just for primary schoolchildren. That would ensure that no time was taken during exam periods and when work is harder to catch up on. Primary school work can be done easily while away—it is easier to keep up. I do not suggest that children should be allowed to take two weeks off without parents ensuring that they keep up to date with their work, but I would like to see a much more flexible system.
To make our education system less rigid and more understanding would enhance the relationship with parents. Education relies on parents and guardians—in fact, they are vital. The current law creates a “them and us” mentality, which is the polar opposite of the ethos of “from school to home”, a partnership between parents and teachers. There needs to be much more trust and flexibility. We can introduce a change that is logical and fair, which could be just for primary school level. However, what we must not do is continue with a system that punishes hard-working families and alienates parents.
We must not also forget that this concept can easily be blown out of proportion. We are talking about two weeks to offer children, especially those from poorer backgrounds, an opportunity to have time with their families and be enriched.
John Pugh
The hon. Lady made a good point about 15% to 20% absence. Is she familiar with the DFE report that said:
“The proportions of pupils achieving the expected level stay relatively similar for increasing levels of absence due to authorised family holidays, religious observance and study leave”?
In other words, leave makes precious little difference when we are not talking about 15% to 20% absence.
Michelle Donelan
I thank the hon. Gentleman for that. We need further studies on the value of travel and family time. We need to look at the reason for absence.
We must not blow the petition out of proportion. It is only about two weeks’ absence. That is two weeks to offer children, especially from poorer backgrounds, the opportunity to have time with their family and be enriched. As a member of the party that stands for hard-working families and opportunities, I see that proposal as not only the best thing to do, but the right thing to do.
Nigel Huddleston (Mid Worcestershire) (Con)
It is a pleasure to give my first Westminster Hall speech under your chairmanship, Mr McCabe. I pay tribute to my hon. Friend the Member for St Austell and Newquay (Steve Double) for taking the lead in the debate. The fact that the e-petition has been signed by more than 120,000 people shows the strength of feeling on this subject and the success of the e-petition experiment.
Although I fully support the intent and gist of the e-petition, I have a little concern about its wording, like other hon. Members. To allow all pupils two weeks off would cause chaos and disruption in our schools. I am concerned, as was mentioned earlier, that that could be interpreted as giving a carte blanche entitlement of two weeks off to all parents across the country no matter what the circumstances. I suspect—this is the feeling I have got from the debate—that we are really asking for flexibility, and for headteachers to be given the discretion to decide.
Hon. Members have also mentioned the lack of clarity about exceptional circumstances versus special circumstances, and I think we all agree that further guidance would be appreciated. I am sure we are all interested to hear what the Minister will say about that later on.
The reason why the tighter rules were implemented in the first place was to tackle the burgeoning problem of truancy, partly caused by the persistent and deliberate flouting of the previous rules by a small minority of parents. Truancy was allowed to get completely out of control—so much so that, between autumn 2009 and spring 2010, pupils missed 46 million days of school. That was clearly not acceptable, which is why I support tight regulation, but there is a need for greater flexibility and local discretion when parents truly have no other options.
Like my hon. Friend the Member for Chippenham (Michelle Donelan), I have heard cases of people who work in the armed forces, and it will be no surprise to colleagues who represent constituencies in the south-west that I am concerned about the tourism sector in particular. The situation does not just affect coastal towns and the south-west. I represent Mid Worcestershire, with no coast whatever, where this is an issue as well.
Support for the tourism industry is pivotal, because it is a hugely undervalued sector. Since 2010, one in three new jobs has been in the hospitality, leisure and tourism sector. Tourism contributes £127 billion to our economy and employs more than 3 million people, and that number is growing. This issue will therefore inevitably get bigger, because as more people work in the sector, more people will be affected. It is no exaggeration to say that those who work in the sector are among the hardest-working people in the country, and that is never more the case than during the school holidays, and particularly the summer break.
According to a 2014 study by the Centre for Economics and Business Research, proportionately more people are self-employed in the travel and tourism sector than in the economy as a whole. Many of those people are small business owners running bed and breakfasts, restaurants and shops, and of course many of them will have families.
It goes without saying, therefore, that we would not expect those who work in the holiday industry to go on holiday during their busiest time of the year—we would not expect accountants to go away in the run-up to the tax return deadline in April, a florist to take time off before Valentine’s day or anyone in the retail sector to take a break in December. In most cases, those who run businesses in the tourism sector simply cannot have holidays in late July and August, at Easter, during most half-terms or at Christmas.
It just so happens that the tourism sector’s busiest time is almost every other sector’s downtime. Many who work in the tourism sector are therefore not able to take a family holiday during official school holiday times. They are effectively penalised simply because of their choice to work in that sector. I therefore sincerely hope that flexibility and common sense will prevail. I look forward to the Minister’s response.
Peter Heaton-Jones (North Devon) (Con)
It is a pleasure to serve under your chairmanship, Mr McCabe. I congratulate my right hon. Friend—[Interruption.] I was pre-empting the obvious result of what is happening today. I congratulate my hon. Friend the Member for St Austell and Newquay (Steve Double) on securing the debate. I agree with a vast amount of what he said, and I suspect that the only thing we will disagree on is my view that North Devon is clearly the best place to spend a holiday.
There is a serious issue prompting me to speak in the debate, and it concerns the importance of the tourism sector in my constituency. On some measures, one in six of all jobs in my constituency depend directly or indirectly on the tourism sector. It is a vital driver of the local economy, and many families work in it. It is out of the question for them to take their family vacation in the school holidays. It is their busiest time; they have to be at work. The introduction of the new guidance in 2013 meant that many of my constituents faced a double whammy—not only their business but their family life is suffering.
That is not just my point of view. I have received, as many colleagues have, a number of emails and letters from constituents who share those concerns. I shall quote a small sample, because they say better than I could what the unintended consequences of the 2013 guidance notes are. One constituent writes:
“I operate a small bed and breakfast business in Woolacombe”—
which is a great place to spend a holiday. He says:
“To date, this year is proving a disaster (with the exception of the school holidays); our family rooms are being left unoccupied …Something needs to be done! Please air the views of the thousands of small operators, in the forthcoming…debate.”
Another correspondent writes:
“We feel strongly the negative effect this legislation has had on our seasonal business in Mortehoe”—
another fantastic place in North Devon in which to spend a holiday. They say:
“Our season is shorter and therefore harder to earn enough for the winter months. Also as parents we are penalised in high costs of…holiday charging by travel companies”
during school holidays. Another constituent writes that
“as a seasonal business”,
the regulations have had
“a negative impact on us; overall we have not been as busy whilst at the same time our peak busy periods have been more frantic, due to many more…bookings, making it harder to staff, manage and run a seasonal business…This has meant a reduction in profits and a reduction in staffing.”
Put bluntly, the guidelines are harming employment in North Devon’s vital tourism sector.
I want to quote a few sentences from a final, longer email, from a gentleman who says that he is writing because he runs
“an outdoor pursuits company which relies on the tourism industry”
and because he is the
“father of a 7 year old, who would like to spend more quality time with her Dad.”
He says that the situation has had
“a major effect on myself, my colleagues and lots of my friends that work in the emergency services…we are really struggling to spend time with our children”,
and the guidance only makes things worse. That is a small sample of the emails and letters I have received, and I am sure that colleagues will have had much the same.
I am sure that, as others have said, the intent of the 2013 guidance was good. Of course we should encourage parents to ensure that their children attend school, but I question some of the assumptions that led to the issuing of the guidelines. To delve further, I have dug out the 2013 explanatory memorandum. Much is made of the guidance and advice received by a respected adviser, Charlie Taylor. He was then the Government adviser on school behaviour, and he issued guidance in 2012. The explanatory memorandum to the Education (Pupil Registration) (England) (Amendment) Regulations 2013 and the Education (Penalty Notices) (England) (Amendment) Regulations 2013 said:
“Charlie Taylor noted that if children are taken away for a two-week holiday every year and have an average number of days off for sickness and appointments, then by the time they leave school at sixteen”—
across their whole academic career—
“they will have missed a year of school.”
It is never the intention of any parent who takes their child away to do the same thing year after year for all 13 years of their child’s academic career. That advice is unfairly burdening parents with a view that they simply do not take. If the Government made their 2013 decision on the basis of it, I ask them to look at it again. I do not think any parent intends to take their child away for that length of time every year.
The word “flexibility” has been mentioned, and there has also been mention of interpretation. That is what it all comes down to. Schools and parents have been misguided in interpreting the arrangements to mean that there is no flexibility. Clearly, there is an intention of flexibility in the guidelines. I am sure the Minister will confirm that it was not intended that schools, teachers, headteachers and local education authorities should be told there was no flexibility at all. We need to get the message across to them and to governing bodies; I was a school governor myself. They need to understand that they have flexibility, which is built into the system but which they do not take advantage of at the moment.
Steve Double
Would my hon. Friend add Ofsted to that list? I believe that part of the problem is that at times Ofsted takes a much more legalistic view of the guidance than headteachers do.
Peter Heaton-Jones
My hon. Friend makes his point powerfully, and I am sure the Minister will have taken note.
I hope that one other result of airing the issue today will be that holiday companies will be shamed into not charging such vastly inflated prices during school holidays. I have done a little work and will cite just one example of what has been widely reported in the media. A package holiday to Spain for a family of two adults and two children cost £1,300 if it began on 14 July; but if the same holiday—with identical flights and accommodation— began just two weeks later, when the school holidays had begun, it was a shade under £2,000. That is a 60% mark-up. That would not be allowed in any other retail business, and up with that we should not put.
There is one other reason why I am very pleased that my hon. Friend the Member for St Austell and Newquay secured the debate, and it has been mentioned before: in my view, the best people to decide what is best for children are not the Government, politicians or MPs. They are the parents. If the parents decide that it will do their child good to take them out of school for a few days to go on a family holiday, they should be given the right to do so without being penalised.
Peter Heaton-Jones
Mr Hanson, it is a pleasure to serve under your chairmanship for the remainder of the debate. That was a quick reshuffle.
Before the Division bell rang, I was talking about the belief that the best people to decide what is best for children are not politicians, Ministers or Members of Parliament, but parents. I fundamentally agree with that, but there must be a compact—a deal—between parents and teachers. Teachers also have an extraordinarily important part to play in this equation. Many headteachers get the point that I and many hon. Members on both sides of the debate have been making, which is that some flexibility is already built into the system, but for some reason, many people do not realise that they are able to make flexible decisions, or they just need the certainty of an assurance.
I was very pleased to welcome to Westminster, 10 days ago, a group of children from a primary school in my constituency. I had this discussion with the headteacher, and she absolutely got it; she said to me that she uses the flexibility that she has, which is built into the system, to allow children to have authorised absences from school for a few days at a time for a good, worthwhile and valuable family holiday. She is one headteacher who does that, and I would be very pleased to work with the Minister, in whatever way would be appropriate, to make sure that all headteachers of all schools understand the situation. Through no fault of their own, there is unfortunately a gulf in some headteachers’ understanding of what they are allowed to do at the moment.
I want to work to ensure that all teachers understand the true position, because teachers in North Devon, and indeed throughout our country, do absolutely fantastic work. I do not want to do anything to make their life any more difficult than it already is, and I understand the arguments about lesson planning and teaching having to be changed as a result of some children taking time off, so we need to work together on this one. However, let us ensure—I am sure that the Minister will address this point—that headteachers know that they have the flexibility.
It is absolutely right, of course, that the Government have a duty to encourage parents to ensure that their children have full academic attendance and a full school record, but it is a matter of how that is enforced. There must be some carrot and some stick, and my fear is that with the 2013 guidelines, the balance has shifted rather too much towards the stick approach, which I do not think is valuable or helpful.
I conclude by saying that I am sure the regulations were well intended. My fear is that there are unintended consequences that perhaps could not have been foreseen at the time—although we could argue that maybe they should have been—and they are having a serious impact on families in North Devon, whose only crime is to want to take a holiday when they can, at a reasonable price, because they believe it will be good for their children in the long run and because they want to have quality time with their children. It is a well intended piece of guidance, but I fear that in its interpretation, and in the lack of flexibility that is being applied to its interpretation in some quarters, it is having unintended consequences. I hope I can work on that with the Minister to try to put it right.
Corri Wilson (Ayr, Carrick and Cumnock) (SNP)
It is a pleasure to serve under your chairmanship for the rest of this debate, Mr Hanson. I also thank the hon. Member for St Austell and Newquay (Steve Double) for introducing the debate; excellent points have been made throughout it.
The petition was brought about as a result of regulations that were first laid before Parliament on 4 April 2013. They went through Parliament on the nod, but fortunately constituents have a mechanism through which they can express concerns. Once again, we have to commend the e-petition process for bringing constituents closer to the workings of Parliament. It is a far cry from the modern processes in Holyrood—but I will leave the intricate details of modernising this House’s parliamentary procedures to more experienced Members.
Making sure pupils are included, engaged and involved in their education is fundamental to achievement and attainment in school, and ultimately to the economic prosperity of both the child and the nation. It is important that schools and parents continue to do all they can to ensure good attendance. We know that the impact of non-attendance at school and non-engagement with learning significantly increases the likelihood of young people leaving school and not going on to further education, employment or training.
I appreciate the concerns that many parents have about the rising costs of package holidays as soon as schools shut down for the summer. That is why the Scottish Government back the lowering and eventual scrapping of air passenger duty; it will benefit thousands of families across Scotland and allow cheaper holidays during school holidays. However, it is not only the tour operators who capitalise on the sudden demand created by a six-week window to spend time with our children; suddenly, we see the cost of car hire, holiday parks and recreational facilities all jump for the holiday. As we have heard, we must recognise that modern living is complex. The value of a family holiday should not be underestimated, whether taken at home or abroad.
In our busy modern world, families need to make a concerted effort to make time for one another. The days of workplaces closing down for trades fortnights are long gone, and many families shuffle shift patterns and annual leave to cover school runs and the various school holidays. Many mums and dads are like ships that pass in the night, juggling work commitments and childcare. Cost is not always the main factor when parents are making decisions about withdrawing their child from school for some family time. As has been mentioned, it should be noted that holidays can sometimes in themselves be a learning experience. The categorisation of most term-time holidays as unauthorised absence has been a contentious issue for some families. If we have no control over the pricing decisions of holiday companies or flight operators, our main focus must be to encourage parents and pupils to recognise the value of learning and the pitfalls of disrupting learning for the pupil, the rest of the class and the teacher.
It is for schools and education authorities to judge what sanctions, if any, they wish to apply to unauthorised absence due to holidays. I hope that common sense would prevail in those circumstances. Family holidays should not be recorded as authorised absence except in exceptional domestic circumstances, where a family needs time together to recover from distress or where the nature of a parent’s employment means that school holiday leave cannot be accommodated—for example, when parents are in the armed services or, indeed, when parents spend their weekdays here in Parliament, where English school holidays are accommodated but Scottish school holidays are not.
The Scottish Government are not keen on parents taking children out of school during term time. Their attendance guidelines say that schools will not normally give permission unless there are exceptional circumstances. In Scotland, local authorities hold the power to act against parents. As has been mentioned, regional variations can work. It should be for local authorities and schools to judge when those circumstances apply and authorise absence accordingly. It is a concern that in the last academic year alone, more than 50,000 penalty notices were issued in England because of children being taken out of lessons for trips. The areas with the highest number of penalty notices include some of the most deprived in the country. We need to ask ourselves this question: do we really want to be causing additional hardship to struggling families who merely seek a better work-life balance?
Nic Dakin (Scunthorpe) (Lab)
It is a pleasure to serve for the first time in a debate under your chairmanship, Mr Hanson. This has been a lively, interesting, timely and useful debate. First, I thank the campaigners and petitioners whose efforts led to this debate in Westminster Hall today. People feel passionately about this issue, and it is right and proper that we spend time thinking through how best to respond to the heartfelt concerns of people who feel that the current Government’s policy on term-time holidays has been detrimental to their family life or their relationship with their children’s school.
I know from personal experience of running a college that there is a strong relationship between attendance and achievement. That is why education maintenance allowances were so transformational in impacting on students’ performance; they incentivised attendance and thereby transformed attainment. It should go without saying that all children should aim for 100% attendance and that any absence from school is to be regretted and therefore discouraged. That is why I applaud all those children up and down the land who are achieving high levels of attendance and why headteachers and their teams should be congratulated on the work that they do day in, day out to encourage and celebrate high levels of attendance.
However, this is not a simple issue. Would that it were. It is rather complicated. That is why it is helpful that we are having this debate today. A pretty tough approach to attendance was in place up to September 2013. That gave headteachers the discretion to allow up to 10 days’ absence from school if they felt that the circumstances warranted it. I have not seen any evidence to demonstrate that headteachers were failing to use that discretion effectively. After all, headteachers are pretty hard-headed individuals who are well aware of the relationship between attendance and achievement. They know the families and parents of their pupils better than any Secretary of State and are capable of using discretion sensibly. They are accountable to their communities through published results and Ofsted inspections. It is not in their interests to abuse the discretion entrusted to them. The hon. Member for North Cornwall (Scott Mann) was right to underline in his contribution the importance of headteachers in this decision-making process.
There was a very useful and interesting exchange between the hon. Members for Central Suffolk and North Ipswich (Dr Poulter) and for Southport (John Pugh) on the relationship between types of absence and impacts on achievement—how the impact on achievement depends on the type of absence. The hon. Member for Central Suffolk and North Ipswich is undoubtedly right to say that there is a relationship between longer periods of absence and an impact on performance. However, the hon. Member for Southport was right to remind us of the evidence published by the Department for Education in 2011. That analysis of performance at key stage 2 concluded that the likelihood of pupils achieving the expected key stage 2 level differs greatly not only according to the amount of absence accrued, but according to the different reasons behind the absences. The proportions of pupils achieving the expected level stay relatively similar for increasing levels of absence due to authorised family holidays, religious observances and study leave. However, long-term absences due to exclusions or illnesses tend to be associated with significantly lower proportions of pupils achieving the expected level.
The policy existing up to 2013 appears to have changed, as the hon. Member for North Devon (Peter Heaton-Jones) said in his helpful contribution, after work by the Government’s expert adviser on behaviour in his review of attendance. However, that review looks primarily into the issues around serious and persistent absence, does not appear to have drawn on evidence from parents or children themselves and contains no reference to academic sources.
The hon. Member for St Austell and Newquay (Steve Double), whom I commend for getting the debate off to a very good start, made the telling point that when the statutory instrument was considered, the impact assessment basically said that there was no impact, although we have heard in contributions by hon. Members from across the House and particularly from St Ives and other parts of Cornwall and Devon that there is a clear impact that they can observe in their communities and that information on that has been shared with them.
I first became aware of the change in policy and the difficulties that the change was causing when I was contacted by a local primary school headteacher who was concerned about a letter that she had received from North Lincolnshire Council stipulating the following:
“The amendments from this month make it clear that head teachers may not grant any leave of absence during term time unless there are exceptional circumstances. Unfortunately, there is no definition, nor are there any examples provided, in relation to exceptional circumstances. However, the word ‘exceptional’ would imply that leave in term time should be granted only on rare occasions where the head teacher believes this is justified.”
I took the matter up with the then Under-Secretary at the DFE who is now the Secretary of State for Environment, Food and Rural Affairs. She wrote back to me to say:
“We changed the regulations because it was necessary that we addressed the widespread misconception about term time holidays. Over the years, some schools and parents interpreted the previous law to mean that parents were entitled to two weeks holiday during term time. This led to some pressure on headteachers to grant holidays during term time. This led to some parents booking holidays when it was convenient and putting pressure on headteachers to grant their request to take their children out of school. There was never an entitlement for parents to take their children out of school during term for a holiday, and this has always been at the discretion of the headteacher.”
The hon. Member for Mid Worcestershire (Nigel Huddleston) was right to underline the fact that there should never be any sense of entitlement to time off. Of course that would be completely wrong. However, I have never picked up from headteachers that there was ever any sense of that under the previous regulations; nor have I seen any evidence to support the contention in this letter, which goes on to say:
“Headteachers will retain this discretion to grant leave, but they may only do so in exceptional circumstances. Headteachers must consider each request on its own merits.”
Everything hinges on the interpretation of “exceptional”. Is it exceptional, if parents work in industries in which access to holiday is severely limited—as we have heard, that is the case in the tourism industry in Cornwall and Devon, for example—and does not match the child’s holiday time, for the child to miss some school time to access a family holiday? Is it exceptional to attend the funeral of a family member? Is it exceptional to attend a family wedding? We could go on asking such questions ad nauseam. The Minister is smiling; I am sure that he has thought of even more questions.
It is clear to me that no headteacher worth their salt would encourage children to take time off—quite the opposite. Such a headteacher knows the relationship between attendance and achievement and wants all their children to achieve 100% attendance. The change in rules has meant that headteachers have less discretion than they had, however, and they were initially less confident about how to apply the changed regulations. That has led to an increase in situations in which headteachers and parents have come into conflict, as we all know from our postbags. In some circumstances, it may well have resulted in families being unable to respond to a family situation as constructively as they would have wished. In other circumstances, it has clearly resulted in a rise in truancy with parental support, which is a very bad thing.
Among the 98 councils that responded to a recent survey about the number of fixed penalty notices issued, there has been a rise from 32,512 in 2012-13 to 62,204 in 2013-14 to even more last year. These statistics are of concern, because they represent a growing problem with school attendance that needs to be addressed. Parents being lured into thinking of going on holidays in term time for no other reason than the availability of better deals from holiday companies does not represent a good reason for a headteacher to use any discretion they have, and it is certainly not exceptional circumstances. Any request from parents to take advantage of cheap deals should be firmly rejected under whatever regulations are in place. However, some scrutiny should fall on holiday companies, as hon. Members have said strongly during the debate, to encourage them to look again at their pricing mechanisms. They should not be, inadvertently or otherwise, encouraging truancy.
Schools, parents and children themselves want children to achieve their very best. All the evidence shows a strong relationship between attendance and achievement, but the subject is complex. As the hon. Member for Ayr, Carrick and Cumnock (Corri Wilson) emphasised in her perceptive contribution, real people lead complicated lives with complicated relationships. Headteachers need the discretion to use their knowledge of children, families and parents to make the right decisions to maximise achievement while supporting families.
Given the high level of concern expressed in the petition and echoed in the debate, it would be helpful if the Education Committee—I saw its Chair, the hon. Member for Stroud (Neil Carmichael), here earlier in the debate—were to undertake a thorough inquiry into the evidence on attendance policy. The Committee could look at how the policy operated prior to September 2013, and at the impact of the changes that were made at that time. As my hon. Friend the Member for Great Grimsby (Melanie Onn) pointed out, the National Association of Head Teachers surveyed its members on the matter, 90% of whom said that they would welcome more detailed guidance from Government on what constitutes exceptional circumstances. Is the Minister considering developing and issuing such guidance? Does he agree that the recent decision by magistrates has driven a coach and horses through the Government’s approach to term-time holidays and school absence? What conclusions does the Minister draw from that, and what action will he take to remedy the situation?
Finally, we all know how important family holidays are, and it is invidious that price hikes during the school holidays make family holidays unaffordable for many. What has the Minister got to say to holiday companies who put parents in such a difficult position by hiking up prices by thousands of pounds, as we have heard in the debate, during the school holidays?
The Minister for Schools (Mr Nick Gibb)
It is a pleasure to serve under your chairmanship for the very first time, Mr Hanson. I congratulate my hon. Friend the Member for St Austell and Newquay (Steve Double) on securing this debate on a subject that is close to his heart. We met in July to discuss these very issues. I also thank the Family Holiday Association and the Parents Union for their briefing on the matter.
I am pleased that this debate gives me the opportunity to set out the Government’s position and to hear other colleagues’ views. We have had an interesting debate, with powerful speeches from my hon. Friends who represent some of the most beautiful parts of the country, including my hon. Friends the Members for Chippenham (Michelle Donelan), for Mid Worcestershire (Nigel Huddleston), for North Cornwall (Scott Mann), for North Devon (Peter Heaton-Jones), for Central Suffolk and North Ipswich (Dr Poulter) and for Stroud (Neil Carmichael). We also heard from the hon. Member for Ayr, Carrick and Cumnock (Corri Wilson).
We are talking about an important issue. It is part of our objective of pursuing social justice. All our education reforms are about social justice and about ensuring that every child, whatever their background, benefits from an excellent education, so that they have a chance to succeed in the modern and demanding economy that Britain has become. That is what our behaviour policy is all about. It is what our reforms to the curriculum are all about. It is what our focus on phonics in the early teaching of reading in primary school is all about. It is what ensuring that all children, regardless of their background and regardless of geography, attend school regularly is all about.
I listened carefully to the argument made by my hon. Friend the Member for St Austell and Newquay about the impact on the tourism industry in Cornwall of our objective of ensuring that all children attend school regularly. I want to start by clarifying what the 2013 regulatory changes actually change. There is a widespread misunderstanding that before 2013, parents were entitled to take their children out of school for a holiday. That was not the case, and it never has been. The amendments to the law in 2013 simply clarify the position. Previously, as the hon. Member for Scunthorpe (Nic Dakin) has said, headteachers were able to grant leave for the purpose of family holiday in “special circumstances” for up to 10 school days per year, and longer in other circumstances. That was, however, being interpreted as a right to take two weeks off every year, which has never been the case. We wanted to clarify the legal position to make it clear that it is not the case that every person has a right to take their child out of school on a term-time holiday. Even before 2013, it was not the case.
I understand that in some areas of the country with seasonal industries, whether agriculture, horticulture or tourism, there are particular challenges. We are currently reforming education in this country to create a school-led system, so that decisions can be made close to home, reflecting local needs. Therefore, schools and local authorities in the south-west have a clear role to play in supporting the tourism industry, without compromising children’s attendance at school.
If parents and schools want different term dates, we encourage them to discuss that with their local authority. Academies, foundation schools, voluntary-aided schools and foundation special schools can, even now, set their own term dates. As of January 2014, some 76% of secondary schools and 35% of primary schools, educating some 52% of all registered pupils, already had responsibility for their own term and holiday dates. That does not have to involve massive restructuring. This year, schools in Reading returned for the autumn term on 8 September, and next year they will close for the summer holiday on 26 July. Similarly, the David Young community academy in Leeds operates seven terms, or blocks. That enables parents to take their children on holiday outside the expensive peak holiday season. Although it is at an early stage, another example of innovation is Visit Cornwall’s development of a proposal for a family enrichment week for early years and primary schools in the spring of each year. It strikes me that Cornwall provides a perfect example of a situation where the local industry should prompt schools and local authorities to change their term dates so that families who work in the tourism industry can take their own holidays outside of the peak season. These examples show that measures can be taken to address the needs of a local tourism industry, while ensuring that children stay in school.
Keeping children in school is crucial for achieving our aim of educational excellence everywhere. Evidence shows that pupils with no absence from school during key stage 2—in primary school—are over four and a half times more likely to reach level 5 or above at the end of primary school than pupils who missed 15% to 20% of school time. The outcomes are similar at key stage 4, where pupils with no absence are nearly three times more likely to achieve five A to C grades in their GCSEs, including English and maths, and around 10 times more likely to achieve the English baccalaureate range of GCSEs than pupils missing between 15% and 20% of school time across key stage 4.
When evidence attests to the benefits of good school attendance so clearly, parents have a duty to ensure that their children attend school regularly. No one in the Department for Education says that holidays are not enriching experiences—of course they are—but schools are in session for 190 out of 365 days a year, leaving 175 days in a year in which parents can take their children away on holiday.
My hon. Friend the Member for North Cornwall made a thoughtful speech. I listened carefully to what he said, but I do not accept that two weeks in each year of a child’s education is a drop in the ocean. As my hon. Friend the Member for Central Suffolk and North Ipswich pointed out, even one week away from school in a year can make a significant difference. Some 44% of pupils with no absence achieve the English baccalaureate range of GCSEs, but the figure falls by a quarter to just 31.7% for pupils who miss up to 14 days of lessons over the two years in which they study for their GCSEs. My hon. Friend the Member for North Devon quoted Charlie Taylor, the Government’s expert adviser on behaviour. In his 2012 report “Improving attendance at school”, Charlie Taylor calculated that if children are taken away for a two-week holiday during term time every year and have an average number of days off for sickness and appointments, by the time they leave school at 16 they will have missed a year of school. It is for that reason that I cannot support the request set out in the petition.
My hon. Friend the Member for North Devon said that no parent would use the two weeks of flexible term-time holidays every year, but he cannot guarantee that. We have heard powerful arguments about how important it is for parents to be able to take their children out of school; those arguments apply each and every year to all the pupils that that argument is deemed to affect. Instead, I encourage headteachers to use every measure they can to ensure that children attend school. Charlie Taylor found that the best schools work with parents to improve attendance and offer a wide range of support to help parents to get their children to school. If that is not successful, headteachers can, as a last resort, issue parents with a penalty notice or take them to court.
Criminal prosecution can result in fines of up to £2,500 and possible imprisonment. In 2012-13, about 52,000 penalty notices were issued. The number of prosecutions also increased in that period, but these measures have resulted in significant progress in reducing absence. Now 200,000 fewer pupils regularly miss school compared with five years ago—down from 433,100 in 2010. Overall, the absence rate is down from 6% in 2009 to 4.4% in the 2013-14 academic year, which means that 14.5 million fewer school days were lost to overall absence as a result of the combination of policies that we have introduced over the past five years. Some 3 million school days are lost due to holidays, and that figure is down significantly; 2.3 million more teaching days are happening as a result of clamping down on unauthorised term-time holidays. We should be proud of that if we believe that every child should have the opportunity of a first-rate start in life.
Headteachers continue to have discretion to approve term-time leave, but should only do so in exceptional circumstances. Many of my hon. Friends, including my hon. Friend the Member for St Ives (Derek Thomas), have called for more guidance. The National Association of Head Teachers published guidance in October, which made it clear that:
“If an event can reasonably be scheduled outside of term time then it would not be normal to authorise absence.”
It went on to say that children may need time away from school to visit a seriously ill relative or to attend the funeral service of a family member. However, term-time holidays and visiting family members abroad are not considered by the NAHT to be exceptional circumstances and it says that they should be scheduled only for holiday periods or outside of school hours.
My hon. Friend the Member for Chippenham raised the example of a family going through very difficult circumstances and wanting time off as a family, a request that was refused by the school. The NAHT guidance says:
“Absences to visit family members are also not normally granted during term time if they could be scheduled for holiday periods or outside school hours. Children may however need time to visit seriously ill relatives.”
Mr Gibb
Yes. The whole essence of our education reforms is to hand back more power to the teaching profession. It makes absolute sense for teachers and headteachers to rely on the guidance produced by the NAHT. The introduction to the guidance states:
“Term times are for education. This is the priority. Children and families have 175 days off school to spend time together, including weekends and school holidays.”
That is the NAHT’s view and we think that it is correct.
Steve Double
Will the Minister clarify something? Although, in theory, families have 175 days a year to be together, some people work in tourism or other industries in which they cannot take time off during those times. Would he consider such a situation to be an exceptional case, where headteachers would be right in granting a holiday?
Mr Gibb
That is a matter for the discretion of the headteacher. In such a situation, I would commend, as the hon. Member for Scunthorpe (Nic Dakin) intimated, looking at the NAHT guidance. If we are talking about a whole industry across a large geographical area, employing many millions of people, the best approach would be to use the term-time flexibilities to change the school term times to take into account the particular industries of that part of the country.
Steve Double
I take on board what the Minister says. Does he remember that he recently wrote to me saying that the Department had consulted educational authorities, which had rejected this idea saying that they thought it was unworkable?
Mr Gibb
My hon. Friend is a powerful advocate of the case he is making. I have every confidence that he will apply that advocacy locally as well as he is doing in this debate. I hope that he will have more success with the local authority than has been achieved so far.
My hon. Friend the Member for St Ives raised the issue of the cost of holidays. He spoke of the period at the end of the summer term, when teaching might be reduced in some schools. If his argument is that all children should be allowed to be off school during the last two weeks of the summer term, holiday prices, supply and demand would of course be affected by the mass use of that time across the country.
We know that holidays can be important and enriching experiences, but so too is school. Although we recognise the difficulties faced by some parents in taking a holiday at particular times of the year, disrupting their children’s education is not the answer. Pupils need continuity in their education. A good curriculum is planned sequentially, with knowledge building upon knowledge. Missing a step in such a sequence can cause a pupil to fall back, with pupils often finding it hard to catch up. A two-week holiday might mean that a pupil misses out on the lessons in which their teacher explains long division, long multiplication, fractions, Newton’s second law or Ordnance Survey six-figure grid references.
I remind hon. Members that the NAHT guidance makes it clear that there are many circumstances that it would regard as exceptional, such as where children
“need…to visit seriously ill relatives.”
The guidance says that absence for a bereavement of a close family friend is usually considered an exceptional circumstance, as are
“Absences for important religious observances… Schools may wish to take the needs of the families of service personnel into account if they are returning from long operational tours that prevent contact during scheduled holiday time. Schools have a duty to make reasonable adjustments for students with special educational needs”.
Point 10 of the guidance states:
“Families may need time together to recover from trauma or crisis.”
The NAHT guidance lists carefully constructed exceptional circumstances that cover many of the issues raised by hon. Members in this important debate.
We encourage all parents and schools that want different term dates to discuss the matter with their local authority or, in other cases, directly with their children’s schools. If more schools and authorities, such as the David Young community academy or Reading local authority, vary their holiday and term times, access to holidays outside of the more expensive holiday season will become increasingly common for parents.
I am grateful to my hon. Friend the Member for St Austell and Newquay, and other hon. Members, for raising the issue of term-time leave. He has raised some important concerns, and I hope he is happy that the Government have heard those concerns, both today and in our previous meetings. I hope he will understand that our overarching objective is to improve the life chances of the most disadvantaged children in this country. I also hope he will accept that many of his objectives can be achieved by using local discretion to set term dates.
Steve Double
I will say a few brief words. First, I thank everyone who signed the public petition that led to this debate—all 120,000 of them. I am grateful for all the encouragement that I have received from many members of the public since saying that I wanted to lead this debate. I thank all the members of the public who came and sat through this debate, particularly those representing Parents Want a Say, the Family Holiday Association and whoever else is here—sorry, but I cannot remember all of them. I am grateful for their interest and support.
I am sure that one thing on which we all agree is that children across our nation should have the very best opportunities in life. Education is clearly at the centre of that, but so are parents. Every parent I know wants the very best for their child. I am disappointed that we do not seem to have persuaded the Minister to reconsider the policy. I still believe that, as well intended as the policy was when it was introduced—I support and agree with the aim of getting as many children into school as possible, and with the social justice motive behind that—the introduction of the measure has had unintended consequences. The impact on our economy and on wider family life was not foreseen.
I have considered some of the proposals for addressing term-time leave. Personally, I do not believe that staggering term times in the way the Minister suggests is the way to achieve that. The feedback I have received from various sources is that many people agree that such a proposal is not workable.
John Pugh
The Minister said towards the end of his contribution that the policy is all about helping disadvantaged children, but the burden of the debate did not suggest that the parents of disadvantaged children are particularly the parents who are having difficulty with the regulation.
Steve Double
The hon. Gentleman makes a good point. Unfortunately, by seeking to address one issue, a completely different set of people are being penalised. We have heard that only 8% of unauthorised school absences are for family holidays. The policy therefore affects only a small number of the families involved in the school attendance problem that we have sought to address.
I ask the Department for Education to reconsider the policy in the light of what we now know to be its impact. If the impact had been assessed correctly when the measures were introduced in 2013, and if the family test had been in place—it is unfortunate that the family test came into effect 12 months after the changes were made—a slightly different conclusion might have been reached. However, I will leave that with the Minister. I look forward to an ongoing debate on this issue in the months ahead, and I thank every Member for their support and their contributions to this very good debate.
Question put and agreed to.
Resolved,
That this House has considered an e-petition relating to term-time leave from school for holiday.
Written Statements
EU Environment Council
(9 years ago)
Written StatementsRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Parliamentary Under-Secretary of State for Environment, Food and Rural Affairs (Rory Stewart)
I will attend the EU Environment Council in Luxembourg on 26 October.
Following the adoption of the agenda the list of “A” items will be approved.
During the legislative deliberations, there will be a policy debate on the proposal for a directive reforming the EU emissions trading system.
There will be a non-legislative discussion on greening the European semester, with regard to environmentally harmful subsidies and the implementation of environmental legislation. There will also be a discussion following the September UN special summit on sustainable development, which adopted the 2030 Agenda for Sustainable Development.
Over lunch Ministers will be invited to discuss the implementation of the 2030 Agenda for Sustainable Development.
The following Any Other Business items will be discussed:
1. Recent informal meetings preparing for the Paris climate change summit.
2. The ‘Make it Work’ initiative for better regulation on European environmental policy.
3. Real driving emissions and manipulation of emission control systems in cars, and links to air quality in the EU.
[HCWS270]
Lake District and Yorkshire Dales National Parks
(9 years ago)
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The Secretary of State for Environment, Food and Rural Affairs (Elizabeth Truss)
I am today informing the House of my decision taken on Friday 23 October to extend the Lake District and Yorkshire Dales national parks.
These will extend the Yorkshire Dales national park by nearly 24% and the Lake District by 3%, almost joining up the two parks. The extension areas will come into effect in August 2016. The dales and the lakes have some of our country’s finest landscapes, beautiful vistas and exciting wildlife. They are part of our national identity. The designation of these additional areas to the national parks will protect these landscapes for future generations.
By protecting and promoting access to wide swathes of rural England, the parks will provide attractive places to undertake physical activity and environmental volunteering, or simply enjoy the view or tranquillity. This will bring benefits for health and wellbeing and will strengthen the next generation’s connection with nature through activities available for families and children.
Tourism is vitally important to the rural economy, contributing around £11 billion each year. It is also the main driver behind 13% of rural employment and 10% of rural businesses. National parks are an important part of this visitor economy and more than 90 million people visit them each year, helping to boost rural economies.
Over one third of England’s protected foods are produced within the national parks. Since 2010, the number of protected foods in the UK has increased from 40 to 64.
The announcement of the extensions to the national parks builds on my vision for a 25-year environment plan, and is an important part of delivering this Government’s manifesto commitment to protection for natural landscapes to ensure Britain has the best natural environment anywhere.
An additional 188 square miles of land across Cumbria, Yorkshire and a small part of Lancashire will now be protected for future generations following the decision to extend the national parks.
In the Lake District this will include an area from Birkbeck fells common to Whinfell common and an area from Helsington barrows to Sizergh fell, an area north of Sizergh castle and part of the Lyth valley. In the Yorkshire Dales, it will include parts of the Orton Fells, the northern Howgill fells, Wild Boar fell and Mallerstang and Arbon, Middleton, Casterton and Leek Fells, the River Lune, and part of Firbank fell and other fells to the west of the River Lune.
[HCWS271]
European Union Opt-in Decisions
(9 years ago)
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The Minister for Immigration (James Brokenshire)
The UK has not opted in to the proposal to amend regulation (EC) No 1683/1995 on the uniform format for visas. The Government are committed to ensuring that people coming to the UK do so legally and are taking steps to improve document security. The UK has concerns about the current proposed design and is considering the implications that a new UFV may have on future visa strategy.
The UK has also not opted-in to the proposed Council decision authorising the opening of negotiations with the associated states (Norway, Iceland, Liechtenstein and Switzerland) and Denmark concerning access to Eurodac for law enforcement purposes. This proposal concerns the opening of negotiations. If the negotiations are successful there will be a further Council decision, also subject to the United Kingdom’s Justice and Home Affairs opt-in. At this point we will be able to assess properly any potential benefits to the UK and others, and on that basis consider whether or not to opt-in.
[HCWS269]
Grand Committee
Arrangement of Business
The Deputy Chairman of Committees (Baroness Pitkeathley) (Lab)
My Lords, as your Lordships will know, if there is a Division in the Chamber while we are sitting, this Committee will adjourn as soon as the Division Bells ring and resume after 10 minutes.
Enterprise Bill [HL]
Lord Mendelsohn
“( ) Her Majesty may by Letters Patent from time to time appoint a person to be the Commissioner.
( ) A person appointed to be the Commissioner shall hold office until the end of the period for which he or she is appointed.
( ) A person appointed to be the Commissioner may be—
(a) relieved of office by Her Majesty at his or her own request, or(b) removed from office by Her Majesty, on the ground of gross misconduct.( ) Her Majesty may declare the office of Commissioner to have been vacated if satisfied that the person appointed to be the Commissioner is incapable for medical reasons—
(a) of performing the duties of his or her office, and(b) of requesting to be relieved of it.( ) A person appointed to be the Commissioner is not eligible for re-appointment.”
Lord Mendelsohn (Lab)
My Lords, in moving Amendment 1, I wish to speak also to the other amendments in this group in my name and those of the noble Lords, Lord Stevenson and Lord Stoneham.
Today is a very important day. I was in the Chamber earlier and felt that many other noble Lords considered it significant—as is this first day in Grand Committee on this Bill. Indeed, I felt a sense of trepidation throughout the House. Perhaps I was slightly wrong with regard to noble Lords’ interest in the subject matter, but I still think that we can muster great interest in the subject we are discussing. For me this is a very important day because I will seek to be at my absolute charming best in trying to convince the Minister to take on board the issues that we are raising. We have much common cause with the Government on these issues—for example, trying to do more for small businesses and addressing late payment. Over the next few years, we hope to continue on that path. We were unsuccessful with many of the measures that we proposed to the small business Bill and I do not wish to rehash all of those but there are some common themes here.
We have done quite a bit more work since then and been exceptionally constructive. I hope that the Government will be open to charm and persuasion and the sheer power of the argument presented by noble Lords on this side of the Committee—and, indeed, by noble Lords on all sides of the Committee. There will be no threats. On this auspicious occasion we see the familiar faces of many noble friends, noble Lords and officials and others who take a keen interest in these matters.
Today is also an important day as I will agree with the noble Lord, Lord Hodgson, on many more issues than I thought possible. So I think that we have a fair degree of consensus in this Room, all of it motivated by our strong desire to make progress. We attach importance to a number of measures proposed in these amendments and believe that they are worthy. Some later amendments on retentions in the construction industry and contingent liabilities are very thoughtful and well considered and we hope that the Minister will address them in detail.
I wish to make two important preliminary points. First, I do not wish to sound churlish in my comments, as I recognise that the Government deserve huge credit for starting the process of focusing on small businesses and doing a range of things to support the dilemmas and circumstances facing small businesses as they conduct their activities. Secondly, the Minister has been very helpful and has personally played an important role. She and her officials are trying to do a great deal.
This is a difficult Bill with an eclectic array of items, many of which bear the imprints of a strong press release and some of which, it has been suggested, bear the imprint of policies that could have been negotiated away had there been a coalition. Given these potential situations, the Government have done something to bring this all forward. However, there are many ways in which the proposals for a Small Business Commissioner can be improved. The Government have proposed a Small Business Commissioner with a general advice mission, a mission to signpost and a form of complaints procedure. These early initiatives are useful but limited. There is nothing like a good Small Business Commissioner, but this is nothing like a good Small Business Commissioner. There is a lot more it can do to develop the role. The UK variant of the model is subscale and unlikely to achieve its task. Even as a first step, we suspect that there are other mini-steps which the Minister may be willing to consider that will give this a lot more capability in the future.
Our contention on late payments is that, although there is a great deal of desire to do something on it, the inexorable economic logic allows an incentive for late payments to fester and poor payment practices to continue until there are concrete disincentives. Reputational disincentives are not the same as being able to ensure that businesses have a culture of enforcing their own rules about this. As a consequence of time, I can only note the connection of some companies with the Prompt Payment Code and who is really responsible for it in the business. Many times it is dealt with as external presentation, rather than being a finance department priority. We can deal with many of these issues and it is probably more important to make sure that it becomes a core part of their practice. We understand that the commissioner has been established to deal with late payment issues but we are concerned that it falls between being a late payment ombudsman and—especially with its direct connection to the Minister—becoming the small business baseball bat, trying to berate companies which might generate some media coverage at the time.
Small business commissioners work at their best when they show the skilled capacity to move the business environment and are able to work for all sections of business—not just small business—to make that work, and they are able to address some of the issues that affect relationships between small businesses. Some of those relate to the inability of small businesses to get access to credit and, somewhere along the line, there are larger businesses which are a problem in and of themselves.
Amendment 1 seeks to increase and enhance the level of independence of the Small Business Commissioner. We have adapted this from the Information Commissioner’s Office and the Parliamentary Commissioner for Administration—who is appointed by the Crown on the advice of both Houses of Parliament. Amendment 3 amends the schedule, removing the paragraph stating that the commissioner is to be appointed by the Secretary of State. Amendment 4 removes the power of the Secretary of State to appoint staff for the office of the commissioner, which is clear in both the Explanatory Notes and the impact assessment. Amendment 5 specifies that:
“The Small Business Commissioner has the authority to appoint and recruit his or her own team”.
Amendment 37 removes the provision which states that the Small Business Commissioner must lay an annual report before the Secretary of State and instead requires that:
“The Commissioner must lay a copy of the Report before both Houses of Parliament”.
Amendment 38 removes the clause which empowers the Secretary of State to abolish the office of the Small Business Commissioner at the stroke of an administrative pen, meaning that instead, anything should be brought before Parliament. There are very good reasons for this. If the role of Small Business Commissioner is to work, it needs to maintain the confidence of all stakeholders and all the people in the process, not just be an instrument of government but be able to work collaboratively and collectively with government, small businesses, the media, academics and other stakeholders in the economic cycle. Moreover, it is very important that the Small Business Commissioner, to maintain confidence, is able to be a learning institution.
The changes that take place in the business environment as well as the pressures that exist require it to take a sensible, sound and broad view. Our desire is that the Small Business Commissioner learns how best to apply the levers that it has and to call in other allies and bodies that are receptive to its views. If you look at the origins of the best parts of the Small Business Administration in America and how they have worked, you see that they have involved a learning experience as regards how you apply, generate and change powers.
To look at the example from Australia of the 2003 establishment of the Victoria Small Business Commissioner, over the entire period in which all the other states have adopted a small business commissioner, as well as a federal one, you can see that there is a process by which an effective commissioner has been able to marshal the arguments and evidence and capacity of a body established by government to be able to be most effective and build the confidence of business. We want to see that model and we are concerned that the structure as defined in the Bill and the Explanatory Notes suggest that this is no more than a rebadged office of the department itself. If this is to work and to be of valuable long-term strength to the small business environment, it needs to be fully independent. We need an effective Small Business Commissioner, and one of the most important things that will make that person effective is their ability to appoint their staff. If we wish to be serious about late payments, we need someone who can work, not on the basis of the press release or the exhortations of Members of whichever of these Houses, but constructively, to be able to work with businesses, learn the right lessons and create the right solutions to do that.
Our amendments do not support only the obvious organisations that work in this area. It is important to note that the Institute of Directors has been very forthright in its support for Amendments 1 and 5. I will quote what it said at length, because it is relevant. Of course, one must remember that the IoD is probably the organisation that represents the largest number of directors, owners and operators of small businesses. It is important to understand that it has a great deal of expertise in this and is a very effective team and leadership. However, on Amendment 1 and the removal of Clause 11, it said:
“Together, these amendments would give the Small Business Commissioner a stronger footing from which to be a champion for small business. We fear that the possibility of abolition by the Secretary of State could potentially negatively impact the ability of the Small Business Commissioner to challenge that same Secretary of State. We hope for and anticipate a positive working relationship between the Commissioner and the Secretary of State”.
On Amendment 5, it says:
“This amendment would allow the Commissioner to appoint and recruit their own team which, again, would increase the independence of the Commissioner. We do not want to see the SBC run as an insurgency within the Business Department, but it is important that the Commissioner has access to expertise outside the existing civil service when appointing his team”.
All I can say is: I am more than happy to read out those lines and I concur with the motivation behind them. That is an important message about what we have been trying to do and how effective the Small Business Commissioner could become if it was given the right relative independence and the right environment in which it could flourish itself. I beg to move.
Lord Cope of Berkeley (Con)
My Lords, I was interested to see this amendment, and I understand what the noble Lord is proposing and have some sympathy with what he says. There was one interesting aspect which caught my eye when I read it. I was not sure whether it was deliberate, but the noble Lord has left in place that although the commissioner will be appointed by Letters Patent, the Secretary of State will appoint one or more deputies to act for him, even though the commissioner appoints the rest of the staff. Is it the intention to leave a deputy commissioner—of one or more deputy commissioners within the commissioner’s office—as the representative of the Secretary of State, which is what one would assume from their appointment if all the rest of the staff are appointed by the commissioner? If the amendment were carried, would the noble Lord seek to refine those proposals?
Lord O'Neill of Clackmannan (Lab)
My Lords, the Minister has had a distinguished record in public service and in the private sector. I imagine that in both of those areas she has had responsibility for the appointment of people to significant positions. As my noble friend Lord Mendelsohn was going through the amendments, I thought about what kind of person we will have as the Small Business Commissioner. The commissioner will be someone whose terms of reference are quite clear. He will be the creature—the satrap—of the Secretary of State. He will be appointed by that Secretary of State with little security of employment. He will be capable of being thrown out at the whim of the Minister. He will have little or no say over the appointment of the staff who will be working under him or her. I am sorry if I slipped into sexist language and assumed that the individual would be a man. I should have thought that a woman would be too sensible to do the job.
The truth of the matter is that this is a bit of a non-job. For it to masquerade as the defender of business, without an iota of independence of the Minister, means that the commission is, in effect, a state-run citizens advice bureau for businesspeople. Unless the salary is fabulous and the hours and conditions are not very onerous, there is not much incentive to take this job. Frankly, one would immediately ask questions of anybody who took the job in the first place.
It is for all of those reasons that the amendments tabled by my noble friend would make this appointment worth while. It would afford the business community a sense of confidence. A small business that has problems with payment and other concerns about administration will find that this place-person is in a job that affords the small business little or no protection and little or no opportunities for redress of an independent character. At the end of the day the operation of this office will be subject to the most minimal scrutiny and the reports will be given not to Parliament but to the Secretary of State alone, which leaves one with grave concerns.
I return to my original point. If the Minister were working for Tesco and it was going to appoint a customer ombudsperson on the basis that he would be hired or fired at the whim of the Tesco management and that reports would not be subject to public scrutiny—not necessarily by all the account holders of that company, but perhaps by the people who work in trading standards offices in local government, for example, who make it their job to protect the customers’ interests—would the public have any confidence in a person of that kind? I doubt it. I doubt whether any business establishing a position of this kind would have the nerve to present it in this way. Frankly, it is not worth a light. One can have no confidence in the appointment of this nature under the terms of reference that the Government envisage. They are missing out a tremendous opportunity and bringing the appointment into disrepute by the manner in which it is being presented and the terms of reference under which the individual to be appointed would have to operate.
At this early stage in the Bill, and given the significance of this appointment, we are missing an opportunity which would be filled by the amendments which my noble friend has just introduced, with which I am happy to be associated.
Lord Stoneham of Droxford (LD)
I support what the speakers so far have said, particularly the noble Lord, Lord O’Neill. This is an issue of confidence. Either the Government have confidence in this appointment and are prepared to give it powers and independence or we must ask whether it is really worth having it.
We will be raising this later, but if the powers of intervention are to be limited simply to other businesses rather than to look also at the role of public authorities, it is understandable why the Government are trying to circumscribe the position. Under other amendments, we will look at whether the commissioner should have a wider role. Nobody will say that other public authorities are not just as bad at times in dealing with their suppliers as some parts of the private sector. We must ask why they should not be included. If that is the case, the position clearly needs greater independence, rather than being responsible simply to the Secretary of State. For all those reasons, I very much support the amendments.
The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills and Department for Culture, Media and Sport (Baroness Neville-Rolfe) (Con)
My Lords, I thank the noble Lord, Lord Mendelsohn, for opening the debate with his amendments. He is always a great charmer, but the power of argument matters too. I particularly thank him for his kind words to my officials—it is a bit like being photographed alongside the Minister in the media: they have to buy a round of cakes for the office—but I thank him in any event because, as he said, they are giving us a lot of support right across the board.
I thank the noble Lord, Lord Stoneham, with whom I spent hours on the small business Bill looking at some of the issues that I think we will probably visit over our next four sittings. I will come back to the public sector on later amendments, in the interests of time.
The Small Business Commissioner will be a valuable source of advice, information and support for small business, and, if I may say so, I think that we are all agreed that it is vital to find a person of talent and good judgment to carry out this very important role. We are very serious about tackling late payment, as noble Lords know. We are doing that not only in the provisions of the Bill but with a number of other provisions which we ran through on Second Reading.
As I said then, my view is that the commissioner does not need to be able to address any and every problem in order to be effective. Indeed, I believe that focus is an important ingredient in success. A commissioner who has a focused remit and great personal authority and credibility will have a significant impact on culture and practice—as we have seen in Australia, where the Small Business Commissioner’s role has been focused on priority issues in the Australian circumstances. This first group of amendments addresses the independence of the commissioner from the Government. Obviously, I understand noble Lords’ concern that the commissioner should be able to act independently. That is our intention, just as it is important that the commissioner must act independently of business.
Under the Bill as drafted, the commissioner will be required to act impartially in deciding complaints and when providing general advice and information, and the very fact of being set up by Parliament lends the office permanence and authority. Amendments 1 and 3 seek to remove the power of the Secretary of State to appoint and dismiss the commissioner and to give this power instead to Her Majesty. The fact that the Secretary of State will appoint the commissioner will not compromise the independence of the office. This will be a public appointment subject to all the usual public appointment rules and procedures.
As noble Lords will be aware, a great many appointments in public life are made in this way. The Commissioner for Public Appointments is the guardian of the process and ensures that the best people get appointed to public bodies free of personal and political patronage. The OCPA code of practice requires those making public appointments to comply with three principles: merit, fairness and openness. It is designed to provide Ministers with a choice of high-quality candidates, drawn from a strong and diverse field.
It is normal practice for public appointments to be capable of termination by the Secretary of State if he is satisfied that the person is unable, unwilling or unfit to perform his or her functions. The wording is carefully chosen and he or she cannot dismiss the commissioner at will. These grounds for dismissal reflect the approach that Parliament has been content to approve for the Groceries Code Adjudicator and the Pubs Code Adjudicator.
I agree with the noble Lord, Lord O’Neill, that we need to find someone excellent for the job but the power in Clause 11 for the Secretary of State to abolish the office of Small Business Commissioner is not one that could be used as lightly as the noble Lord suggests. The Secretary of State could abolish the commissioner only following a review, and only if he is satisfied that either there is no longer a need for a commissioner or that the commissioner’s role has not been fully effective. Any regulations to abolish the office of commissioner would be subject to affirmative resolution.
If the role of commissioner is no longer required—either because sufficient improvements have been made in the issues the office is being set up to address or because it has proven ineffective in tackling them—it is right that there should be a clear and efficient process in place to abolish it, as my noble friend Lord Eccles said at Second Reading. To respond to the noble Lord’s challenge, I think it is a very attractive public job, which, if circumstances were very different, I might even be thinking about myself.
I am aware that the Delegated Powers and Regulatory Reform Committee has published recommendations in relation to this clause, and I confirm that we are considering those recommendations closely and will bring forward amendments where necessary.
Amendments 4 and 5 would remove the ability of the Secretary of State to provide staff to the commissioner and would enable the commissioner to recruit his or her own staff.
Lord Stevenson of Balmacara (Lab)
My Lords, will the Minister clarify what she said about the Delegated Powers Committee report? She said that the Government were considering it and would be bringing forward amendments. That is still not yet decided, is that right? The Government are still considering that position so we will not necessarily see the amendments as recommended.
Baroness Neville-Rolfe
The noble Lord will be aware that the committee produced its report at the end of last week. When I found out about it, I felt it would be right to refer to it. Of course, we always take very seriously the excellent work of the Delegated Powers Committee. I am not in a position today to say where we are on that but I wanted to make sure that noble Lords were aware of it because it seems relevant to our discussions.
As I said, Amendments 4 and 5 would remove the ability of the Secretary of State to provide staff to the commissioner and would enable the commissioner to recruit his or her own staff. Again, I can see that it may appear attractive to do this but it is not necessary. The commissioner will be staffed by civil servants. They owe no political loyalty to the Secretary of State and are obliged to do their work impartially and objectively. Such staff will work to the commissioner and under his or her direction.
Lord O'Neill of Clackmannan
We are talking here about what could be quite sensitive business arrangements, where the skill set of civil servants might not be appropriate. You might need people with direct entrepreneurial skills and experience. With no disrespect to the Civil Service, by restricting appointments to its ranks there is the possibility that the pool of talent would be rather more limited than it needs to be.
Baroness Neville-Rolfe
My Lords, departments could bring in outside experts to work for or with the Small Business Commissioner if they need something more specialist than civil servants can provide. Of course, there has been a lot of entry into the Civil Service from places such as business and the legal professions that perhaps gives us a bigger pool than classically we had. Indeed, the commissioner is expected to be recruited from outside the Civil Service. Obviously, the leadership of such organisations is critical—as I think we agree.
There is an important further point: staffing the commissioner’s office in this manner provides a quick and easy way to provide the commissioner with the support he or she needs. It ensures the office can be responsive and flexible to demands, for example in the event of a surge in work. It avoids the costs and administrative burdens of setting up a whole new organisation that is able to recruit and employ its own staff outside the Civil Service.
Concerns have been expressed about the number of staff that the commissioner will have. I assure noble Lords that the commissioner will have the support that he or she needs. The estimates in the impact assessment take account of complaint levels to other bodies and reflect the fact that the commissioner will signpost to other dispute resolution services. However, if experience shows that we have got this wrong then the Secretary of State can review the commissioner’s resources accordingly. I think that that is an advantage. I agree with the noble Lord, Lord Mendelsohn, that learning from experience—as other commissioners around the world have done—is very important.
It is right and proportionate that the Secretary of State should provide the commissioner’s resources. Unlike the Groceries Code Adjudicator and Pubs Code Adjudicator, the commissioner will be funded from the public purse and not from a levy on the industry it regulates, so this is different in character. It is appropriate that the Secretary of State approves the budget and staffing of the commissioner as obviously that will have a direct impact on public expenditure.
Finally, Amendment 37 requires the commissioner to lay his or her annual report in Parliament, rather than the Secretary of State doing so. That would be an unusual move and unnecessary. The Bill provides that the commissioner must publish an annual report and that the Secretary of State must lay that report before Parliament. He does not have any discretion in this and has no power to alter the report. The critical thing is that we have a Small Business Commissioner who commands authority and respect, and who acts effectively and with credibility and impartiality. As my noble friend Lord Cope said, there is also scope for a deputy commissioner. I hope that with this extra information, noble Lords will feel more confident and able to withdraw their amendments.
Lord Mendelsohn
I thank the Minister for that reply. She cut to the heart of the problem when she talked about our arguments on the circumstances and way in which such a post could be abolished. She said that if it was felt to be ineffective and unable to carry out its task then there would be some easy means to abolish it. The problem is that if you do not give it the means to do the job, if you restrict its ability to learn and develop, then it will not be able to do that job particularly well.
When it comes to staff, the Explanatory Notes say:
“The Secretary of State may provide staff, premises, facilities or other assistance to the Commissioner. The Commissioner will not directly employ staff or lease premises, but will be allocated appropriate staff, premises and other facilities and assistance by the Secretary of State. The staff will be civil servants”.
It is insufficient to say, as the Minister has, “We shouldn’t worry about that because of course they will not be working with the Secretary of State—they will be working independently”. By no means do I wish to cast aspersions on those individuals. However, if you want someone to do the job, it just does not work if they are given all the staff but no means of recruitment and development. It is not the largest organisation in the world: it consists of a dozen or so people; it is not huge. That is not the greatest degree of complexity. Recruiting for and scaling such an organisation is not the most difficult challenge. As for efficiency and effectiveness, what most small business people learn in running a small business is how to manage and work with their team. That is directly relevant to whether this body will be able to carry out its function. It seems somewhat ridiculous to say that it might not be able to perform its task when you give it the people who might be able to do the job but not the ability, powers, capabilities and the role actually to do it.
In that regard, I thought that the contribution from my noble friend Lord O’Neill was quite outstanding. There is a real problem in recruiting the right sort of person if you cannot see the pathway to making that sort of impact. I am encouraged that someone of the quality of the Minister has suggested that she herself might be interested in that role, although she has not confirmed that she will submit an application. That is a question that we might probe a little later. However, it is important to understand that we need people of quality and to allow those people of quality to flourish—to be in a role where they can make the best of what they have, as opposed to being within the vice of the Secretary of State. My noble friend Lord Stevenson made that point to probe the Government’s view of the Delegated Powers and Regulatory Reform Committee’s assessment. I think that it is worth reading out that assessment just so that we are absolutely clear about it. On a day when many people are talking about constitutional crises and historical precedents, I thought that the committee’s language was very relevant. It said:
“We therefore consider that it is inappropriate for the Bill to confer on the Secretary of State a Henry VIII power to abolish the Small Business Commissioner without any of the procedural restrictions (beyond the need for an affirmative resolution in each House) of the nature set out in the Public Bodies Act 2011, particularly that requiring consultation”.
That seems to suggest that this provision was written with a particular purpose in mind. I do not believe that that is the motive of those presenting it here today, but I worry because it has the feel of something that is more like that than a real way of developing something with a lasting impact for business in this country.
I am concerned that the general perception of how this provision was planned and developed underappreciated the role that the body should play. The estimate is that it will deal with 500 complaints. When a similar body was first established in the state of Victoria, it dealt with 430 complaints of a comparative nature. Victoria is the second most densely populated part of Australia; I believe it has 5.8 million people—something of that nature. Its GDP is perhaps 1/10th the size of the UK’s. It has perhaps 1/15th the number of small businesses that we do. It had 430 cases and we estimate that we will have 500. That is not a very ambitious view of the role of the Small Business Commissioner.
I say to the Minister that I hope that I am more than just charming.
Baroness Neville-Rolfe
I am grateful to the noble Lord for giving way. Obviously, we both enjoyed meeting the Australian Small Business Commissioner and comparing his role with the one that we have in sight. The role of that Small Business Commissioner is actually rather different from the one that ours will focus on. We have decided that he should focus particularly on late payment and the payment issues, which, as we all know, are a real problem. Many of the cases the noble Lord described involve matters such as property leases. I talked to the commissioner about what he was doing and it was a bit different from what we have in mind. We also have other provisions and ombudsmen, such as the Groceries Code Adjudicator, who deals with supermarkets, which means that the experience and the numbers are not comparable. I think that I have made it clear that we were making an assumption, I think rightly, based on experience of similar bodies in our own sphere. Obviously, one would need to keep that under review. I made it quite clear that the main thing is to have a commitment to resourcing this important commissioner. Happily, farm debt disputes are not a huge issue in this country, so we would not expect the commissioner to be hugely involved in such cases, as happens in Victoria.
Lord Mendelsohn
I thank the Minister for that intervention. That was about to be my next point. I have spent a large amount of time with Mark Brennan, both here and in other places. He identified the 500 tasks and challenges that he had to deal with. Of course, the origins of the Small Business Commissioner in Australia, as I outlined at Second Reading, came from very different circumstances and functions. In fact, late payment was never really part of the role. It still does not do that much. As I said at Second Reading, its performance on late payments is not one that I would wish to import. It does not deal with it effectively. In fact, one of our issues is whether or not the Small Business Commissioner can do it.
The number of complaints that the Australian Small Business Commissioner had was limited. If you divided by any means the number of complaints you had about late payments with the potential number that is meant to focus purely on late payments, you would end up in a situation where the comparable Australian figures suggest that their commissioner was trying to address 3% of the complaints and conflicts between businesses that we will if we take late payments. The assumed figure of 500 may well come from what we do currently but if you are establishing something that is meant to amplify it, what will 500 late payments do? Is one particular business responsible? If you were able to address 500 complaints, how much late payment debt would there be overall? It would not be that significant. In comparable terms, although the Australian commissioner has a different duty, 500 is still far too small.
Baroness Neville-Rolfe
It is important to remember the other work that is going on on late payment. We are bringing in the Small Business Commissioner. The noble Lord is right that it has not seemed to have worked in respect of late payment in Australia. That is why in parallel we are bringing in a statutory instrument, following the Bill that we passed last year, to bring in new rules on prompt payment, including some transparency provisions, which I suspect we will talk about later. These two have to come together and that is how you get the change of culture that you need.
The other point I want to make is that in my experience as a businesswoman, totemic decisions can be very important. You can end up with a lot of cases but you can find that if you make some correct judgments early on, they change the tone and the performance of the sector. None of us can know the numbers for certain but that would obviously be my hope.
Lord O'Neill of Clackmannan
I am sure that a court would back me up on this point. As elected Members of Parliament, we were required—and often enjoyed—to have surgeries in which we took the complaints of our constituents. One thing that always happened was the more successful you were in dealing with them, the more people you got. In fact, I used to get repeat complainers. I would say, “If I had not helped you the last time, you would not be back”. The truth of the matter is that if this commissioner is going to be successful, the chances are that the figure of 500 will be a gross underestimation of the likely volume of business that he or she has to deal with.
Anyone who has been elected or who is in a significant position where queries and complaints can be registered knows that if the commissioner is successful, they will get more and more business and it will not necessarily be a class issue, in the sense of a legal class issue. All kinds of waifs and strays will come in off the street with questions and complaints, some of which might not be valid, but in order for them to be invalidated, they will need the attention and scrutiny of what could very quickly become an overworked staff.
Lord Mendelsohn
I thank my noble friend Lord O’Neill for that useful intervention. There are academic studies on the culture of late payments which demonstrate that massive, punitive fines work best; regulation and legislation are better; and it is impossible to calculate the cultural impact of general provisions to inform and educate without a sense of what the consequence is, and in the absence of a public information campaign. In the same way, if you wish to encourage people not to do something, such as taking risks with fireworks, the case for a public information campaign is clear. I get the point about culture. We are saying that the greater the number of effective measures to manage behaviour, the better the cultural change will be. We can argue about where we are on the spectrum, but that argument will play a significant part later on.
We understand what the Government are trying to do with the UK model, but that model will have inevitable flaws and there will be constant questioning about what it does. As the Minister rightly said, there were other measures and this is the safe harbour so that information can also be provided. There was not an adequate vehicle to send reports to and now there is. I suspect that, over time, it might be convenient for reports on other things to be sent to it too. I get that, but we are actually hoping that you will extend the role. It is very nice to be described as charming, but I hope that the power of our arguments, and those from other distinguished noble Lords present, will have an impact and help the Minister understand that our idea is to do more. There are concrete measures which can do this. The Government’s proposal underplays it and does not provide the right sort of challenge and opportunity.
The noble Lord, Lord Cope of Berkeley, made a comment about allowing the deputy commissioner to be appointed by the Secretary of State. I suggest that our drafting was exceptionally wise and provided for a bit of give and take. If we were to remove everything from the Secretary of State we should at least give him something to feel comfortable with. We have continued to exercise a sense of to and fro and compromise with the Government on this. I suspect it was more an oversight and an error, but I would be happier for it to be seen in the first light than the second. These are significant issues which we will probably wish to return to on Report. I beg leave to withdraw the amendment.
Lord Stoneham of Droxford
“(b) to consider complaints from small businesses relating to matters in connection with the supply of goods and services to—and make recommendations.”(i) larger businesses, and(ii) public authorities;and make recommendations.”
Lord Stoneham of Droxford
My Lords, this is a simple probing amendment. If we have confidence in the Small Business Commissioner to deal with payment issues, and we are determined to build it up so that it has real authority and expertise, then it is the natural body for small businesses to go to for all late payment issues. So why do we not include public authorities as well? We know that it is better to have information and services all in one place. It simplifies and makes it easy for complainants to know where to go, as a last resort, to get matters resolved. Obviously, if there are other facilities available, they can be referred back. However, if there are genuine problems, why can the Small Business Commissioner not deal with them? Are we saying that there are no problems involving the public sector? Just the same issues emerge: small businesses find themselves dealing with big, anonymous organisations. There is a fear of falling foul of them, so they do not complain and the issues are not resolved.
The issues are the same whether we are dealing with small, medium or large businesses or public bodies. Why do we not have the Small Business Commissioner as a simple one-stop shop where these payment issues can be resolved as a matter of last resort? I beg to move.
Lord Hodgson of Astley Abbotts (Con)
My Lords, this is an interesting amendment and worthy of further debate. Before I go any further, I ought to apologise to the Committee and the House for not having been present for Second Reading. Unfortunately, I was abroad, but I have obviously read the debate with care. I need to declare various interests, all of which are on the register of your Lordships’ House. I am a director or chairman of various companies both public and private; I am a regulated person under the Financial Services and Markets Act; I have undertaken various reports for the Government looking at difficulties involving the growth of small business, particularly in the charity and voluntary sector; and I am currently undertaking a review of Part 2 of the transparency in lobbying Act for the Government. All of those cross over various parts of the Bill, so it is important that I get that on the record at the beginning.
I am concerned about the situation with regard to what the Minister writes in her response:
“I want the Commissioner to act as a disincentive to unfavourable payment practices, and build the confidence and capabilities of small businesses to help them assert themselves in contractual disputes and negotiate more effectively”.
What the Government propose to do is splendid, but I would like it to go a bit further—in fact, I would like it to go rather further than the noble Lord, Lord Stoneham, suggested in his opening remarks—to make it possible for public authorities, in particular, to be brought within the purview of the Small Business Commissioner. I know that this is an issue with which the Federation of Small Businesses is concerned, and I suspect that Members of the Committee will have received briefings from it.
When I prepared for the Government the report called Unshackling Good Neighbours, which looked at the inhibitions that were affecting small businesses, particularly in the charity and voluntary sector—whether they were voluntary groups, community enterprises or, indeed, limited companies—it was clear that such organisations are playing an increasingly important role in the delivery of services to some of the most challenging and challenged parts of our society. The Government can provide the vanilla flavour solutions, but local organisations can provide answers to what are often very deep-seated and difficult challenges because they are more flexible and responsive to local conditions.
In all those cases, a public authority will directly or indirectly be the employer. The difficulty that those organisations have with public authorities can be widely demonstrated and evidenced, and it is a pity that the Government, who want a vibrant voluntary third sector, are not prepared to allow this to be part of the remit of the Small Business Commissioner. There are three particular aspects of the relationship of those groups with public authorities: the issues of commissioning, operating and payment. I could make a long speech about all of those, but I will not, I will just pick out a couple of points on each.
For commissioners, it is always easy to make a safe award: to award the contract to a big business, not a small one. The sunk costs of competitive tendering are not always understood. If you have a contract for £250,000 or £400,000, of course you need to get value for money for the public, the taxpayer, and you need to have some competitive tendering, but you must remember that if you ask 10 different voluntary groups to tender, nine of them will lose money because there is only one winner and the costs of their submissions are lost. There is not always clear enough consideration of the costs of making each and every tender in relation to the costs of the tender itself. This puts small companies, charities and voluntary groups under a very great disadvantage. The Minister might like to ask her officials to give her a copy of the report, published about 10 days ago. It states:
“Commissioning is failing charities and failing those they support … Commissioning is a significant challenge for small and medium sized charities for many reasons but not least their difficulty in competing against large, national and/or commercial providers who typically win larger contracts. These are often priced to work with those with less complex problems and those who are easiest to help—when small and medium sized charities are typically working with those with more complex needs who require more help. The commissioning process promotes competition over collaboration, making it harder for smaller organisations to participate and work together to benefit those they reach. Too often if they are involved they end up as ‘bid candy’”.
That is the position that the small business community should be able to consider. The same is true of operations. The monitoring costs of these contracts can be out of all proportion to the value of the contract. Not only that, but half way through the contract the basis for monitoring is changed, so that the small business is put under considerable administrative costs or has to change the way in which the contract is being looked at. They also come up against the operational requirements of other government departments. One of the examples I came across was from the Medway towns, in which a small voluntary group wanted two or three volunteers to assist the expansion of its operation. It asked the local jobcentre for help and 40 CVs were sent. They had to be considered and when requests for interviews were sent out, only about 15 turned up, and in the end it made only one of the three expected appointments.
When we inquired why that was the case and why 40 had been sent, the jobcentre said that it was interested in fulfilling its requirements for jobs offered and could put 40 ticks in the box if it sent along 40 CVs. If it had sent only 10, it would get only 10 ticks in the box. These are the sorts of practices and burdens imposed on small businesses, particularly in the voluntary sector, which the Small Business Commissioner should be able to tackle. The commissioner can do so by publicising difficulties, intervening to prevent repetition and facilitating co-ordination between government departments, but to do that, the commissioner needs to have the power when necessary to stand up and get involved with public authorities.
I hope that my noble friend will be able to reflect on this as we work our way through the Bill and we come to the later stages. It is in line with the Government’s thinking, and it would help greatly in the development of a vibrant civil society.
Baroness Byford (Con)
My Lords, I apologise to the Committee that I was unable to speak in the Second Reading debate. I had a funeral to attend elsewhere.
My contribution is very small but I want to enforce what my noble friend has just said. Having worked in the voluntary sector for many years, I can say that it was always one of the problems we had. It has become increasingly more difficult over recent years with the economic climate in which local authorities have to work. We can understand in some ways why this has been geared up. It is a very real issue. Perhaps I should declare an interest. I do not have many to declare but one of them would be affected by this. I am president of the Leicestershire group for young people. It used to be called Clubs for Young People, but it is now called Young Leicestershire. It is a good example of an organisation that looks to get some financial support from local authorities. Again and again, it is a matter of how much information has to be given, how much possibility of acquiring it, and how much time is given to it. I hope the Minister can reflect on this because if we do not include the public authorities, it would be an opportunity missed. Unless the Minister can tell us that it is already covered by something else, it is an issue to which we will return later. I encourage her to reflect on it.
Lord Cope of Berkeley
My Lords, at Second Reading I referred to this question of public authorities. I repeat my view that it would be helpful if public authorities were included as well as larger businesses. I understand some of the reluctance from my noble friend and the Government to include public authorities in this, because there are other arrangements to which people or businesses can go to complain and get mediation in disputes with local authorities. However, the powers of the Small Business Commissioner as set out in the Bill are, for example, to give “general advice and information” on these questions. In doing that, why should not the Small Business Commissioner also be able to provide general advice and information to small businesses about how to go about dealing with a local authority that is not paying them promptly? That is what this is about.
Of course, there is another angle to Amendment 2. The noble Lord, Lord Stoneham, would not only include public authorities here but also omit the words,
“relating to payment matters in connection with the supply of goods”.
The noble Lord’s amendment would widen very considerably the amount of complaints that the Small Business Commissioner might get and I am less sympathetic to that element of it. I accept the argument that my noble friend made about focusing the efforts of the Small Business Commissioner. In time, once the commissioner’s office is established and working well, it might be right to suggest increasing the elements of business relationships that the Small Business Commissioner was able to look into, but let them start off with what has been one of the most perennial problems I can recall for at least 40 years, where there have been political complaints about late payment, the problems of small businesses and so on.
We all know why there is this problem; it is because of the cash-flow pressures on larger and smaller businesses. It has been such a difficult problem that, to my knowledge, all successive Governments over the past 40 years have looked at and tried to deal with it, including me when I was a small firms Minister in Margaret Thatcher’s Government. Frankly, none of the solutions proposed has really been very successful. That is why I am happy for the Small Business Commissioner to concentrate, at least in the first instance, on this particular issue. I do not support that element of the noble Lord’s amendment.
While I am on my feet, I apologise to the Committee but I will have to leave before long because I am a member of the House Committee and we are having our first ever joint meeting with the House of Commons Commission at five o’clock, which I should attend in spite of attractions in other parts of the building. I wanted to make that point to reinforce what I said at Second Reading.
Lord Mendelsohn
I congratulate the noble Lord, Lord Stoneham, on his presentation of this amendment and the basket of amendments that it covers. It had strong support from the noble Lord, Lord Hodgson, and the noble Baroness, Lady Byford, and for exactly the right reasons. That is very powerful.
To try and encapsulate this, these amendments are about a couple of very obvious things. First, the brief is too selective because there are organisations outside the terms currently drawn in the Bill but for which the flow of late payments or other matters become an issue. Secondly, the issue of the public sector is an incredibly obvious one.
Two angles to this issue are hugely relevant: the issue around payments and the business environment. They are connected and relate also to the Small Business Commissioner as late payments are rarely about just the egregious actions of a particular company. As the noble Lord, Lord Cope of Berkeley, said, in many cases very difficult issues arise with cash flow. These will rarely be solved by treating this matter as just a singular dispute between two parties. You have to consider the wider impacts on the business environment and the fact that late payment can be remedied only by taking a wider view and taking into account the capacity of the Small Business Commissioner to act in relation to the business environment in general.
If there is a problem with cash flow, you can shout at the businesses for as long as you like, but it means that one and possibly both are struggling. All of a sudden, if you tilt the balance too much one way, it may lead to one of the businesses closing down. The Small Business Commissioner is meant to be an agent who can create the right solutions. The Australian model has evolved great skill in creating what is called in Australia “commercially realistic solutions” rather than just determining right and wrong. Its great attribute is its credibility and authority and the scope of who it can deal with, not just its focus. If you deal with late payments just in terms of the circumstances of the two parties, you miss the point about the ongoing cash flow. Whether it is a case of large company contracts or small company contracts, a dispute between two parties is part of the problem.
Amendments 13 and 18 address the fact that 70% of small business trade is with other small businesses. Satago is a fantastic company with terrifically rich data. However, it highlighted the fact that under the Bill it is very hard for small businesses to come forward with some of the complaints we are discussing. Our amendments would help to ensure that whether it is a case of small businesses, large businesses or the public sector, the Small Business Commissioner cannot just deal with payment problems but can also take a wider view of the business environment. As I say, this is not just about disputes between two parties but about making sure that the overarching view is the right one.
Government regulation of small businesses should focus on addressing information balance and creating fair competition. While small business legislation should protect small and medium-sized businesses, the net outcome should be an enhanced competitive and fair operating environment for all business. Government involvement in small business matters should aim at ensuring that both prospective and ongoing small businesses have sufficient knowledge to make informed business decisions. While any business has a fundamental right of control over positioning and maximising its business opportunities, this right does not extend to engaging in unfair business practices. Small business should be able to access a low-cost informal dispute resolution forum prior to any grievances proceeding to formal litigation. These things are crucially important.
The business environment covers everything from where you get credit, which terms you establish, to how the logistics support the delivery of goods. All those things are relevant to late payment. If you want to deliver with a practical solution, sometimes you can mediate between two parties. However, sometimes the Small Business Commissioner needs to draw on the experience of others. These amendments are not just about the disputes mentioned by other noble Lords and dealing directly with certain problems; they deal with payment matters in general rather than just specific payment disputes. These things are important even as regards how you design a procurement process and the flow of money that comes from it, as this can sometimes be part of the problem. We should allow the Small Business Commissioner to draw on wider experience to promote an environment where late payments are less likely to occur.
Baroness Neville-Rolfe
I thank the noble Lord, Lord Stoneham, for his contribution on the scope of the complaints handling and the point that he made about late payments to public authorities, which I will come to in a minute. I am also delighted that my noble friends Lord Hodgson and Lady Byford have joined us for the debates on the Bill. I know that they will bring a great deal to our discussion. Before he leaves for his constitutional engagement, I thank my noble friend Lord Cope for bringing us his long experience of the extremely difficult issue of people not paying their bills on time, which we as a Government are now seeking to address.
For completeness, perhaps I should mention Amendments 13 and 18, which I do not think anyone has focused on, which would allow the commissioner to handle a complaint made by a small business against another small business or a medium-sized business. The Bill provides that the commissioner’s complaints scheme will handle complaints by small business suppliers about payment-related issues with larger businesses—that is, a medium-sized or large business. The intention here is to help small firms where they suffer because of an imbalance in bargaining power when dealing with larger businesses. I think that that responds to one of the points made.
Lord Mendelsohn
I am disappointed that the noble Baroness missed the fact that during my speech I made specific reference to Amendments 13 and 18. I said that the justification for them was that 70% of all transactions for small businesses are between them, and of those, a significant number are triggered by the impact of large businesses.
Baroness Neville-Rolfe
I thank the noble Lord for that clarification. I was just saying that I think that that responds to the point that he was making on them, but those amendments are before us today.
I must say that there will be circumstances where an imbalance of power exists between two small firms, but we did not have the weight of evidence before us when preparing the legislation to suggest that it is necessary for the commissioner’s remit to extend to those cases. There is a lot of agreement today on a lot of aspects of our proposal, but perhaps not on that particular area: the focus that we propose on payment. We are targeting the commissioner’s services at the businesses that are most in need of support. I understand what noble Lords are trying to achieve with the amendments. We know that medium-sized businesses may struggle, but they are likely to be better equipped to able deal with their problems than their smaller counterparts.
I turn to Amendments 2 and 36.
Lord Mendelsohn
I thank the noble Baroness for giving way. I have just a very quick question to help us to understand how she arrived at this policy architecture. Of whichever number that she identifies as money owing to small businesses, what proportion is to large businesses and what proportion to small businesses? If she has specific numbers, that would be helpful.
Baroness Neville-Rolfe
I will come back on that point soon, if I can; otherwise I will write to the noble Lord with the figures, if we have them.
I turn to the public sector side of this afternoon’s debate. The proposals in Amendments 2 and 36 would widen the complaints-handing function to cover all matters relating to supply of goods and services to public authorities as well as larger businesses, and would require the annual report to summarise such complaints.
Where a small business has a payment issue with a public authority—I do not suggest that that does not happen; small businesses do have problems with public authorities—we consider that it is better addressed by existing frameworks. If I may, I shall talk the Committee through some of the existing frameworks. The first that I would mention would be the mystery shopper—slightly oddly named, I would say. It provides small businesses with an easy route to raise concerns about public sector procurement practices. It can investigate complaints about the procurement practices of the public sector and issue instructions and recommendations to remedy the situation. It publishes the outcome of its cases on its website and through its social media, naming the public authority involved.
Lord Stoneham of Droxford
I thank everybody who participated in the debate. It was very interesting and I am very grateful for the support that I seem to be getting from the noble Lords, Lord Hodgson and Lord Cope—I accept only in part—the noble Baroness, Lady Byford, and the noble Lord, Lord Mendelsohn.
The points made by the noble Lord, Lord Hodgson, were very apposite. I agree entirely with his three stages of commissioning, operations and payment. I accept that that is widening things considerably. I could welcome that but I also have some sympathy for the Minister, who is trying to get some focus. I am prepared to accept what the noble Lord, Lord Cope, is saying—that the main area is payment—but inevitably, as whoever is dealing with this is trying to focus on these issues, that person will be drawn into issues of commissioning and operations as well as payment. If there was an argument saying, “We want focus”, I could accept that the first stage would be to look at payment and then, if we are not resolving things as we like, we can look at commissioning, the monitoring process in the public sector and so on, if those are the subsidiary issues. So I can accept the argument for focus.
The noble Lord, Lord Mendelsohn, was saying how important it is that the whole culture here is all-embracing. This is why I find the Minister’s response quite disappointing. On the one hand she is saying, “We’re making a lot of improvements, the Government are committed to this. We’re having mystery shoppers, and that’s improving things”. If that is the case, what are we frightened of? If we are saying that the Government are making improvements, why do we not monitor it? Why do we not allow the Small Business Commissioner to say, “It’s amazing—I had a number of complaints in the private sector but because of all the work the Government are doing, I have to say that I am mightily impressed by the progress there, and as a result we have very few cases”. Therefore, if the work that is being done is successful, there will be less of a burden on the Small Business Commissioner, which will be welcomed.
The Minister made a very telling point. She was saying that obviously, if we are legislating on the private sector, the public sector will have to behave as well. Anybody in the private sector looking at this will say, “You’re putting all the burden on us and you’re not prepared to have the guts, the courage and the confidence to say, ‘We’ll allow the public sector to be measured as well’”. Call it clearly. If we have the confidence and are determined, we should include that.
Baroness Neville-Rolfe
I was trying to make the point, with rather a long list of what we tried to do in the public sector to put our house in order—alongside the noble Lord, Lord Stoneham, for a number of years—that we brought in the Public Contracts Regulations 2015 and a number of changes, and we are trying to measure and look at that. It seemed that what we are doing there and how we are monitoring is relevant to the issue of what the priority should be for the Small Business Commissioner that we are setting up. We believe that the prime focus of the commissioner should be on late payment, particularly when there is an imbalance of power between big business and small business, which has been a recurring issue that noble Lords on both sides of this House have been worrying about.
Baroness Byford
My Lords, before the noble Lord comes back again, I thank the Minister for that clarification. In particular, in the first instance, I think we are all concerned about late payments. As for public authorities, the instance I gave is about looking at local authorities as well. I am not sure whether the amendment, as it stands, would include both local and national authorities. On the charity side, negotiations invariably take place with local government, which is key. At the moment, with the economic pressures that local authorities are under, clearly it is putting extra pressure on those who are bidding for commissioning and everything else that goes with it. Therefore I was not quite clear whether the noble Lord’s amendment would include local authorities as well as national ones.
Baroness Neville-Rolfe
The mystery shopper and the arrangements I have described obviously cover local authorities as well as other public authorities, and I suspect that the amendment does the same for the same reason.
Lord Mendelsohn
The Minister made the point that the prime focus should be on where small businesses need to address disputes with large businesses, where there is an asymmetry of power. That is where the prime focus is, and currently the law is drafted to make that exclusively its focus. Does that mean that the Minister is not averse to an extension of the role so long as it was able to carry on with these functions, which is the prime and current focus?
Baroness Neville-Rolfe
My Lords, the proposal before the House is set out in the Bill. I think we have all agreed that this is quite a challenging office to set up. We want to get off on the right footing, and for today’s purposes the focus is on where this imbalance of power is.
Lord Hodgson of Astley Abbotts
Before the noble Lord, Lord Stoneham, finally withdraws this amendment, I hope that, if he is to persist in this at a later stage of the Bill, he will reflect on how one distinguishes payment from monitoring and contract. If you accept a payment-by-results contract, you are committed to it long before you get to the payment stage. If you change the monitoring methods in the middle of the contract, the payment flows from that because it is then paid a different way. The yardsticks, the key performance indicators, will be different. While it is very neat for the Government to say this is about payment, it washes back up the chain to what was done before. I understand what my noble friend Lord Cope and the Minister said, but these are not discrete silos. They are all interlinked.
Lord Mendelsohn
I have one final question. The Minister said that this of course addresses the issue about the imbalances of power. What is the size of a particular business and the circumstance of a transfer of goods which defines whether that imbalance of power exists? Is that defined by size, turnover or number of staff? What is the definition of power that allows this to take place?
Baroness Neville-Rolfe
My Lords, small businesses caught by this Bill are those with fewer than 50 employees —so 49 or fewer. To further refine that, we can add extra provisions by regulation, provided those are in accordance with EU law. I do not think we have tried to lay down what constitutes a big supplier but I will certainly look again and come back to the noble Lord if I have anything to add. I do not have anything further on that.
Lord Stoneham of Droxford
I am grateful for those various interventions. There were so many, I am not sure I can respond to them all but I will try.
First, I intended that this general reference to public authorities would include local authorities, for the very precise reason given—that it is more likely that it will be a small business which deals with a local authority. I intended that and if I have not got it right I hope that as we go forward we can look at that further. I am grateful to the noble Lord, Lord Hodgson, for developing his argument with me. I will return to and look at this further because I think it is right.
However, the critical issue here is the words “imbalance of power”. The imbalance of power argument seems to refer as much to the big businesses in the private sector as to a small business dealing either with a local authority or the public sector. Although I accept that the Government are doing a lot here, they should have the confidence to look at this as a way of doing more to show that, just as they make requirements of the public sector, they ensure that their own house is in order and, indeed, setting an example. Together, that would be a much more forceful way forward in what we are trying to do here, which is to deal with the whole issue of late payment.
I see—I am not sure the Government do—the Small Business Commissioner as a one-stop shop. If we start saying to local businesses, “Well, you cannot take issues you have with local authorities to the Small Business Commissioner”, then, although the Small Business Commissioner will be told that he can instruct them to go somewhere else for advice, local businesses will just get frustrated. They will want resolution of their issues. If they are referred around the houses, it will just disillusion them and undermine confidence in the system that we are trying to set up.
I accept the arguments that have been made in the debate. I welcome the support that the amendment has generally received—it was much wider than I expected. Obviously, although I am happy to withdraw the amendment now, I will come back to this matter at a later stage.
“Advisory PanelThe Commissioner may establish an Advisory Panel with membership drawn from different regions and industrial and commercial sectors to assist in the efficacy of the Commissioner’s work.”
Lord Hodgson of Astley Abbotts
My Lords, Amendments 6, 7 and 35 are probing amendments, designed to explore the Government’s thinking about how the Small Business Commissioner will actually work in practice. This goes back to some of the ground covered by the noble Lord, Lord O’Neill of Clackmannan, in an earlier debate. I hope that my noble friend can enlighten the Committee about the sort of experience the Government expect the Small Business Commissioner to have. I am sure it will be tempting to say, “It depends, it depends”. At one end of the spectrum they could be the doughty Whitehall—or ex-Whitehall—warrior, practised in the ways of government. At the other end is the practitioner with a successful small business record behind them. Those two would lead to very different approaches in the way that the commissioner carries out its functions.
Amendment 6 suggests the appointment of an advisory panel, with membership drawn from different sectors and geographical regions. This is because it will be exceptionally difficult for a commissioner to grasp the full range of the commercial and industrial challenges that small businesses face with payments and other things. Those challenges will be different depending on whether you are operating in Stockton-on-Tees or deepest Devon. The first question, therefore, is whether he or she can have an advisory panel to provide routes into information about and detailed knowledge of how different industries and different parts of the country operate.
Amendment 35 is intended to make sure that the commissioner does not become M25-centric, which is always a danger if one gets bound into Whitehall. It requires the annual report, specified in the Bill, to contain information about visits made around the country. We can therefore be reassured that real-life knowledge is being gained. This is part and parcel of the philosophy which I hope the Government can reassure us will be espoused. Amendment 7 is slightly focused and deals with the issue of relationships with regulators. We will deal with regulators in more detail when we come to Part 2, but this amendment—if the Government were minded to consider it—would give the Small Business Commissioner a particular duty or locus in highlighting specific areas of concern relating to regulators. Small businesses, individually, simply cannot take on regulators because of the time involved and the fear of what might happen. There is a role here for the Small Business Commissioner to assist in the Government’s deregulatory agenda. The Government are very keen on deregulation and an amendment on these lines would assist in that process.
It is always worth while remembering how one gets regulatory creep and how the tentacles of bureaucracy push on outwards. Noble Lords may be familiar with the PAT: the portable appliance test. They will recall that one used to push the flex into the back of the kettle then switch it on. This meant that the flex was used a lot and frayed; water and electricity do not mix well together. After some staggering and terrible accidents, the PAT was introduced and these appliances had to be inspected. That quickly morphed into an inspection of all portable appliances, because they all had flexes and were all equally dangerous. By the time this happened, the electric kettle was no longer a problem because, as noble Lords will know, one now buys a kettle with a stand it goes straight on to; the flex does not move at all. So the whole rationale for the portable appliance test had been morphed around.
Now we have a situation where, although the regulations require an inspection only every three years, small businesses are often encouraged to have inspections every year. It costs about £1 a shot to have your portable appliances tested. An enormous amount of time, money and effort is being wasted to no great avail. These are the sorts of things about which the Small Business Commissioner, in dealing with a regulator, could say, “Actually, there is an issue here that you could tackle and help with”. I know it is outside the scope and it is widening the Bill, but it is an area in which small businesses could be greatly helped.
I take part in the Lord Speaker’s outreach programme, talking to schools. It is a wonderful thing to do and I learn an awful lot every time I go to a school. I often finish by having a cup of tea with the headmaster. At a school I went to last year, the headmaster asked me whether I knew about the portable appliance test. I said I knew a bit about it. He said the school had just had an inspection. The inspector went round the classrooms and found an overhead projector on the ceiling. He said, “I need to check that because it is portable”. The school said, “You can only get at it if you get on a ladder and get up there. Therefore, it is not portable and nobody can get at it anyway”. The inspector said, “Well, I think it is”. The school, quite bravely, said, “We are going to ring the Health and Safety Executive in London”. The Health and Safety Executive found in favour of the school. I asked the headmaster, “Was that very good?”. He said, “Not exactly, because they then went through the whole of the rest of the school—absolutely everything—inch by inch, and they managed to find in the bursar’s desk drawer an electric pencil sharpener which had not been inspected for three years and they therefore failed the school”.
Those are the sorts of costs that are being applied to businesses, and if we had a Small Business Commissioner he could draw attention to those sorts of things and do something about relieving the burden. These are probing amendments at this stage. They are designed to try to find out what sort of person is going to do this job and then to try to find a way in which they can do things to assist the Government’s deregulatory agenda and the operational efficiency of small businesses. I beg to move.
Lord Stoneham of Droxford
I cannot resist the temptation to support the noble Lord, Lord Hodgson, as he was so positive about my amendments. We will see what the Government say on these amendments but I sense that there is a general watering-down of the proposals and they will be slightly reticent about the advisory panel. If there is not a board or whatever supporting the commissioner, clearly a panel is a very good idea because it will widen support. It is related to the regional issue because if this body has only 50 staff, it is difficult to see how it is going to have regional purveyance and credibility around the country. All these points, plus the duty on the commissioner to refer good advice and to deal with regulatory issues, mean that this becomes much more of a one-stop shop where local businesses can come, initially with problems related to payment, but its remit will widen as other issues are seen to be pertinent.
Lord Mendelsohn
My Lords, I congratulate the noble Lord, Lord Hodgson, on his excellent presentation of these issues. We are very supportive, although I suspect that we would be less sympathetic to Amendment 6 on the advisory panel and it would not be something that we were wholly in favour of. This is not a formal ombudsman where there is usually an advisory panel to make sure there is some connection with it all. We also believe that the Small Business Commissioner needs a certain amount of discretion. We would not feel entirely comfortable with an advisory panel. However, the noble Lord might be infinitely more successful in persuading the Minister to adopt an advisory panel, and in those circumstances the measure would certainly help rather than hinder the potential progress of unlocking that broader role.
We strongly support the measures that the noble Lord talked about to address the questions of being very London-centric and making sure that the Small Business Commissioner understands the need to operate across the country, and also the noble Lord’s very apposite concerns about where regulation fails. Very briefly, our view is of course that the Small Business Commissioner has a role to work from the bottom up. Some of the problems we address in regulation could be dealt with quite comfortably by focusing on the role of the Small Business Commissioner.
On our Amendment 38, we are very concerned that on occasion the Small Business Commissioner would be able to inform government regulators and other public agencies of where the impact of regulation is far too onerous. In many instances, the easy option for regulators and administrators of all different types is to concentrate effort on enforcement, crackdowns and looking for disciplinary measures to deal with non-compliance. However, that is quite a lazy way to deal with the lee-ways available. Simply issuing infringement notices is not the best mechanism available to regulators to improve the business environment. Businesses want to comply with laws and regulation. Non-compliance, especially in the case of small businesses, is frequently associated with unawareness or even the very simple management challenge of having too little time and, frankly, expertise in the areas dealt with. There are only a small number of people in a small business, ranging from one to a few. It is far too much to believe that someone would be able to spend their time finding—or then understanding—all the regulatory and legislative ins and outs.
It is a responsibility of government, agencies and regulators to inform and educate small businesses about the rules and regulations that they need to comply with. Our proposed measures, together with those of the noble Lord, Lord Hodgson, sensibly address this and look for opportunities where compliance can be streamlined and business interaction reduced. The example that the noble Lord raised is one we can avoid. We need to make sure that the Small Business Commissioner plays his part in ensuring that government agencies and others can be facilitative and educative, can deal with the problems of information and are able to ensure justice, rather than just be crackdown enforcers who impose on the management of businesses the sort of difficulties which we would rather redress. Here are proposals to ensure that in circumstances where the Minister may consider it, the Small Business Commissioner might, apart from the prime and overwhelming focus, at some point on the horizon be able to exercise their immense judgment in being able to develop that sort of role. We strongly support these measures.
Baroness Neville-Rolfe
My Lords, as always I am grateful to my noble friend Lord Hodgson for this probing amendment, which led to a very good debate. I will try to answer the questions raised, starting with the million-dollar question of what sort of person should be commissioner. I am not writing a job description this evening but I think we will look for someone with practical experience, perhaps in law or business, and with important skills including judgment, personal authority, the ability to influence effectively and to understand the intricacies of business relations and disputes, energy, and probably the charm—going back to the opening remarks—to get things done.
I will say a few things to my noble friend on Amendment 6 and the issue of an advisory panel to assist the commissioner. I agree that the commissioner will need to understand how supply chains work in different sectors and whether or not there are particular payment issues in certain regions—I will come on to that again later. In order to carry out the role we would also expect the commissioner to have regular contact with senior figures across industrial and business sectors and elsewhere. I have heard from the Australian Small Business Commissioner how important that has been to the success of his role.
However, having said that, the Government do not consider that providing for the establishment of an advisory panel in primary legislation is necessary or advisable. We would rather permit the commissioner to determine what advice he or she may need and what that means for his or her engagement with industry and the regions. As we have said several times this afternoon, the commissioner must be, and be seen to be, independent and should be mindful of this in engaging with industry. This would inevitably bring with it considerations and criticisms regarding the balance of membership of the body.
Lord Hodgson of Astley Abbotts
Amendment 35 just says,
“including details of any visits to the different regions of the United Kingdom”.
It does not say that the commissioner has to make them. If they do not say anything, we will assume that they have not gone. Without constricting or constraining the Small Business Commissioner’s judgment of the best way of executing the task, there is, nevertheless, an inherent idea that a certain number of visits should take place.
Baroness Neville-Rolfe
I thank my noble friend for that clarification. This is an eminently sensible approach: we need to make sure that the interests of regions are taken into account. Although we try not to be, some of us tend to be a bit M25-focused. I think my noble friend is saying that there is a wider wealth of opportunity on payment issues right across our great nation.
I have tried to respond to the various questions which have been raised and I hope that, in the circumstances, my noble friend and the noble Lords will feel able to withdraw their amendments.
Lord Mendelsohn
I have a brief question before the noble Lord, Lord Hodgson, rises. We are different from the Australian example in that we define small business and who this operates for and they do not, and in relation to complaints information, signposting and other things. There is a question about how the Australian system evolved—in Victoria it happened by accident and in all the rest by design. It allowed larger businesses that dealt with small businesses to make complaints, raise questions or seek information. Famously—and this will interest the noble Lord, Lord Hodgson—one large company used the Australian Small Business Commissioner to help renegotiate franchises to the betterment of small business. Would that be excluded with this legislative architecture?
Baroness Neville-Rolfe
My Lords, that would be excluded in the approach we have adopted in the Bill.
Lord Hodgson of Astley Abbotts
I am grateful to the noble Lords, Lord Mendelsohn and Lord Stoneham, for their supportive remarks. I am also grateful to my noble friend for giving a degree of assurance that we are not expecting the individual to be stuck within the M25 but to get out and about. I will, obviously, read carefully what she has said. I am interested in how we are going to have equality of arms with regulators. My noble friend made some interesting comments on that which I will reflect on. In the mean time, I beg leave to withdraw the amendment.
“( ) tax rates, allowances and thresholds of relevance to small business owners.”
Lord Mitchell (Lab)
My Lords, I speak in support of Amendment 9 in this group. Yet again I return to the subject of payday lending. Over the past three years, noble Lords have secured some pretty impressive legislative reforms. As a result of amendments to previous Bills, the FCA is now in power to regulate the terms and conditions under which payday loans are made. The rate of interest is now regulated but the most significant change is that, under all circumstances, the total repayment of any loan is restricted to double the value of the loan itself. This is a real result, since those charming people in the payday lending industry had been adept in slipping in all sorts of unexpected and sneaky charges.
It is interesting that the perils that the payday lending companies themselves and their lobbyists forecast failed to materialise. It really was a change for good. I pay tribute to the FCA for getting on top of this abuse and I read on today’s BBC website that Dollar Financial UK has admitted malpractice and will refund £15.5 million to 147,000 customers. So it really is working. This morning I checked on Wonga’s website and saw that the APR on its loans is 1,500%—scandalous, it is true, but dramatically less than the mere 6,000% it had previously been charging.
Today’s amendment in my name is designed to give the commissioner the powers to advise small businesses in respect of payday loans and, by implication, all the short-term, high-interest category of loans. Clearly, many small businesses are often desperate for cash to meet unexpected costs. Many of them are sole traders or employ no more than a handful of people. Banks, as we know, tend to be unhelpful and for many businesses payday lending is a short-term option. We simply want the commissioner to advise the small business sector of the potential pitfalls of this type of borrowing.
I also want to address the area of EIS—the enterprise investment scheme. I state my interest that I am chairman of a small company, Instant Impact Ltd, which started four years ago with two young men based in Starbucks drinking coffee and it has now expanded to £1 million turnover. It is involved in graduate recruitment. We, too, have just introduced an enterprise investment scheme. There is also the seed enterprise investment scheme, introduced by this Government. Both schemes work pretty well. The Labour Government introduced the EIS but SEIS was introduced by the last Government and it works really well. In the area in which I am very involved—the tech sector—SEIS is absolutely crucial.
I have noticed that surprisingly few young businesspeople, older businesspeople, advisers, accountants and lawyers are aware of some of these schemes. That surprises me and I advise that the commissioner should have the power to influence the knowledge of these schemes and others that might come throughout the business community. I beg to move.
Lord Hodgson of Astley Abbotts
My Lords, I certainly recognise and applaud the work that the noble Lord, Lord Mitchell, has done in exposing and correcting some of the more egregious aspects of the short-term loan lending industry. I add a word of caution on the proposals.
The short-term loan sector is like an iceberg and the noble Lord fairly and properly sought to regulate the visible part of the iceberg. He referred to the FCA, the work going on, and the effect this work has had. I applaud that. However, it is the invisible part of the industry that is really nasty. That continues to exist. The danger is that if we make it too difficult for firms in this visible part of the iceberg to operate with full disclosure it is to the invisible part that people will turn because there will always be a demand for short-term cash for one reason or another.
Given what he said about the FCA and financial regulation, I am not convinced that it is part of the Small Business Commissioner’s role to give guidance on payday loan rates and their appropriateness as that is a very difficult and problematic concept. That is something for the financial regulator. All I ask is that we avoid the risk of demonising these firms. However unattractive the noble Lord may find the interest rates charged and everything else, we should ensure that everything is above board and is done clearly and in the open. We should avoid demonising these firms while allowing the hidden part of the iceberg to continue to exist. My goodness me, that really is baseball-bat territory and not the sort of thing that any of us wish to see increase. We wish to see it eliminated. I am concerned that putting this sort of further pressure on firms that operate in compliance with the law will encourage the growth of those who operate outside the law.
Lord Cope of Berkeley
My Lords, incidentally, the other meeting I was due to attend did not raise a quorum.
Nobody has so far spoken in support of Amendment 8 so it is perhaps unnecessary for me to speak against it. However, it has been formally moved. I think that inserting a duty or giving a duty to the commissioner that she or he should publish information about,
“tax rates, allowances and thresholds of relevance to small business”
would introduce a major distraction into the commissioner’s role. It is the duty of Her Majesty’s Revenue & Customs to publish the allowances, rates and everything else, and it does so with considerable vigour on its websites. There are large numbers of people, including people in the profession in which I qualified, although I have not practised for many years—namely, chartered accountancy—who do this kind of thing. If the commissioner finds himself or herself with a legal duty written into the Bill to publish this kind of information, I fear that it will be a major distraction from what we all want to see as the commissioner’s initial role, at any rate; that is, to deal with the late payment issues.
Lord Mendelsohn
My Lords, I support these amendments and will say a few words about Amendment 8, to address the comments made on it by the noble Lord, Lord Cope of Berkeley. Fortunately, the noble Lord is able to be present as the other meeting he was due to attend did not gain a quorum.
I pay tribute to the fantastic work of my noble friend Lord Mitchell on payday lenders. I disagree with the noble Lord, Lord Hodgson: this is not about the visible and invisible parts of an iceberg but about the devil and the deep blue sea. The problem is that the choice we are making is between two things that are broadly unacceptable. It was only through the great efforts of my noble friend Lord Mitchell that we understood that Wonga, which has completely changed its business model, operated in a market based on pushing people into failure to pay, rapidly increasing their debt burden over time and charging effectively a permanent rate of interest. That was its business model—to force people into continued and prolonged debt. To my noble friend’s great credit, Wonga has changed that model as it could not continue to function with it. This is relevant to the Small Business Commissioner as we should not accept the principle of choosing between one thing which is bad and another thing which is really bad. His job is to find an alternative. We all know that there are problems with people accessing finance and with debt and with our banking sector. The answer is not to say that it could get a whole lot worse but to enable someone to act as an agent or agency and make a difference. That is why I think this is a very sensible amendment.
Some years ago when I operated a small business, we had a tax issue and a little tête-à-tête with Her Majesty’s Revenue & Customs. There was a particular issue that we contested. Rather than pay—forgive me for saying this—the fees our accountants would charge to deal with this, we thought we would do it on our own. We had a particularly effective financial controller and he spent a considerable amount of time trying to research this. In fact, we funded him to go on a day’s seminar given by HMRC to look at the particular issue. He attended the seminar and came back with a series of materials that gave very clear advice on the problem. Subsequently, we wrote to HMRC saying that this was our case, completely consistent with its advice. It wrote back saying that it did not accept our arguments. We wrote to it saying that we could not claim the letter we had written was entirely our authorship but was based on advice we now enclosed, which came from HMRC. We got a letter back saying, “We are not bound by our own advice”.
That was a few years ago but I raise the point because it is relevant. Our experience in talking to small businesses in particular but also to some of the representative organisations is that their complaint is not that they must pay tax. There are some who do not like to pay tax—many of those live in Monaco and other sorts of places, but they are not the ones I am so concerned about here. For those who are concerned about paying tax, it is about paying the right tax and understanding the taxes that they must pay. In the same way, it is about not regulation per se but the burdens of regulation. These amendments address this question. They say that the Small Business Commissioner should be able to deal with those issues.
I accept that we have a particularly narrow focus for the commissioner, and it is what the prime focus should be. However, in that wonderful nirvana where the commissioner can extend its role, it would not be a bad thing to be able to assist small businesses to have a better understanding of and some degree of certainty about the issues that they must face and the taxes they must pay, as well as being able to make observations to others to be clearer so that there is better compliance and understanding of what these things are. I fear this constant sense that there is a huge amount of non-payment and total avoidance, and all sorts of scandals and terrible practices by business. Invariably, especially with small businesses, they are not fully aware of what they must do. These amendments allow a Small Business Commissioner to play a very effective role in that area.
Finally, on Amendment 47, I declare an interest as an investor using the EIS benefit. I hope that that does not become a tax problem and the Revenue starts to chase me on it. I am fairly confident at this stage that I am on the right side. I agree that the EIS is exceptionally useful and many small businesses know about it. We have somewhat cheekily tried to extend the EIS relief beyond individual investors to institutional investors. We put that as a role for the Small Business Commissioner in order to probe the Government about whether the commissioner could also play a useful role in how we grow small businesses, being able to make observations about how some of the government schemes that currently exist could be used further.
Baroness Neville-Rolfe
My Lords, Amendments 8 and 9 would widen the scope of the general information and advice function to allow the commissioner to cover tax rates, allowances and thresholds of relevance to small business owners, and payday loan rates and their appropriateness. I join the tributes paid to the noble Lord, Lord Mitchell, for his contribution to the work done on payday loans. I am also glad to hear the discussions about EIS, which I agree is a good scheme. I hope it will prove useful in the long term to the noble Lord, Lord Mendelsohn.
The commissioner will be able to provide small businesses with general advice or information in connection with any issues arising from their supply relationships with larger businesses. Small businesses will have access to useful information for these relationships, whether as a supplier or customer.
I have already given some examples of the varied matters that this can cover and I will not repeat them, but the commissioner will also have an important role in signposting to relevant bodies and sources of assistance with these supply relationships; for example, regulators in particular sectors, such as utilities. I am sure noble Lords will agree that this will be a sizeable area for the commissioner to cover. The commissioner will not cover specific issues such as taxation and payday loans because this information and advice is already available and it is reasonable to assume that small businesses will know where to get access to it. The commissioner will plug information gaps where they exist or signpost small businesses to other bodies which are more likely to be able to assist them in their query, including where it relates to a dispute. Consultation feedback has indicated that there are various existing sources of relevant advice, information and support but, as has been said, small businesses are not always aware of them. We have designed the commissioner in order to address these specific issues and to become a single point of contact for small businesses when they find themselves in commercial disputes. It is important for the commissioner’s remit to be focused to achieve real impact on the ground.
I am grateful to the noble Lord, Lord Mitchell, for raising the issue of payday lenders and EIS, but I agree with my noble friend Lord Cope that we should resist this amendment because the matter could be a major distraction. Having said that, a web link to HMRC and the FCA could be considered and counting the use of that link might provide some interesting information. I am also glad that the noble Lord, Lord Mitchell, feels that we have acted decisively to reform regulation of the payday loan market. We transferred the responsibility from the OFT to the FCA. As he said, the FCA has far stronger powers to protect consumers, and its more robust regulatory system is already tackling sources of consumer detriment in this market. We also legislated to require the FCA to introduce a cap on the cost of payday loans, to protect consumers from unfair costs. This cap has been in place since 2 January 2015. The last time we debated this in this Room, that provision had not really come in. The more stringent regulatory regime is obviously having a beneficial effect in the payday market. The FCA has found that the volume of payday loans fell by 35% in the first six months of FCA regulation, before the introduction of the cost cap.
Amendment 47 provides that the Secretary of State may publish information or provide advice on the enterprise investment scheme. BIS already works to support small business, including promoting the venture capital schemes. However it would not be appropriate for BIS to provide detailed advice on the schemes. HMRC administers the venture capital schemes and provides advice to small companies, investors and advisers through a specialist unit. That service is highly regarded by the venture capital industry and it would be confusing to try to match it. However, I agree that EIS schemes are a good thing. They were expanded and developed in the last few years and higher thresholds were set for investment.
We want to try to focus the effort of the Small Business Commissioner. He will be doing an annual report and I am sure this will reflect on where queries are coming from. However, it is better to stick with the arrangements that already exist for the various tax and financial schemes we are discussing, rather than trying to bring this into the purview of the new commissioner.
Lord Mendelsohn
The Minister described a unit which provides advice on these schemes. Would she give some colour to that and give some idea of the scope of the advice it gives directly to small businesses? On how many occasions did it give advice during the last year?
Baroness Neville-Rolfe
My Lords, I would be happy to write to the noble Lord on that matter before the Bill reaches its next stage.
Lord Mitchell
My Lords, I thank the Minister and all those who have taken part in this short debate. On the subject of payday lending, although I have worked very hard on this, never have the words passed my lips that I wanted to abolish or abandon it; it just needed to be regulated. Indeed, were it to disappear, somebody else would step into its place—people we really do not want to know about. It was never our objective to do that.
On the EIS and similar schemes, we also received confirmation that the Institute of Directors was supportive of the points we have been making that these need a lot more publicity. We have not really addressed that but the IoD is very keen that more people know about them. When we are here discussing these issues, we automatically assume that the world knows. It does not. It tends to be a long way behind the curve. We feel that the commissioner should have the responsibility for publicising the EIS. With that, I beg leave to withdraw Amendment 8.
“( ) The Commissioner may publish details of cases in which, in his view, there have been delays in legal process which have acted to the detriment of small business.”
Lord Hodgson of Astley Abbotts
My Lords, as the noble Lord, Lord Mitchell, sat down, I realised that I have some EIS investments. Since I spoke in that group, although not on the EIS, I probably ought to declare that for the record before we go any further.
Amendment 10 is concerned with the law. Here I am trying to steer between Scylla and Charybdis. Scylla, as evidenced by the Minister, is about advice to be given on supplier relationships, and Charybdis is the statement in paragraph 6 of the Explanatory Notes that:
“The Small Business Commissioner will not provide advice on legal issues relating to a specific case”.
Obviously, I understand the challenge surrounding the use of the word “specific” but there is an issue here about the way large businesses can use legal means to delay payment. I am aware that Amendment 39 in the name of the noble Lord, Lord Aberdare, focuses on the construction industry. I do not wish to run before his horse to block it. Therefore, I do not want to get involved in that industry.
My focus is on two areas. The first is the practice of finding a minor fault, or perhaps claiming a minor fault, in some goods supplied and withholding a disproportionately large proportion of the sum owed—and, when challenged, the purchaser inviting the supplier to use the law in the certain knowledge that the legal wheels can be made to grind slowly, which is one way that this can happen. The second is the use of a similar approach in matters involving intellectual property—an area where small businesses give a huge degree of help to our economy because small businesses worry away at the coalface, finding new and better ways of doing things—where a small business has made a breakthrough and developed a new product, patented it and then is sat on by a large company.
What do I mean by “sat on”? The example I have in mind is a company I knew of which developed a new freezer cabinet for supermarkets. It had various devices that made it particularly efficient and operationally effective. A large supermarket chain bought six of these—to the delight, obviously, of the small business, which thought that this was a breakthrough—only to find that the supermarket had reverse-engineered the freezer chests and was now manufacturing them itself. The small company claimed infringement of a patent—the intellectual property. The supermarket denied it and invited the small company, if it believed that it had a case at law, to take it to court. The sting in the tail in the meeting was when the person from the supermarket said, “By the way, just before you make up your mind, our lawyers say that we can prevent this from coming to court for two or three years”. The small company had no way to sustain the cash flow and the capacity to maintain the costs of a legal action for two or three years.
There will always be a degree of inequality of arms between large and small companies in legal matters, but there is a chance here, where we have supplier relationships being abused in this way, for the Small Business Commissioner to be of real help to small businesses and help redress that balance. That would be of advantage to our country and of particular advantage to the small business community. It is not about specificity or about getting involved in individual cases but, rather, about making sure that where these sorts of cases happen they are published and efforts are made to make sure that their use and abuse is minimised. I beg to move.
Lord Mendelsohn
Briefly, I support this amendment, which dovetails quite nicely with an issue that we will raise later on the powers of the Small Business Commissioner. There are many difficult cases, on which many people receive letters, where the ability to use legal processes works massively to the detriment of small businesses, and it is exceptionally difficult to be able to extend those procedures. I think that the noble Lord, Lord Hodgson, made the point that it is not about getting involved in the legal case in and of itself but about using the convening power and sense of the Small Business Commissioner to help to get these processes streamlined to make sure that small businesses are not affected by that asymmetry. This is a very sensible and proportionate amendment and we support it.
Baroness Neville-Rolfe
I thank my noble friend Lord Hodgson for his amendment and for his examples, including the IP examples—an area that he knows is close to my heart. I like the Scylla and Charybdis parallel, which one could use more broadly in public policy. I did Latin A-level, being in an era when they did not teach women science.
Clause 3 provides for publication of general advice and information relevant to small businesses and their supply relations, and to resolving disputes. Under existing drafting, obviously this could include information about the timings of and risks of delays within legal proceedings. However, I think that the intention of my noble friend is much broader than the provision of advice and information to small business. As I see it, he intends that the commissioner should shine a light on where delays in legal processes and litigation tactics are used in a manner that is detrimental to small business as they frustrate efforts to resolve a dispute, as he said in examples that he raised.
Clause 9 requires the commissioner to publish an annual report on its activities. This must include a summary of the matters raised with the commissioner by small businesses that the commissioner considers are the most significant. It can of course include any recommendations that the commissioner may have in relation to such matters. Therefore, if issues related to delays in legal processes are brought to the commissioner’s attention and she or he considers them significant, he or she may include them in the annual report.
It is difficult to develop this further without impeding the right of business to have access to the courts. However, obviously, as the noble Lord, Lord Mendelsohn, says, the commissioner has a certain convening power. I do not think that my noble friend Lord Hodgson was trying to get him involved in individual cases, and that convening power will be able to be used to survey what is happening in these areas—as I said, to shine a light on them. I therefore agree with the spirit of the amendment, which is to shine a light on delays, on aspects of the courts system or on the exchange of legal letters that are preventing or deterring small businesses from resolving disputes. However, the Small Business Commissioner has sufficient powers in this respect and I am not persuaded that we should go any further in this area.
Lord Hodgson of Astley Abbotts
My Lords, I am again grateful to the noble Lord, Lord Mendelsohn, for his support on this set of amendments.
I am slightly disappointed by my noble friend’s response. The reason is this. Lawyers are extremely jealous of their territory. When the Small Business Commissioner decides to say something critical of the law without having specific powers built into the Act, he will come under considerable criticism. There will be a danger that he will flunk the issue. These are tricky, difficult issues; they are not easy. There are always two sides to the argument, but we need someone who has the responsibility to speak out on specific issues, and the legal issue is one where a specific duty is important. Otherwise, I can see it being shuffled to the side and put into the pile of complaints that are too difficult to deal with. The commissioner will say, “Let us leave that, because we shall only have trouble. We will only have the lawyers getting after us for interfering with due process”—my noble friend even referred to the question of due process in her response.
I shall reflect a bit further on this but of course, in the mean time, for this afternoon, I beg leave to withdraw the amendment.
Lord Mendelsohn
“( ) Where a recommendation is made under subsection (8), the Commissioner may take the relevant action in response to the recommendations where he or she sees fit.”
Lord Mendelsohn
My Lords, this is a pretty crucial element. We are turning over some territory which we first discussed during Second Reading. I really hope that we may be able to make some inroads on this—obviously, recognising that the Small Business Commissioner has an immediate and urgent task, very narrowly defined, and that its role is very narrowly defined on whom it is serving.
The amendments in this group, Amendments 11, 12 and 34, address some significant issues about the role and scope of the Small Business Commissioner. We are looking at two areas in particular. The first is that the Small Business Commissioner has a mediating role. That is a crucial opportunity for the commissioner. Experience of such roles suggests that that is a very useful mechanism. The other powers provide much wider platforms for the Small Business Commissioner to be able to act in concert with others, encouraging others to be able to take certain actions.
Subsection (8) states:
“The Commissioner may make recommendations to the Secretary of State about the publication, or provision to small businesses”,
and Amendment 11 allows the Small Business Commissioner to act on the recommendations where it sees fit. Amendment 34 provides:
“The Small Business Commissioner may facilitate … representative action taken by a number of small business claimants in a case where a number of small businesses have complaints against the same company which share common characteristics”.
That does not mean that it would become the principal litigant, but it is a way in which problems can be addressed. Where each individual may have problems that they cannot discuss within the context of the company for a variety of anti-competitive reasons, the Small Business Commissioner, where it sees a pattern, can help to trigger some significant action.
That works not just in relation to the commissioner’s general duties. Ultimately, with late payments, where people facing the same characteristics are unlikely to share information about their current circumstance, the Small Business Commissioner in and of itself becomes the agency by which others may be aware and help to facilitate action by the individuals or by third parties on their behalf, which helps to ensure that a company that is in particular default of its obligations can be challenged to meet them.
Again, this works very nicely in tandem with the alternative dispute resolution mechanisms, which we have been debating for some time and which are subject to some changes, and with the signposting role of the Small Business Commissioner to other forms of mediation, but in and of itself having a mediating role. It is also a means by which the Small Business Commissioner can build confidence with other segments in business.
If we make it seem that it is the champion advocate only in a very narrow sense and there is no sense in which it is trying to build a co-operative and collaborative environment, I have no doubt that we will see the shutters go down in many quarters. That is not a constructive place to be, so for us it is very important that such measures help to sustain successful business relationships. That is where the Small Business Commissioner can act in and of itself to take the heat that sometimes exists out of the relationships between companies where their problems, concerns and legitimate interests are not addressed because of the potential consequences, impairing the relationship between two business entities.
I hope that this package of measures is fairly consistent with the Small Business Commissioner’s current roles. If it were to be passed—I hope to persuade the Government to adopt some modicum of its provisions—the powers that it does not use in pursuit of its current narrow, focused and extremely specific role could be available in future. One would hope that the Government would see it in that light. I beg to move.
Baroness Neville-Rolfe
My Lords, I am grateful to the noble Lord and will now respond to Amendments 11, 12 and 34, which, between them, would amend and extend the commissioner’s functions. As I have already set out, the Government consider their proposals for the commissioner’s functions proportionate in addressing the payment issues facing small businesses, especially when combined with the new reporting requirements. They balance the disincentives to encourage larger businesses to behave reasonably towards smaller suppliers with support for smaller businesses so that they become more savvy contractors—taking the heat out of difficult issues, as the noble Lord, Lord Mendelsohn, said.
The proposals have been arrived at following consultation over the summer which—partly to my surprise—showed a need for better navigation of dispute resolution services rather than direct provision. Responses to the consultation and subsequent stakeholder engagement showed broad support for the Government’s approach to meeting these needs.
Amendment 11 would amend Clause 3, which relates to the provision of general advice and information. The Government intend the Small Business Commissioner to help build the confidence and capabilities of small businesses in managing their commercial dealings—for example, enabling them to assert themselves in contractual disputes and negotiate more effectively.
Under Clause 3, the commissioner may publish, or give to small businesses, general advice or information that would be helpful for them in dealings as a supplier or customer, and in encouraging them to resolve or avoid disputes—for example, information about agreeing contracts, supply chain dealings and options for resolving disputes. It also allows that general advice and information to be provided in different ways. It might be provided by the commissioner or his or her staff, or via others—for example, via a government department or a representative or professional body—but in all instances the commissioner has a key role in determining what advice or information is delivered, including approving content, which we intend will be delivered primarily via a web portal.
Clause 3(8) enables the commissioner to make recommendations to the Secretary of State about the provision of general advice and information to small businesses by the Secretary of State, and subsection (9) requires the Secretary of State to inform the commissioner of what, if anything, is to be done in response to the recommendation. I am not sure that we have discussed that before.
I do not believe that Amendment 11 is needed. The power in subsection (8) to which the noble Lord’s amendment applies is additional to the commissioner’s own powers to make that information available to small businesses, which are set out separately in Clause 3(1).
Turning to Amendment 12, I know that the noble Lord is concerned about the inability of the commissioner to directly provide dispute resolution services, such as mediation, and is calling on us to extend his role. This was one of the questions on which we consulted. Indeed, as noble Lords will be aware, initially we were thinking of creating a small business conciliation service. But our consultation and our engagement with stakeholders over the summer showed that there was little appetite for government to step into the dispute resolution market. There was broad and clear agreement among business stakeholders that the problem is not a lack of dispute resolution services. There are plenty of avenues for business to mediate or resolve a dispute outside of court action. There are various regulators and ombudsmen, including for example, those that cover utilities. There are numerous adjudicator schemes, including public sector schemes that I talked about earlier, and there is a large private sector, complete with relevant professional bodies, such as the Civil Mediation Council and the Chartered Institute of Arbitrators doing good work.
Instead stakeholders, including the Federation of Small Businesses, the CBI and IPSE, which importantly represent freelancers and the self-employed, have told us that there are gaps in the information available and that small businesses need support to navigate it more easily. The Small Business Commissioner will fill this gap.
Amendment 34 would provide the commissioner with the power to facilitate group litigation or representative action by small businesses with similar complaints. The commissioner will work to raise awareness among small businesses of alternative dispute procedures and where they can seek support when they have issues or disputes with other businesses—spreading the word. The aim is to encourage a change in how businesses deal with each other—a long-lasting culture change to promote fair treatment for all, especially in relation to payment practices. The commissioner will advise small businesses about their rights and options which in some circumstances could include litigation. However, it is essential that the commissioner is impartial. The impartiality of the commissioner is where we came in today, and it has to apply when he or she is dealing with complaints. He or she must be perceived by business to act impartially in any dispute that he or she deals with. It would therefore be inappropriate for him or her to take a more direct role in facilitating group litigation or representative action.
Lord Stevenson of Balmacara
I am slightly anticipating what the Minister may go on to say, but it is an interesting point. I do not think that in considering this issue we were trying to argue that in any sense the Small Business Commissioner would have to take sides if, in the process of their activity, they noticed that similar cases were appearing in many parts of the country. One of the problems we hear from small businesses is that they feel isolated and unaware of what is happening elsewhere. It would be simply acting as an information exchange point and gatherer of similar cases and a playback to those industries that they are not alone and that this company or group is in fact acting either irresponsibly or aggressively towards a small or even large number of companies across the country. It does not imply one side or the other; it implies working for small businesses against the difficulties they have. Does the Minister accept that?
Baroness Neville-Rolfe
I certainly agree that the convening power is one of the key strengths of setting up a new Small Business Commissioner, joining the dots and noticing perhaps that there are a number of cases in an area and putting that into the annual report, or drawing attention to it. It may be that we are not as far apart as I had thought. We are reluctant to make amendments or change the role of the Small Business Commissioner in this area. In the light of the discussion that we have had, I hope that the noble Lord will feel able to withdraw the amendment.
Lord Hodgson of Astley Abbotts
We have heard a lot about navigation and the website, and how that will work. Will the Small Business Commissioner have his or her website, or will it be part of the government website? In that connection there has been a lot of criticism about navigation through the government website. The Charity Commission has now had to move into the government website and accessibility has dropped dramatically. There have been many complaints. If we were going to put the Small Business Commissioner website into the government website we would want to make sure that accessibility is better than that currently experienced. I am not asking for an answer to that question now. Perhaps the Minister can write to me about it in due course.
Baroness Neville-Rolfe
Of course, I am very happy to write to my noble friend. I have to say that I was a GOV.UK sceptic to start with, which is perhaps the point that he is making. I have found that there have been transitional problems, particularly with those organisations that have been unfortunate enough to have to, as it were, migrate from their website to the new website, but actually it has a lot of strengths. I think we are talking here about a new website—the Small Business Commissioner’s website. I think it would be rather odd not to have it on GOV.UK because that is where small businesses go. Obviously, it has to be a special website and suitably promoted. However, if I have any further thoughts I will certainly write or we can talk about it because we need to get this right. It is very similar to the Consumer Rights Act, where we spent a lot of time discussing how the new rules would be described to business and passed on to consumers.
Lord Mendelsohn
I thank the Minister for her response and her comments after the very thoughtful intervention of my noble friend Lord Stevenson. To be clear, does her reply mean that she will reflect on that point and come back to us prior to Report?
Baroness Neville-Rolfe
My Lords, I will certainly reflect on it. I do not think that I made any commitment to accept an amendment. What I was doing was to agree that we could have a further think about how this was going to work. A fair point has been raised which we think is adequately dealt with but obviously I am happy to discuss that further.
Lord Mendelsohn
I thank the noble Baroness for that clarification. I hope that she may be slightly more enthusiastic once she has a chance to reflect on the measure. In keeping with a number of the points that we made, we are looking at areas where we wish to extend the narrow terms of how they work. Even given the context of what the noble Baroness believes should be the focus of the Small Business Commissioner, and an extended role for him in providing information or signposting, there are other things that he can do to join the dots. We are clear that those are not currently provided for within the legislation or outside it and we are very keen for the noble Baroness to consider that point. On the basis that we have at least made some positive progress on this issue compared with other measures, I beg leave to withdraw the amendment.
“( ) relates to allegations of unfair treatment or unfair contracts,”
Baroness Hayter of Kentish Town (Lab)
I rise to move Amendment 14, standing in the names of my noble friends Lord Mendelsohn and Lord Stevenson, and speak to the others in this group.
When we debated the issue of micro-businesses as consumers within the then Consumer Rights Bill, we argued—and I think the Minister sort of agreed in principle—that micro-businesses should be treated as consumers where they are purchasing goods or services which are not their core business. I think the example we cited was that we would expect a hairdresser to be knowledgeable enough in their purchase of shampoo, hairdryers and scissors, and so not to expect the same level of protection as when we as individuals buy a hairdryer from Boots. However, when a hairdresser bought some coffee for the staff, or a kettle to make it, their right to return that kettle, should it be faulty, should be the same as for any of the rest of us. So, essentially, business-to-business purchases which a small trader would have with its main suppliers should not attract the same consumer protection, but its one-off, non-essential purchases, should be covered.
I believe that the Minister’s main argument at that point against our amendment was that the Consumer Rights Bill was not the right place for it—but a Bill encompassing a Small Business Commissioner surely is. We have a number of asks for these amendments, each of which seek to put a small or micro-business in a similar position to an ordinary consumer when purchasing goods or services not core to the business.
Baroness Neville-Rolfe
My Lords, I welcome the noble Baroness, Lady Hayter, to our discussions. I am glad to return to her examples, especially hairdressers, where, as noble Lords can imagine, I spend a great deal of time. I will take the amendments in turn. I am conscious that this is a new area in the debate and quite complex, so I hope that noble Lords will bear with me. We may even be interrupted by a Division.
Amendment 14 would apply the Small Business Commissioner’s complaints-handling function to allegations of unfair treatment or unfair contracts. Tackling unfairness is at the heart of our proposals for the commissioner. The complaints-handling function is designed to cover questions of fairness, specifically over payment issues, because we have found these issues to be most pertinent. Over half of respondents to my department’s discussion paper cited some evidence of unfavourable treatment by larger businesses. The majority of these responses provided evidence of late payment, and many also provided evidence on wider payment issues.
We may be moving tentatively towards agreement that the commissioner must be effective and efficient. It is right to focus the complaints-handling function on payment, which is the issue of unfairness that our stakeholders tell us causes the greatest detriment to small businesses. However, the commissioner will provide general advice and information to small businesses on how to negotiate effectively and avoid problems. This is a more proportionate way of addressing any problems that small businesses have with contract terms that they think are unfair.
Amendment 24 would enable the courts to declare an unfair contract term to be void, on the commissioner’s advice. The commissioner is not intended to alter or undermine the fundamental rights of two businesses to agree commercial transactions on such terms as they see fit. In tackling unfair payment practices, the commissioner will consider a complaint on the basis of what is fair and reasonable in the circumstances of each case. This reflects the fact that there are complex issues at play in businesses’ payment arrangements, and that each business will know best what works for them. The commissioner will hear from the parties to a payment issue and can give recommendations to encourage their resolution. The commissioner will have powers to publish a report and name the respondent to a case where appropriate. Our approach here is to encourage culture change through persuasion and building confidence and capability in small businesses. We want the Small Business Commissioner to be an effective alternative to the court. It is worth stressing that the commissioner is intended to fit within the existing landscape of dispute resolution services and not to undermine the independence of the courts, a critical British principle which we have discussed already.
On the subject of unfair terms, it is worth remembering that, through the annual reporting duty, the commissioner has another important function: to gather evidence on the issues facing small business, and on whether payment practices are improving as a result of our reforms. The commissioner may make recommendations to government where he or she considers that there are changes that could be made.
One area in which we have been seeking evidence is in relation to whether there is a gap in protection, such that certain consumer rights, including those in relation to challenging unfair contract terms, should apply to small or micro-businesses when they buy goods or services. This was the main thrust of the presentation given by the noble Baroness, Lady Hayter. I thank the noble Baroness for returning to the charge and for her amendments proposing that micro-businesses be considered consumers for the purposes of the Consumer Rights Act 2015 and the 2015 alternative dispute resolution regulations when they are purchasing goods or services for use within their commercial activities.
In relation to the Consumer Rights Act, I can reassure the noble Baroness that we have been giving it considerable thought over the last few months. Our call for evidence ran from 24 March to 30 June and the Government hosted two stakeholder sessions in May and June. We have not yet published a government response to this. We are still considering the evidence, which poses some interesting questions, such as whether there is a distinction between micro-businesses and other small businesses when they purchase goods and services; whether there are specific problems faced by small businesses when they contract with the regulated sectors; and whether some aspects of consumer protection could actually be less helpful to small businesses than their current rights. We currently expect to publish a response later in the autumn. It is clear from the evidence that there is no consensus on this issue but we are still actively considering the case for change and, if so, how that might be achieved. I hope noble Lords will understand that I cannot pre-empt the government response at this stage. However, I am sensitive to the frustration that this might cause the noble Baroness and I hope she will be reassured that we are taking this issue very seriously and not putting it on the back burner.
The second part of the amendment seeks to extend the requirements in the alternative dispute resolution regulations to micro-businesses. The regulations that implemented the ADR directive introduced a range of new measures to facilitate consumer to business dispute resolution. These included the introduction of certain standards for ADR providers and the establishment of competent authorities responsible for approving ADR bodies as being compliant with these standards. Under the regulations, when a consumer and a business are unable to settle a dispute, the consumer has the right to be given details of an approved ADR provider and be told by the business whether it is willing to use ADR in an effort to settle the dispute. This is the only mandatory requirement on businesses in the ADR regulations and it is this requirement that the amendment would extend to business to business disputes.
The important issue here is that ADR providers have been assessed and approved by the competent authorities as having reached the standards in regulations to enable them to deal with consumer-to-business disputes. They have not been approved to deal with business-to-business disputes, which can be far more complicated than the faulty kettle or leaking washing machine that we have discussed in the past. I do, however, have a list, which I can make available to the noble Baroness. The risk of this part of the amendment is that businesses could be given details of an approved ADR provider which is wholly unsuitable or even unable to deal with their particular dispute. There is a real risk that the amendment could lead to confusion and increased costs for business.
The noble Baroness asked about coverage. Around 25 ADR providers have been approved to deal with consumer-to-business disputes. In the UK there are already several large and well-established ADR schemes in regulated sectors such as financial services, energy and telecoms. In other sectors, growing numbers of businesses voluntarily participate in ADR schemes as part of their commitment to customer care, and some trade associations offer ADR services as part of their membership benefits. This was the vision. This is what we hoped would happen. You now see approved ADRs in everything from travel and retail to home improvement, energy, the ombudsman services and the more general providers.
Baroness Hayter of Kentish Town
I thank the Minister for that and look forward to the letter—which may already be drafted, indeed.
I will deal with the issues in reverse order. The ADR issue is really interesting. There is the business-to-business one, which obviously is not free to the complainant. The interesting thing about the EU directive, of course, is that it is free to the consumer, and it is those areas where the business is acting like a normal consumer—the kettle, if you like—that we were very keen that the ADR directive should cover. I will come on to whether the Consumer Rights Act should cover small businesses. I have to thank the department very much for the work it is doing on this—the consultation and the meetings. If the consultation closed in June, I am slightly surprised that we have not had it yet. The word “autumn” was used. The clocks changed yesterday. I consider that it is now autumn.
The Minister knows better than I do the difficulty of getting any legislative time for changes. Should the consultation lead to the department thinking that it would be right to make some change, this is the right Bill to do that. I hope that that opportunity will not be lost, and if the response could be in a timetable that fitted with this, that would be really important.
Going back to the ADR providers, I was sorry to hear the reference to trade associations. The ADR directive is very clear that these bodies should be independent in this regard and I think that trade associations probably do not have that independence. However, that is by the by. I also regret the suggestion that having more ADR providers gives choice. As we have discussed, it gives choice only to the provider. The consumer can still go only to the one that the retailer or whatever says they use. There is always a danger of a rush to the bottom, with an ADR provider saying that it will look after complaints for 20p a complaint and another one doing it for 10p a complaint. That is not an area where competition operates well. I think that I have probably lost that argument but I leave that thought with the Minister.
I have only one other point to make in response to the Minister’s helpful comments and that is about getting better advice on whether a term should be void. I think she said that each business knows what is best for them. I think that the issue is a different one. It comes back to the lack of bargaining power, as the Minister said in relation to an earlier amendment. Somebody being offered three-month payment terms on an invoice may know jolly well that that is an unfair term and is silly and wrong, but they have no bargaining power. We were trying to strengthen their hand not as regards the business-to-business relationship but as regards very small businesses which are small fish in a very big tank, if you like.
We may want to come back to this measure. I will not push the Consumer Rights Act point until we have the response to the consultation but I hope that we can have it in time for it to be meaningful. If the idea is that we should move forward, it seems to me this is the right Bill in which to do it. In the mean time, I beg leave to withdraw the amendment.
Lord Mendelsohn
Lord Mendelsohn
In moving Amendment 15, I wish to speak also to Amendments 17, 42, 43 and 45.
This is a fabulous measure on which I hope we will reach agreement. We have discussed these interesting issues before. I hope the Minister will note that we have designed these amendments specifically with the Small Business Commissioner in mind and seek to give him a very strong role. This series of amendments deals with late payment and addresses some of the issues involved. Currently, we have a very narrowly defined role in dealing with this as a priority.
We are looking for a way to address what we believe is a major deficiency in the Bill by continuing with our attempt to increase the capacity of the Small Business Commissioner through introducing compulsion in that regard, and to address the velocity of cash in the economy by persuading the Government to take up a fabulous, transformational aspiration. I am extremely positive and hopeful about all these amendments. I only hope that my great positivity and the enormous support and adulation for these measures that I and many other noble Lords have talked about will enjoy the full weight of the Minister’s attention and that we will not be disturbed by any Divisions that may take place. But who knows? My hopes in that regard may well be dashed.
There is a fear that the way in which late payments are described means that the Small Business Commissioner’s role will be like that of Alice in Wonderland—namely, that it will shrink enormously and get smaller and smaller to go through a very small door. The reason for that is because there is a variety of payment mechanisms that fall outside the definition of late payments. The sorts of practices that can be conducted between large businesses especially, but not exclusively, are very problematic. They cause massive cash flow problems, which are an abuse of contract terms. Their net effect are forms of late payment but they are about late payment terms, meaning that one company massively disadvantages another, particularly when it comes to whose cash flow is being exploited.
In relation to this we went through a number of particular cases during the course of the Small Business, Enterprise and Employment Act, and were encouraged by some of the Minister’s responses. Some work has been done on this and I hope that we have started a process that addresses it. It is very important to understand that if a company says the payment terms are 90 days, take it or leave it, then late payments sometimes do not apply until 91 days. That is an unacceptable form of a payment term that abuses another company.
A variety of mechanisms are established in which they say, “We’ll pay you X and then there will be charges which we could vary, so we’ll pay you X minus marketing costs, warehousing costs, or other sorts of costs”. Invariably, that goes to forms of discounting which reduce the payment terms, but many of them will have a retrospective impact. There is no necessary correlation between those payment terms and any form of marketing activity, warehousing costs or proportionality to them. These are massively extensive business practices, but many have terms allowing people to vary the overall payment on the basis of saying that their marketing costs were higher, or their building, warehousing or other sorts of costs were significantly higher. We have seen some of the most appalling abuses, and cases arise from time to time illustrating that. These terms are becoming ever more present and they are unacceptable.
There are also issues in which the dispute resolution process is defined by contract not on the basis of timing but on the basis of process. A late payment cannot be defined until the process has been gone through. Let us say there is a random company that deals only by email and it does not respond, and there is no human being to contact. The company will drag it out for as long as is humanly possible, but that still cannot be defined as a late payment. We could even have disputes when the goods are received. There can be significant disputes but the timescale by which these things are resolved means that, in effect, it is a late payment with people using other people’s cash.
Our amendments would work in tandem with the unfair terms in the earlier Amendment 14. Ours would take out exclusions from the scheme because these are areas when the sorts of issues that have been excluded from the role of the Small Business Commissioner can be used to ensure that they do not fall within it. Some Members of the Committee will know that I like the occasional flutter and I would be happy to wager a considerable bet—it is not a particularly hard prediction—that if you give businesses the opportunity and an out clause by which they can avoid having to deal with late payments through the Small Business Commissioner, they will take it. It is inevitable. It is important to capture the right things.
Amendment 41 also addresses the issue of retrospective discounting. Company A supplies Company B, and Company B then insists on a retrospective discounting clause. It decides that it is not making enough profit at the end of the year and causes a retrospective discount to try to make up its numbers to the massive detriment of Company A. Those sorts of practices are just wrong and we should get rid of them, because they are inappropriate.
Amendments 42 and 43 are very similar in nature. Rather than relying on people’s good intentions, there is nothing like a duty to pay to increase people’s adoption of a culture. Here we are looking at duties to pay for the private sector and, indeed, the public sector. That is just an extension and a tidying up of some of the Bill’s provisions to give it more force by giving people a duty to pay and a duty to report on whether they have paid, what they owe and when they paid it. That should be reported to the Small Business Commissioner who, happily, has a lovely address for them to report it to. There, we have used the Government’s proposal to good effect to provide a duty to pay. It is not discretionary; there is a duty to pay; you do not have a choice.
Lord Stoneham of Droxford
I will speak to Amendment 41. Our concern throughout has been that the powers of the commissioner are somewhat ineffective. There is a danger that, as a result—this is our fear—he or she may well be side-lined because there are ineffective follow-up powers to deliver on his work. If we are to deal with some of the abuse of late payments, there must be some clout coming down the line.
I accept that the noble Baroness may tell us that it is best to wait and see before we come forward with legislation in future, but here, we provide that, subject to the commissioner’s advice, the Secretary of State may consider regulations which would give power, as necessary, to fine late payers who are not complying with the advice they receive from the Small Business Commissioner to resolve complaints. This amendment, which again includes the public sector, could set definitions of good practice and follow them up with some penalty if they are not complied with. The Minister should consider that in the Bill, so that people see that the commissioner will not be ineffective and side-lined in future.
Lord O’Neill of Clackmannan
My Lords, I am very pleased to come in on this point. The problems of small businesses can very often be summed up as that they spend a lot of time financing bigger businesses. They do so because they are not getting paid and the bigger businesses have the money which they should have been paying further down the supply chain. We all recognise that this is an issue and, in some respects, the establishment of the Small Business Commissioner is evidence of that. However, it is equally significant that we have got to give the commissioner a chance from the very start. He has powers and teeth and he has support. Big businesses will not be allowed to set aside their responsibilities in respect of payment. This group of amendments covers both public and private sectors. In many instances, we have supply chains where the initial payment for work done comes from the public sector but there are many casualties going down the chain. The 30-day rule may be applied by some, but not by all. We do not need to wait on the commissioner asking for powers. We need to be able to say that this is the arena in which you will be operating and these are the powers and weapons you will have with which to take on the recalcitrants.
The amendments are a bit imperfect at the moment, but the principle is there. It is up to the Minister to come to us and say that the Government think, like noble Lords on this side of the Room, that something needs to be done. If this is not adequate, then by all means let us look at it again at subsequent stages, and in the other House, if necessary. Without this kind of clear backdrop, the Small Business Commissioner will be disadvantaged and will not be able to make the significant take-off, in respect of payments, that everyone would like to see right from the word go.
Baroness Byford
My Lords, I have a couple of questions for the noble Lord who moved these amendments. The theme of our discussions in the Room today has been that the powers in the Bill are felt to be ineffective. That made me think back to the discussions we had when we set up the Groceries Code Adjudicator not so many years ago, when the powers and effectiveness of that role were discussed fully. My first question, which is also for the Minister, is whether we learnt anything from that adjudicator that might have a bearing on the issues raised in our discussions. Secondly, in light of that, might a transitionary scheme be an advantage in the long term? It seems a shame not to learn from things we talked about in great detail in the past. One of these was the question of whether the powers were sufficient and would bring reward.
I know there is a slight difference between the Groceries Code Adjudicator and the commissioner we are setting up here. A lot of the adjudicator’s role was trying to solve the problems between suppliers and the people they were supplying. Fines and enforcement were nearly a last resort, but it was very important that they were there. My question, to both the Minister and the noble Lord, is about whether lessons have been learned, or whether there are other schemes out there which would give us more guidance on what the Bill proposes.
Baroness Neville-Rolfe
My Lords, we have had a very interesting debate on these amendments. I like the positivity of the noble Lord, Lord Mendelsohn, and will look carefully at his examples before we speak again. However, we believe it is vital to exclude certain matters from the scope of the complaints scheme in order to ensure, as I have said many times, that the commissioner’s work is targeted, does not duplicate and makes the best use of resources.
For example, a complaint will be excluded if it relates to the appropriateness of the price or proposed price for goods and services. The commissioner’s function is not to consider whether either party is getting a good deal financially but whether the approach to payment matters is fair and reasonable. I also agree very strongly with what the noble Lord said about the importance of what I would call working capital. By reducing late payments, you increase working capital. The noble Lord, Lord O’Neill, made essentially the same point. That is the background to this, where I think we have a lot of common ground. We think it is good practice for such a scheme to set out certain parameters, as we are doing here.
Amendment 45 is about imposing a maximum payment term. Obviously, I understand the intention behind this amendment. It seeks to address, as we are trying to do, the misuse of payment terms by larger companies when contracting with smaller firms. It seems quite wrong for larger companies to use unduly long payment terms when dealing with smaller suppliers. Indeed, frankly, you would expect them to do the opposite, because small suppliers have less capital behind them and are forces for innovation.
In the UK, legislation mandates a 60-day payment term for private sector bodies, unless companies expressly agree to a longer payment term that is not grossly unfair. It is true that some EU member states have gone beyond this to impose a maximum payment length. However, at the end of 2013, when we consulted on whether to introduce a maximum payment term, responses showed very little support for this. The most common argument was that companies value freedom of contract, and they need the flexibility to allow for different circumstances, notably the different practices of different sectors. Instead of more draconian measures, our stakeholders wanted to see increased transparency on payment terms and practices.
The Small Business, Enterprise and Employment Act does just that: it enables us to introduce a new reporting requirement for the UK’s largest companies. When implemented, this reporting requirement will see the UK’s largest companies reporting six-monthly against a comprehensive set of metrics, including the proportion of invoices paid beyond agreed terms, and the proportion of invoices paid within 30 days, between 31 and 60 days and beyond 60 days. We can legislate so that the Small Business Commissioner, once the office exists, will monitor and enforce this requirement—I think somebody asked about that. The commissioner will also make inquiries about payment terms, where a small business makes a complaint.
Amendments 42 and 43 concern the duty to pay. I have outlined our powers to implement a new reporting requirement for the private sector. The Act sets out how we can use the reporting power in relation to payment performance and interest owed and paid in respect of late payment. As we discussed earlier, the Public Contracts Regulations 2015 have recently introduced a requirement for all public sector buyers to have 30-day payment terms in their contracts and through their supply chains. They must publish annually on their payment performance, including interest paid to suppliers due to late payments and, from 2017, debt interest payments.
None of this is easy but we are striking a balance between ensuring transparency in this area and placing burdensome requirements on private sector companies and public sector buyers that we fear could have perverse effects on the UK’s largest companies and their supply chains.
The noble Baroness, Lady Byford, asked about the Groceries Code Adjudicator, who of course administers the Groceries Code, which was a remedy for a competition problem. The Groceries Code Adjudicator has adopted a similar approach to that which we intend for the commissioner. She has used informal approaches as a means of influencing behaviour and has had some success; for example, in retrospective forensic accounting.
The GCA, the pubs adjudicator and the new commissioner are each addressing particular issues identified after evidence-based research and full consultation. The Government have taken a proportionate response to these problems in each case. The first review of the GCA will take place in March—unfortunately, a little late for the Bill but in good time for the emerging work of the commissioner—and will give us the opportunity to consider the lessons further. I am sure that there is some other learning, but those were some first thoughts.
In Amendment 41, there is an important issue about further payment legislation; I am grateful to the noble Lord, Lord Stoneham, for his explanation of the way he sees this working. It permits the introduction of further legislation to tackle payment practice, so it would allow for a maximum term to quibble an invoice, for example. It would prohibit unilateral changes to payment terms and payment to join supplier lists.
Lord Mendelsohn
My Lords, that was not entirely the response I had hoped for, but one I could have expected. There are a couple of elements here. First, we were asked about whether we had much to learn from the Groceries Code Adjudicator that is relevant to this. Indeed, we have learned a huge amount from that adjudicator that is entirely relevant to the Small Business Commissioner.
In the past couple of weeks, five years into its existence and two years into the current person responsible for it, the adjudicator has been shocked by suppliers’ ignorance of the code and all aspects of it compared and contrasted to the knowledge that larger businesses have of what they can do and how they can get round it. We are dealing with a very small number of companies who are the target of the code, but still, suppliers in any survey, in massive numbers, talk about these problems. The largest and most recent survey may well have been on Tesco. Somewhere in the region of 30% to 40% of suppliers said that Tesco was failing more often than not to live up to its obligations under the code, when, by dint of what the Groceries Code Adjudicator said, it had had extensive department education on what it should be doing, but it still failed to comply. Indeed, we have the issue we will come to later about the fears of retribution. We continually have extensive surveys by the Groceries Code Adjudicator about the number of suppliers feeling mistreated. I think that that has reduced, in the entirety of its existence, by only 9%.
We took some of that into account and that is why the Small Business Commissioner should have a much more extensive role and this should be much clearer. If we hope for everyone to be happy, resourceful and feel comfortable, we need something with some teeth.
The Deputy Chairman of Committees (Lord Faulkner of Worcester) (Lab)
My Lords, there is a Division in the House.
House of Lords
Introduction: Lord Lansley
Introduction: Baroness Sheehan
Introduction: The Lord Bishop of Gloucester
Health: Global Health
(9 years ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Lord Crisp
To ask Her Majesty’s Government what is their assessment of the report The UK’s Contribution to Health Globally, published by the All-Party Parliamentary Group on Global Health in June.
The Parliamentary Under-Secretary of State, Department of Health (Lord Prior of Brampton) (Con)
My Lords, I congratulate the all-party parliamentary group on producing its report. The Government are determined to maintain Britain’s strong global role and welcome the report’s suggestions as to where we can continue to play a leading role in health globally. The United Nation’s sustainable development goals provide added incentive to look critically at where we can add maximum value in improving health systems overseas.
Lord Crisp (CB)
I thank the Minister for that very encouraging reply. The UK is a world leader in health. This report, produced by researchers from the London School of Hygiene & Tropical Medicine, shows that we have extraordinary strength in research, education, commerce, development, the NHS and the NGO sector. Given that, does the Minister agree that it is time for the UK to develop a new global health strategy to use that all-round strength to help to improve health globally—but, at the same time, to strengthen the UK’s health, science and technology base? More specifically, does the Minister agree that the UK’s medical, nursing and healthcare schools could be supported to play an even larger role in training health workers in low and middle-income countries?
Lord Prior of Brampton
My Lords, I agree with all the sentiments that the noble Lord mentioned—and, perhaps, one other, which is that in a number of other pioneering areas, such as genomics, dementia and antimicrobial resistance, the UK is very much at the forefront. The Government are following up the “Health is global” strategy that was initiated back in 2008 and will be reporting back in detail in 2016. I assure the noble Lord that we will take fully into account the findings of the all-party parliamentary group.
Baroness Gardner of Parkes (Con)
My Lords, does the Minister think it would be wise for us still to be learning from other countries, instead of learning only globally? For example, we have an appalling record on pancreatic cancer compared with many other countries. Is it not time for us to improve those things, and then we will be better able again to help others?
Lord Prior of Brampton
I agree with the noble Baroness that there is always plenty that we can learn from other countries. She cited one example, and I am sure there are many others. There is never any room for complacency. Other parts of the world are also making huge advances. One of the findings of the all-party parliamentary group’s report is that we face increasing competition not just from countries such as America, but from South Korea and Singapore, for example. The noble Baroness is right: we must always learn from others.
Lord Hunt of Kings Heath (Lab)
My Lords, the report is abundantly clear that the UK gains enormously from its work in other countries but it is also clear that, taking the point of the noble Lord, Lord Crisp, many of our universities are very inhibited in recruiting the overseas talent that reinforces the UK as a global leader because of Home Office policies restricting entry to work in our universities and other institutions. One of the report’s recommendations is that the Home Office review immigration policy in this area. Can the Minister confirm that his department is urging the Home Office to get on with it?
Lord Prior of Brampton
I understand that the Home Office is in the middle of this review and is due to report back later this year or early in 2016. It is also worth noting that this important report said we are No. 2 in attracting overseas students to come to England to train as doctors. I think America is No. 1.
Baroness Northover (LD)
My Lords, the life sciences are indeed an area in which the United Kingdom leads, as we have just heard. Will this Government be continuing the previous Government’s work in underpinning that lead through long-term investment? In particular, can the Minister assure me that the Newton Fund, which links research scientists in the United Kingdom with those in developing countries, will not be scaled back?
Lord Prior of Brampton
I can assure the noble Baroness that this Government are fully committed to supporting our life sciences industry. I will look into her specific question on the Newton Fund and write to her directly.
Lord Patel (CB)
Following on from the Question from the noble Lord, Lord Crisp, does the Minister agree that, given the predicted growth of about 15% in the healthcare needs of countries such as India and China, we have a great opportunity not only to promote education but to develop health expertise? Does he agree that we need to have a stronger relationship with these countries in health?
Lord Prior of Brampton
I completely agree with the noble Lord. According to the report, health spending is likely to increase by 8% per annum in Asia for the foreseeable future and by some 5% in the rest of the world. This is a huge opportunity. The NHS is arguably the best-value healthcare system in the world, and the many lessons we have learnt since 1948 will be valuable when we go overseas.
Lord Judd (Lab)
Does the noble Lord agree that as part of carrying forward the excellent report to which the noble Lord, Lord Crisp, has referred, it is essential to take into account the lessons learnt from the Ebola episode in Sierra Leone, and to ensure that the World Health Organization has adequate resources to give muscle to its work, and to co-ordinate the work of other departments and aspects of government that are essential in preparing for such epidemics?
Lord Prior of Brampton
The Ebola crisis was indeed a wake-up call. There is no doubt that the leading role we play in the WHO is hugely important, so I agree fully with the noble Lord. The work we are doing on antimicrobial resistance is another example of the very important role the WHO can play, as does our Chief Medical Officer, Sally Davies.
Lord Kakkar (CB)
My Lords, I declare my interest as chair of University College London Partners and an officer of the all-party group. This report identifies that our country is No. 1 among the G7 nations in terms of the impact of its medical research, as judged by citation impact. How do Her Majesty’s Government propose to ensure that the NHS continues to develop the foundation for that medical research impact?
Lord Prior of Brampton
The noble Lord raises an interesting point. Not only are there more citations of research conducted in Britain, but we co-operate with other countries far more than any other country. We also have in the BMJ, the Lancet and Nature the three leading medical and science magazines. The Government are determined to maintain Britain’s position as one of the leading medical research and life sciences nations in the world, and will carry on supporting that industry.
Schools: Free Schools
(9 years ago)
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Baroness Massey of Darwen
To ask Her Majesty’s Government how many free schools at primary and secondary levels were open at the beginning of this school year, how many are expected to open during the 2015-16 school year, and how free schools will be monitored and evaluated.
The Parliamentary Under-Secretary of State, Department for Education (Lord Nash) (Con)
My Lords, there are 304 open free schools, including 118 primaries, 123 secondaries, 19 special schools and 32 alternative-provision free schools. This figure includes 52 free schools that have opened so far this academic year, incorporating 23 primaries, 15 secondaries, seven special schools and four alternative provision schools. In addition, we expect one further all-through alternative provision school to open this academic year. Free schools are inspected by Ofsted and monitored by departmental educational advisers, the Education Funding Agency and regional schools commissioners.
Baroness Massey of Darwen (Lab)
I thank the Minister for that comprehensive response. I return to the issue of monitoring. Will the Minister comment on the recent tables which show that this year the number of year 11 pupils in free schools achieving five A to C grades in GCSE, including English and maths, lagged behind the number in local authority schools by 5%? Would the Minister class those schools as “coasting”?
Lord Nash
I would not class them as coasting. It is a very small sample. They are a long way short of coasting. Twenty-six per cent of free schools have been judged outstanding, which makes them by far our highest performing group of non-selective state schools. Free schools are monitored by Ofsted, like all other schools, and the EFA. They have much tighter financial oversight than local authority-maintained schools because they have annually to publish audited independent accounts, and regional schools commissioners also monitor them.
Baroness Sharples (Con)
Can my noble friend say what percentage of children entering school have English as their second language?
Lord Storey (LD)
My Lords, of free schools that provide alternative provision, five have funding of £100,000 per pupil and 18 have £59,000 per pupil. That contrasts with local authority schools, which have only £22,000 per pupil. Has any analysis or evaluation been done about the different provision? Does the Minister think we are getting value for money in the funding of special education and alternative education?
Lord Nash
I assure the noble Lord that we are very focused on value for money. Those figures are very deceptive because quite a few pupils in alternative provision are on the register of the school, so it appears as though there are fewer pupils in the alternative provision school. Pupils in alternative provision get much higher funding, as they do in pupil referral units run by local authorities, so the figures are quite confusing.
Lord Watson of Invergowrie (Lab)
My Lords, it has been decided that new free schools will now be inspected in their third year of operation rather than in their second, although it is not clear whether that is due to funding cuts to Ofsted or perhaps, given that around 25% of them are deemed to be underperforming, it is to save the DfE from further embarrassment. Will the Minister explain how this new decision will help to ensure that underperforming free schools are identified and their failings addressed as soon as possible?
Lord Nash
This is to bring free schools in line with all other new schools, which are inspected in their third year in the same way. Of course, free schools are monitored closely by education advisers in their early years and, as I already said, by the regional schools commissioners.
Lord Lexden (Con)
Is the free schools programme helping to improve social justice and boost social mobility in our most deprived areas?
Lord Nash
There is no question that that is the case. About half of free schools are in the most deprived areas in the country. In the last five rounds, 93% of them have been in areas where there was a forecast shortage of places and a large number of our top academy sponsors, who are particularly focused on underprivileged children, have entered the free school movement.
Baroness McIntosh of Hudnall (Lab)
My Lords, the term “free school” obviously implies freedoms that do not apply to other kinds of school. Can the Minister assure the House that free schools do not have the liberty to withhold from their pupils in any circumstances a range of options in the curriculum that would be expected to be offered to children in other types of school? I think, for example, of subjects such as arts and music.
Lord Nash
I assure the noble Baroness that all schools are expected to have a broad and balanced curriculum. Certainly on my visits around free schools I see a very wide curriculum. If the noble Baroness would care to accompany me on a number, I am sure I could satisfy her on this point.
Lord Foulkes of Cumnock (Lab)
My Lords, will the Minister declare whether he has any interests in this matter?
Housing: London
Lord Kennedy of Southwark
To ask Her Majesty’s Government what action they are taking to address the shortage of housing in London.
The Parliamentary Under-Secretary of State, Department for Communities and Local Government (Baroness Williams of Trafford) (Con)
My Lords, responsibility for housing in London has been devolved to the Mayor and the GLA, in line with this Government’s commitment to give local areas control over their development and growth. We work closely with London Councils and the GLA on increasing housing supply in London. Total funding to the GLA for affordable housing in London across 2015 to 2018 is nearly £1.5 billion, delivering 43,000 affordable homes under the programme.
Lord Kennedy of Southwark (Lab)
My Lords, in the last five years the Government have failed to tackle the housing crisis in London: the number of people owning their own home in the capital is now below 50%; the number of private renters has gone up by 800,000; and there are the lowest levels of peacetime housebuilding since the 1920s and a 79% increase in rough sleepers. When are the Government going to take some real action to deal with the crisis? They have had five years to deal with it so far. Their record is poor. Urgent action is needed.
Baroness Williams of Trafford
My Lords, I cannot agree with that statement. More council housing has been built since 2010 than in the 13 years of the last Labour Government. There have been more council housing starts in London than in the 13 years of a Labour Government, and there have been 800,000 more homes built in England since 2009—260,000 affordable homes delivered since 2010.
Lord Tope (LD)
My Lords, given that average earnings in the capital now are just under £28,000 a year and given that research shows that in order just to get a foot in the property market in London needs an annual income of somewhere around £77,000 a year, what is the Government’s estimate of the number of people who will access starter homes in the capital?
Baroness Williams of Trafford
My Lords, there will be 200,000 starter homes in total built. That is our aim. Of course the answer to demand in the capital is to provide supply.
Lord McKenzie of Luton (Lab)
My Lords, how do the Government view the fact that one impact of the housing shortage in London is that London boroughs are relocating families away from London and away from the communities and services they know, which puts pressure on receiving authorities in respect of their housing provision and services? I refer to places such as Stevenage, Milton Keynes and, of course, Luton.
Baroness Williams of Trafford
My Lords, the noble Lord brings up a very important point, but of course London authorities have always done that. The important thing is to make sure that fewer families have to reside in temporary accommodation, and we have made sure that that is the case.
Baroness Meacher (CB)
My Lords, will the Minister accept that one of the biggest problems relating to the welfare bill is the huge cost of housing benefit? This country will never get that cost down until we tackle the terrible shortage of land for housebuilding. We have vast areas of green belt. Will the Minister consider allocating 10% of the green belt to housebuilding in order to rack down rents and reduce the housing benefit bill?
Baroness Williams of Trafford
My Lords, the Government are very clear that the green belt should be protected. However, as the noble Baroness will know, this Government are very committed to right to buy and to unlocking brownfield sites, with the brownfield register being available from councils, and we will put £1 billion into the brownfield fund. I have talked about starter homes and other affordable homes.
Lord Campbell-Savours (Lab)
My Lords, why are the Government supporting a reduction in the percentage of the social housing contribution in London planning permissions?
Baroness Williams of Trafford
My Lords, I think it is up to local authorities to decide what types of tenure they provide for the people who live in their localities.
Lord Elton (Con)
My Lords, I understand that developers have a very large amount of buildable-on land held, as it were, in a land bank and awaiting changes in the economic climate. What consideration is given by the Government to bringing pressure to bear and getting this land released so that the price of housing goes down?
Baroness Williams of Trafford
My Lords, the problem of land banking and not building on land that has permission is very serious and, yes, the Government are putting on pressure to get those starts moving.
Baroness Lister of Burtersett (Lab)
My Lords, further to the question from my noble friend Lord McKenzie, what steps are the Government taking to monitor the numbers who have to leave London because they can no longer meet the cost of housing there, as well as monitoring the impact on families who are uprooted into new communities?
Baroness Williams of Trafford
My Lords, I cannot answer that question at this point but I can provide a note for the noble Baroness.
Lord Green of Deddington (CB)
My Lords, does the Minister agree that it is high time that we paid as much attention to demand for housing in London and Britain as to supply? Can she say when the Government will publish an estimate of the increase in households without immigration—something that has not been done for five years?
Baroness Williams of Trafford
I cannot answer the former part of that question but, in terms of the latter part, the Government are certainly keen to ensure that landlords know that their tenants have a right to be in the houses that they are renting. Therefore, we are cracking down on this and obliging landlords to ensure that the person tenanted in their house has a right to be in this country.
Baroness Hussein-Ece (LD)
My Lords, does the noble Baroness accept that the Government’s policy of selling off social housing held by housing associations will further diminish the level of affordable and social housing? Does she not think that selling off housing association properties is, in effect, nationalising charitable assets?
Baroness Williams of Trafford
My Lords, housing associations that have a charitable purpose will be exempt from that policy. However, under our new, invigorated right to buy policy, we intend to replace every house sold with a new home.
Baroness McIntosh of Hudnall (Lab)
My Lords, would the noble Baroness care to reconsider the answer that she gave my noble friend Lord Campbell-Savours? Viewed from some perspectives, there is no housing shortage in London: flats are being thrown up all over the city. However, they are being sold off at enormous prices and then left empty. Does she really think that in these circumstances it is appropriate to give—if I may say so without offence—what is more of a shrug-of-the-shoulders response on the subject of planning permission?
Baroness Williams of Trafford
My Lords, I hope that I did not give the impression of a shrug of the shoulder. If one were to walk around certain parts of London, one may well be forgiven for thinking that many of the houses—certainly in certain parts of central London—were bought but not lived in. In fact, I understand that that rate has gone down; about 2% of all housing in London is not lived in. However, affordable starter homes, particularly for those in the age group that has found it difficult to get on the housing ladder, are a very good way forward.
Lord Forsyth of Drumlean (Con)
My Lords, could my noble friend take account of the question that was asked by the noble Lord, Lord Green, on the need for statistics to be published that give us an indication of the increased demand arising from immigration? Is this not something that the Government should tackle?
Baroness Williams of Trafford
I certainly do take note of it and will take that back and see whether any such figures are available.
Baroness Williams of Trafford
My noble friend has foxed me: I do not know whether we have a million empty dwellings. What I do know is that the empty dwelling rate has gone down.
Modern Slavery Act 2015
(9 years ago)
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Baroness Kennedy of Cradley
To ask Her Majesty’s Government what is their assessment of the readiness of companies and other organisations for the coming into force of the Modern Slavery Act 2015.
The Minister of State, Home Office (Lord Bates) (Con)
My Lords, we will be bringing Section 54 of the Modern Slavery Act into force later this week. Many businesses called for this provision, and we consulted on a turnover threshold and involved business in drafting associated guidance. The Government are confident that businesses will be ready. We have included a transition provision so that organisations will have time to digest the guidance before the first statements are due on 31 March 2016.
Baroness Kennedy of Cradley (Lab)
I thank the Minister for that reply. It was disappointing to read in last week’s debate that the Government now have no intention of launching an online central repository for the annual slavery and human trafficking statements but are hoping that an external provider will fulfil this role. Can the Minister confirm that this is the case and, if so, outline what the Government are doing to encourage an external provider to come forward, what guidelines and assistance will be provided to the external provider and whether, in the future, the Government plan to analyse on an annual basis information submitted via these statements?
Lord Bates
When we had the debate on the regulations, the noble Lord, Lord Alton, raised this issue. I am confident that we will have an online repository in place. I totally agree with the noble Baroness that it is very important. Following the consultation, one of the consequences of setting the threshold at the lower end of the spectrum—at £36 million turnover—was to capture more companies in that. Therefore, it is a bit more of a challenge. However, we are considering a number of proposals that have been brought forward. I very much believe that, by the time this comes into force, we will have such a repository.
Baroness Afshar (CB)
My Lords, are the Government aware that the majority of those who are working under slave conditions are working for private, family companies? It is essential that there is a way of finding out how young women in particular are driven into slavery without any human rights being respected.
Lord Bates
I think that is right. There are two measures involved here. First, the new Immigration Bill will have a big focus on labour market enforcement, which will help in that regard. Also, if a private, family business has a turnover above £36 million, they will have to produce a statement saying what steps they are taking to eradicate modern-day slavery from their supply chain. These are all steps down the line. However, essentially, we need to also encourage more people who are victims to come forward and identify those employers so that they can be prosecuted.
Baroness Doocey (LD)
My Lords, do the Government share my concern that, despite the Modern Slavery Act, Eurostar has still not put in place a system which ensures that unaccompanied children are escorted to and from their trains and are supervised during the journey? Is not the absence of such basic safeguards putting children at unnecessary risk from child trafficking?
Lord Bates
I am certainly very happy to look into that further, if that is the case. Additional guidance has now been provided to Border Force enforcement officers to spot children coming into the country unaccompanied, or, for that matter, leaving the country. This is something that we need to look at very carefully. I will look into it and get back to her.
Lord Rosser (Lab)
My Lords, last Monday, the Minister said that he believed that “imminently, if not already” a question relating to the compliance of supply chains under the Act in respect of its modern slavery conditions was being inserted into the cross-government procurement policy. Could the Minister now say definitely what the position is in this regard? Could he say whether the Government will produce regular statements, in line with the requirements for the private sector, on the steps they have taken to ensure that their own business and supply chains are slavery-free, and, if so, will it be a cross-government statement or will there be separate departmental statements?
Lord Bates
There is an interdepartmental ministerial group on modern slavery, which meets and publishes quarterly reports—it published one just last week on its work on supply chains. The Home Office as it should, is ensuring that we lead by example across government in respect of supply chains. Of course, that question is going to be there in the checklist. It is there in a lot of cases already in departments, where they have obligations under human rights legislation to ensure that they check the status of people who are in their supply chain. We will continue to monitor that, and we will certainly continue to report on it.
Baroness Manzoor (LD)
My Lords, there is some research saying that nearly 50% of children who are going on to detention centres go missing within their first 48 hours within Europe. What are the Government doing to ensure that these children are not being trafficked?
Lord Bates
I had not seen a report of that, but if the noble Baroness would draw it to my attention, I will certainly make sure that we follow up on it, because that is a crucial gap in the system if that is happening. I am sure that that is not happening in UK detention centres, but if she shares the information, I will ensure that it is thoroughly investigated.
Lord Harris of Haringey (Lab)
The noble Lord’s own department has produced figures estimating that there are up to 13,000 victims of modern slavery in the country. Given the enormous workload in terms of enforcement, in terms of the work with private businesses and in terms of the work internationally in trying to reduce the flow of trafficked people into this country, is the Minister satisfied that, with a team of staff that is only going to reach seven, the Anti-slavery Commissioner has the resources necessary to carry out this important work?
Lord Bates
The noble Lord will be aware that, last week, the Anti-slavery Commissioner produced his report—his strategy document—as he was required to do under the Act. He has set a very clear measure as to where he is focusing: the identification of victims, and the need to encourage prosecutions. As a former police officer, he is well placed to do that. In a lot of cases, it is not a resource question; it is an issue of will and intelligence to identify those people who are at risk to ensure that the perpetrators are tackled and those who are victims are helped.
Lord Kennedy of Southwark (Lab)
My Lords, I just want to say that I should have declared that I am a local councillor when I asked my Question earlier on. I apologise and declare it now.
European Union Referendum Bill
(9 years ago)
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Baroness Anelay of St Johns
That it be an instruction to the Committee of the Whole House to which the European Union Referendum Bill has been committed that they consider the bill in the following order:
Clauses 1 and 2, Clause 5, Clause 3, Schedules 1 to 3, Clause 4, Clauses 6 to 12, Title.
Childcare Bill [HL]
(9 years ago)
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The Parliamentary Under-Secretary of State, Department for Education (Lord Nash) (Con)
My Lords, I would like to take this opportunity to express my thanks to noble Lords for their support, challenge and dedication throughout the passage of this Bill. I very much appreciate the expertise that Peers have brought to the House on the complex subject of childcare, and I hope noble Lords feel that I have listened to concerns raised and addressed them appropriately. I particularly would like to thank the noble Baroness, Lady Jones, who has provided strong and heartfelt opposition on this Bill, and I greatly appreciated working with her on the education brief over the last Parliament. I will miss her on the education brief, and I wish her well with her new one. I will, of course, be keeping noble Lords up to date with the progress of the Bill, and am committed to holding a meeting on the funding review following the spending review. I look forward to working with noble Lords on the Education and Adoption Bill.
Baroness Jones of Whitchurch (Lab)
My Lords, I thank the Minister for making time available during the passage of the Bill and outside of the official process to meet with noble Lords on a number of occasions. It was very much appreciated and helped to clarify a great many issues. I also thank the Bill team for their sterling efforts in producing a Bill at short notice and in difficult circumstances. The Bill is leaving this place in a better shape than when it arrived, suitably amended but with many questions still unanswered, so I look forward to hearing about further positive progress when the Bill is considered in the Commons and in other meetings that the Minister may be organising, so that we can achieve our shared and important goal of increasing free childcare for working parents.
Tax Credits (Income Thresholds and Determination of Rates) (Amendment) Regulations 2015
(9 years ago)
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19:04 - Division on Baroness Manzoor’s amendment. - Ayes: 99 / Noes: 310 - Baroness Manzoor’s amendment disagreed.
19:22 - Division on Baroness Meacher’s amendment - Ayes: 307 / Noes: 277 - Baroness Meacher’s amendment agreed.
19:40 - Division on Baroness Hollis of Heigham’s amendment - Ayes: 289 / Noes: 272 - Baroness Hollis of Heigham’s amendment agreed.
Baroness Stowell of Beeston
That the draft regulations laid before the House on 7 September be approved.
Relevant documents: 4th Report from the Joint Committee on Statutory Instruments, 9th Report from the Secondary Legislation Scrutiny Committee
The Lord Privy Seal (Baroness Stowell of Beeston) (Con)
My Lords, I will come shortly to the Motion before the House today, but before I do, I should briefly address why the Motion is standing my name. In the past few days, we have seen unprecedented focus on the passage of secondary legislation through this House. The further the debate has evolved, the more it has taken on a new dimension—a debate concerning our responsibilities as a House and how we want to discharge them. While I will now turn to the substance of the instrument before us, I will later come on to the context for the decisions before us today.
The regulations before the House cannot be viewed in isolation. They were part of the Chancellor’s Budget in July and form part of our wider economic strategy and vision for the future of our country. In the last Parliament, we made significant progress: through a combination of savings and growth, the deficit halved as a share of GDP, investment in our schools and the NHS increased and more than 2 million jobs were created. But our deficit is still too high and our debt, as a share of GDP, is at the highest level since the late 1960s.
In the months leading up to the general election and in our manifesto, my party made it clear that reducing the deficit would involve difficult decisions, including finding savings of £12 billion from the welfare budget. The regulations that we debate today deliver no less than £4.4 billion of those savings next year alone. But these reforms are about more than just savings; they are about delivering a new settlement for working Britain—more people in work, with better wages, keeping more of the money that they earn. The quickest and surest way for people to feel secure and able to succeed is a good job that pays well.
This Government have created 1,000 jobs every single day since 2010—1,000 more people each day with the security of a job and a wage. We have raised the personal allowance so that people keep more of what they earn. By next April, more than 27 million basic rate taxpayers will be paying less tax, with a typical taxpayer benefiting by £825 per year. We will go on raising the personal allowance until it reaches £12,500, so that those on the national minimum wage will pay no income tax at all. We will introduce a national living wage, raising the minimum pay for a full-time worker by £900 from next April and by nearly £5,000 by 2020, benefiting 6 million people with the upward pressure that it will apply on wages. I am glad to say that more than 200 firms, including some of our biggest employers, have announced that they intend to pay staff at or above the national living wage before it comes into effect.
We are supporting working families with their childcare needs, too, as we have just heard. We have already brought in 15 hours of care for the most disadvantaged two year-olds and we are doubling free childcare for working families for three and four year-olds— worth around £5,000 per child per year. But if we are to deliver that settlement in a way that is sustainable, reform to our system of tax credits must play its part. We have a situation where too many families are on low pay, and so, to make ends meet, the state has had to top up those wages with tax credits.
Lord Campbell-Savours (Lab)
My Lords, I ask the noble Baroness to answer my question directly, and not give me a tangential answer. When the Prime Minister said at the last general election that an incoming Conservative Government would not cut tax credits—child tax credits—was he telling the truth or was he deliberately misleading the British people? Let me have a direct answer to my question.
Baroness Stowell of Beeston
My Lords, we were very clear in the general election and in our manifesto that we would be introducing welfare savings of £12 billion and that these would be directed at working-age benefits. What we also did at the same time was promise a package of measures to support working families—a new settlement for the people of this country, so that they would continue to be better off in work and would continue to prosper. That is what we were very clear about in the general election campaign. That is what we were elected to deliver for the people of this country.
Secondly, the SI before us will increase the taper rate from 41% to 48%. This will mean that the rate at which tax credits are withdrawn will increase, but we will do so in a measured way with a gradual taper, which will still ensure that those on tax credits who work more will always take more pay home. Finally, it will reduce the income rise disregard, the in-year increase to an individual’s pay that can take place before their tax credit reward is recalculated, from £5,000 to £2,500—bringing it to a 10th of the rate it stood at when we came to power in 2010.
A sustainable economy which reduces inequality and provides opportunity for all means making choices. There are no easy options, but what we try to do is carefully balance spending and taxation decisions so that the richest pay the most towards services that are so vital to everyone, and the climate is right for everyone to seize opportunities to get on and to be successful. The Government’s job is to manage that in the fairest way while delivering the most important thing of all for working people: economic security and sound public finances.
The Government believe that as part of the overall package of measures that support working people, these changes to tax credits are right. If we want people to earn more and to keep more of their own money, we simply cannot keep recycling their money through a system that subsidises low pay. That is the Government’s case for these changes. But with the amendments we are due to consider, there are broader questions at stake, too, about our role in scrutinising secondary legislation and about the financial primacy of the other place.
I know that Members of this House on all Benches take their responsibilities very seriously and are committed to ensuring that the House fulfils its proper role, so let me be very clear. We as a Government do not support any of the amendments tabled to the Motion in my name, but I am also clear that the approach the right reverend Prelate takes in his amendment, by inviting the House to put on the record its concerns about our policy and calling on the Government to address them without challenging the clear and unequivocal decision made in the other place, is entirely in line with the long-standing traditions of your Lordships’ House.
The other three amendments take us into quite different and uncharted territory. All three, in the names of the noble Baronesses, Lady Manzoor, Lady Meacher and Lady Hollis, if agreed to, would mean that this House has withheld its approval of the statutory instrument. That would stand in direct contrast to the elected House of Commons, which has not only approved the instrument but reaffirmed its view on Division only last week. It would have the practical effect of preventing the implementation of a policy that will deliver £4.4 billion of savings to the Exchequer next year—a central plank of the Government’s fiscal policy as well as its welfare policy. It is a step that would challenge the primacy of the other place on financial matters.
I have been to see the Chancellor this morning at No. 11, and I can confirm that he will listen very carefully were the House to express its concern in the way that it is precedented for us to do so, and that is on the right reverend Prelate’s amendment. But this House will be able to express a view on that amendment only if the other three amendments on the Order Paper are rejected or withdrawn.
Lord Tyler (LD)
My Lords, the Leader of the House has given us the impression that there is some convention that prevents your Lordships’ House from voting on these amendments. I would ask her to look again at the report of the Joint Committee on Conventions entitled Conventions of the UK Parliament, which states clearly in paragraphs 227 and 228 that it is perfectly in order for your Lordships’ House to take a view on a statutory instrument of this nature and so,
“we conclude that the House of Lords should not regularly reject Statutory Instruments, but that in exceptional circumstances it may be appropriate for it to do so … The Government appear to consider that any defeat of an SI by the Lords is a breach of convention. We disagree”.
Your Lordships’ House and the other place approved the recommendations of the Joint Committee. If the Chancellor had wished to introduce a tax credit amendment Bill, he could of course have used the usual procedure and avoided the embarrassing situation that the Leader of the House is now outlining. He took a short cut to avoid debate, and he has now got the consequences.
Baroness Stowell of Beeston
My Lords, let me be absolutely clear. Any of the amendments that have been put down today, with the exception of that in the name of the right reverend Prelate, would mean that this House has not approved a statutory instrument which the House of Commons has approved and voted on three times. As I have already said, we would be challenging the primacy of the House of Commons on financial matters.
The right reverend Prelate’s amendment gives this House the opportunity to express its view in a way that accords with our conventions. The noble Lord, Lord Tyler, made various specific references. I say to him and to the House as a whole that the parent Act from which this statutory instrument is derived, which was brought forward by the Labour Government, made clear that amendments to tax credits should be introduced via secondary legislation. We are following that procedure. Indeed, after the Tax Credits Act was passed, other amendments to it were brought forward in the last Parliament, while we were in coalition government, exactly in the way that was expected.
The key fact is that there are conventions that apply to secondary legislation. The noble Lord, Lord Tyler, is right to refer to the Joint Committee’s report. But in addition to what he quotes, that report also made it clear that,
“opposition parties should not use their numbers in the House of Lords to defeat an SI simply because they disagree with it”.
The key point I make to the noble Lord is that we are in an unprecedented situation, because the kind of primary legislation conventions that he refers to that allow the other House to enter into a dialogue with us just do not occur in secondary legislation.
We have a choice. We must choose whether to accept or reject this statutory instrument. Right now, it is absolutely clear that if we withhold our approval for this statutory instrument, we will be in direct conflict with the House of Commons.
Lord Richard (Lab)
With respect to the amendments in the names of my noble friend Lady Hollis and the noble Baroness, Lady Meacher, does the Leader accept that neither of them is fatal to the resolution? Does she accept that?
Baroness Stowell of Beeston
No, I do not accept what the noble Lord says. As I have already said, those amendments withhold this House’s agreement—its approval—from a statutory instrument that has already been approved by the House of Commons. They withhold this House’s approval from something that has already been approved by the other place. The noble Lord makes the perfectly fair point that this House has the power to defeat secondary legislation, but it does so very rarely. It has done so only five times since the Second World War, and it has never done so on financial secondary legislation. Although noble Lords have been able to table today’s amendments, it is up to us as a House to consider whether we regard the financial primacy of the House of Commons as vital to the continuing constitution of this country and the way in which Parliament operates. That is the important point here.
Lord Forsyth of Drumlean (Con)
The leader of the Liberal party described this House as,
“a system which is rotten to the core and allows unelected, unaccountable people to think they are above the law”.
Does my noble friend think that the Liberals wish us to vote for their Motion in order to prove their leader right?
Baroness Stowell of Beeston
What I do know, and I really feel this sincerely, is that noble Lords take their responsibilities very seriously. We are in an unprecedented situation. We either believe in the financial primacy of the other place, as has been in place for well over 300 years, or we do not.
There is a way for this House to express its view on the policy. It would be absolutely within this House’s proper function and responsibility to do that by supporting the right reverend Prelate’s amendment should it choose to. However, if the House decides to accept any of the other amendments we will be withholding this House’s approval for something that the other place has already approved.
Lord Wills (Lab)
I think I understood the noble Baroness correctly when she said a few moments ago that she accepted that there were circumstances in which this House could withhold approval of a statutory instrument. However, she said that that should not be on the grounds simply because this House disagrees with it—I think I am quoting her directly. Can she therefore say in what circumstances she thinks it appropriate for this House to withhold such approval?
Baroness Stowell of Beeston
When I quoted that from the Joint Committee on Conventions’ report, the point I tried to emphasise was that it is rare for this House to disagree to any piece of secondary legislation. The Joint Committee made it clear that, because it is very rare and because the Government are rarely in a majority in this House, it would be inappropriate for this House to vote down a piece of secondary legislation just because the opposition parties have the numbers to do so and do not approve of that measure. My point is that this situation invokes something that we have not seen before: noble Lords have tabled amendments that would prevent this piece of secondary legislation leaving this House and being approved. If the House were to do that—if it were to completely reject it outright or to withhold it—we would be challenging the financial primacy of the other place.
Lord Pearson of Rannoch (UKIP)
My Lords, would the noble Baroness answer the question asked by the noble Lord, Lord Richard? Does she agree that the Motions in the names of the noble Baronesses, Lady Meacher and Lady Hollis of Heigham, are not fatal Motions?
Baroness Stowell of Beeston
I am not defining them in such a way because they have not been defined in such a way by this House. They are amendments that are quite unique. They mean that this House will start setting conditions and making demands on the Government, and acquiring for itself powers as far as how it considers a matter that has already been decided and approved by the other place—a statutory instrument to the value of £4.4 billion. That is what makes this situation so different: we are challenging the primacy of the other place on a matter of finance.
Amendment to the Motion
Baroness Manzoor
As an amendment to the above Motion, to leave out all the words after “that” and insert “this House declines to approve the draft regulations laid before the House on 7 September”.
Baroness Manzoor (LD)
My Lords, there has been a lot of discussion in the run-up to this debate about the role of this House in debating statutory instruments. I know that many noble Lords will wish to pick up on the constitutional role of the House. We have already started to see some of those points being made.
I do not discount the strength of feeling on the issue of whether this House should seek to reject the views of the elected Commons, but I want to be clear about what we are talking about today. We are talking about a measure that, according to the expert analysis of the Institute of Fiscal Studies, will hit 3 million low-income working families. These are people doing the right thing: going out to work and trying to make ends meet. They are exactly the kind of people whom the Government have said they want to help. Yet this change will have a seriously damaging impact on their ability to keep their heads above water. These families will, according to the IFS, lose an average of around £1,000 a year. For many people on low incomes, that will mean the difference between being able to continue to pay to heat their homes, pay their rent and feed their families and not being able to do so. In total, 4.9 million children will be directly affected by the change. Almost a quarter of single parents living in the UK will see their incomes cut.
Yet the Government continue to ignore the overwhelming consensus among charities such as the Children’s Society and Gingerbread—I could name many others, including taxation experts and even their own Children’s Commissioner—that these changes need to be reconsidered. It is no surprise that the Low Incomes Tax Reform Group—by no means a leftie organisation—has said that the impact of these changes,
“on the majority of tax credit claimants will be devastating”.
The problems with the Government’s proposals go far wider than those directly affected. They will also have a huge impact on the important principle—that this Government claim to support—that work should always pay more than a life on benefits. Evidence from the Social Market Foundation suggests that someone earning the average wage for those living in social housing of £8.08 an hour will see the benefits of earning wiped out almost entirely. Because of the way the so-called taper rate interacts with taper rates applied to other benefits including local Council Tax benefit, the marginal deduction rate—the rate at which benefits are withdrawn—will be 93%. That means that for every pound a person earns by going out to work—by taking on extra hours in order to improve their lives—they will keep only 7p.
Liberal Democrats in the coalition Government fought for universal credit. We fought alongside the Conservatives for the “make work pay” agenda. The Government’s proposals run utterly counter to this philosophy. Such a fundamental change in the Government’s approach should be challenged every step of the way.
Lord Cormack (Con)
My Lords, 104 years ago, a Liberal Government decided that this House should not have jurisdiction in budgetary matters. The noble Baroness speaks for a party which has a disproportionate strength in this House. She and her party believe in proportion. They also believe in the supremacy of the House of Commons. How does she square the various points I have just made with the speech that she is making and the vote that she is seeking tonight?
Baroness Manzoor
I thank the noble Lord for that intervention. I will come to that point and address it in the best way that I can.
I will pick up briefly on the speech made in moving the Government’s Motion by the Leader of the House. I do not discount her views but the overwhelming evidence is that these measures will do real damage.
However, I want to express my disappointment that this debate is not being led by the noble Lord, Lord O’Neill. This set of regulations relates to measures brought forward by the Treasury. It is right that such regulations should be promoted and defended by the Minister from the department responsible, whenever possible. As I said at the start of my speech, while much has been made of the constitutional issues surrounding the Motion, it is ultimately about the impact of the measures on the families affected. The Leader of the House does an excellent job in representing this House outside the Chamber, and in defending the Government’s position on the role of the House inside it, but this Motion is not about those things. It is about tax credit changes and it is reasonable for the House to expect the Treasury Minister to answer its concerns.
Fatal Motions on regulations should be used incredibly sparingly. I wish that we were not in this position but I cannot think of a better reason for this House to use such an option than the lives of 4.9 million children and the parents who go out to work to support them. I have tabled this fatal Motion for a simple reason: when all is said and done, and when the constitutional debate about the role of this House is over, I want to be able to go home this evening knowing that I have done everything I could to stop this wrong-headed and ill-thought through legislation, which will have such a damaging and devastating impact on millions of people’s lives.
We have a duty in this House to consider our constitutional role but we also have a duty to consider those affected by the decisions we make and the votes we cast. Were there another way for this House to reject this proposal and send it back to the Commons to reconsider, I would be all for doing so. Some people have said to me that this is a budgetary measure—indeed, the Leader of the House said so, too—and therefore not within our competence. Were that true, the Government had an opportunity to put these changes into the Finance Bill rather than to use an affirmative statutory instrument, a measure that this House is explicitly asked to consider and approve by the primary legislation from which it stems.
I have been told by many that a fatal Motion is too blunt an instrument. If that were the case then the Government could have placed this measure in the Welfare Reform and Work Bill, which is coming to your Lordships’ House in due course, giving this House the opportunity to amend the proposal and suggest alternatives, but they have chosen not to pursue that course either. So we are left with a statutory instrument, a tool designed for minor changes to processes and administration, being used to implement a substantial change in policy that will affect millions of people’s livelihoods. That is not my decision but I hope that we will do everything we can to stop it.
I want to turn briefly to the other Motions in the names of the noble Baronesses, Lady Meacher and Lady Hollis, and the right reverend Prelate. I am sure that they will speak on their own Motions in detail, so I do not want to dwell on them. However, to be clear, I support all those proposals. It is right that the Government should delay these measures to properly respond to the serious challenges put by the IFS, as the noble Baroness, Lady Meacher, suggests. It is also right that the Government should not make these changes unless there is transitional protection, as the noble Baroness, Lady Hollis, proposes. Fundamentally, however, these are sticking plasters on the wound. Transitional protection will help many of those who will see an immediate cut to their tax credits next April but would do nothing for those who become eligible for tax credits this time next year. If the Government succeed in meeting their employment target then we will see more people in part-time work, which is a great thing, but these people will need tax credits. If they meet their noble and worthy aim of increasing the number of disabled people in employment, that is likely to mean more people in flexible working arrangements whose income may need to be supplemented by tax credits. These people would not be protected by transitional protection. That is why, although I support and will vote for the amendment in the name of the noble Baroness, Lady Hollis, I believe that we need to go further.
I have no doubt that this House could spend many hours debating our constitutional role. I and all those on these Benches—
Lord Grocott (Lab)
Does the noble Baroness not acknowledge that there is at least a certain irony in that, for five of the last five and a half years, her party gave strong support to the Cameron-Osborne Government? Now that Messrs Cameron and Osborne come forward with a proposal that they do not like, they are suggesting that the right course of action is a somersault. Would it not have been a lot easier, and maybe a lot more principled, if she and her colleagues had decided to bring down this Government a lot earlier?
Baroness Manzoor
I thank the noble Lord for his intervention. He is right to raise that point and quite right to ask that question. As I understand it very clearly, we did veto these proposals.
I have no doubt that this House could spend many hours debating our constitutional role. I, and all those on these Benches, take our role very seriously and will continue to push for reform that means that this House has real accountability to the electorate. But this debate is not about that. This is about putting to rest an issue which is of immense—
Baroness Browning (Con)
Will the noble Baroness just reflect on the fact that, in terms of accountability to the electorate on this matter, people who have stood for public office and have been accepted and elected to another place have the mandate? They, and only they, have that mandate on this subject. Although we in this House work very hard in order to reflect our views, so that the other place can take advantage of them, the noble Baroness is going just a bit too far in assuming that she has a mandate.
Baroness Manzoor
I do assume that this House has a mandate. We are back to the constitutional role of this House.
I will continue, because some answers have been given to that, and more will be given as we talk more about the role of this House. We want to put to rest an issue that is of immense concern to millions of people up and down the country. If the Government wish to withdraw their regulations, we can avoid this impasse. Sadly, I do not think that the Minister—for whom I have the utmost respect—is empowered to make such a choice. It is therefore right that this House perform its duty and stand up against a poor decision made in the Commons. What the Government do after that is up to them. But I and my colleagues are clear: it is time for this Government to think again. I beg to move.
The Lord Speaker (Baroness D'Souza)
I should inform the House that if this amendment is agreed to, I cannot call any of the other amendments to the Motion on the Order Paper by reason of pre-emption.
Baroness Meacher (CB)
My Lords, I rise to speak to the amendment that stands in my name on the Order Paper, which would defer consideration of the tax credit regulations. I pay tribute to other noble Lords who have tabled amendments to these regulations today, but I should explain to the House that I told the noble Baroness, Lady Manzoor, that I had come to a settled view that tabling a fatal amendment in this House was a step too far. The purpose of this amendment is to support the democratic process and to avoid impeding it.
The House of Commons will have a cross-party debate and a vote on these issues on Thursday. I understand that at least eight Conservative MPs have put their names to Thursday’s Motion. It seems, therefore, that the Government no longer have a majority in the House of Commons for the planned cuts as they stand. If we approve the Regulations today, the Commons debate will have been pre-empted. This would undermine the democratic process. If, however, the elected House supports the Government—contrary to my expectations, I have to say—and the Government present a report to your Lordships’ House responding to the Institute for Fiscal Studies analysis, I am sure that I and others will support these Regulations. This will not necessarily be because we agree with them—I most certainly do not—but because we respect the democratic process and the limits of the duties of this wonderful House.
Lord Forsyth of Drumlean (Con)
If the noble Baroness is right that the Government do not have a majority in the other place, why can we not respect the democratic process and leave it to them?
Lord Snape (Lab)
Before she does, may I just ask the noble Baroness a question arising from her amendment? Does she agree that if the Government had, as they should have done, tabled these proposals as part of the Finance Bill, they would have been amendable in the other place and we would not be having this discussion today? Does she agree that the reason the Government are indulging in this sharp practice is that they know full well that, for any reasonable person in either House, these proposals are unacceptable and they would have been defeated in the other place because quite a few Conservative Members of Parliament would have voted against them?
Baroness Meacher
I was talking to Jacob Rees-Mogg MP the other day and he said to me that the trouble is that the House of Commons deals with Statutory Instruments extremely badly. Our difficulty is that, that being the case, they depend on this House to do this very detailed work, on which your Lordships do an extremely good job. In response to the noble Lord, Lord Forsyth, the point is that the cross-party debate on Thursday is not a legislative debate. It would have been right for these matters to have been incorporated in full in a piece of legislation, which would then have been open to proper debate and amendment in the normal way.
To go back to my point, if we approve the Regulations today we are actually undermining the democratic process. If, however, the elected House supports the Government, as I said before, I know that this House will abide by our conventions and vote these Regulations through whatever our personal views of them. I do not personally approve of them, but I would be in the Lobby with the Government. The duty of your Lordships’ House, as we know, is to enable Governments to think again if, in our professional judgment, they are making a grave mistake, and to allow the elected House to hold the Government to account. Noble Lords can imagine that I do not take this action lightly. I am acutely conscious of the threats made by the Government to destroy this House, one way or another, if we proceed. I do not enjoy that kind of pressure.
I will come back to the constitutional issue, but at this point I want to thank the IFS, the Children’s Society and others for their valuable help. Why are these Regulations so serious? The Leader of the House has already made the point that tax credits will be withdrawn from an income of £74 a week, £3 above the jobseeker’s allowance level, whereas in the past the withdrawal has occurred from a weekly income of £123 a week, which is very different. Also, of course, the taper rate—the percentage of every pound earned that will be withdrawn from tax credits— is going up from 41% to 48%. Very low-income working families—the lowest-income families, as I understand it—stand to lose more than £20 a week. For one of us, this can mean a meal in a restaurant. For a poor working family it can mean a pair of shoes for a child who comes home from school crying because their toes are hurting in shoes that are too small, or money to feed the meter to keep the family warm.
The Government plan a four-year freeze on the private rent level covered by housing benefit, so as rents soar—and we know that, day by day, they soar—working families will have to pay more of their rent from a shrinking income. Damian Hinds, Treasury Minister, told me in person that he hopes that families will work more hours to compensate for the cuts they are facing, but many people cannot work more hours. A lady who has cancer and who is working all the hours she can contacted me—the treatment and her exhaustion mean that she cannot do more. The parent of a disabled child, who probably actually needs to be at home all the time, is working as many hours as possible but can earn very little. Indeed, our angelic army of carers of elderly and disabled relatives across our land will be penalised. Some of them will lose more than £40 a week. People with long-term conditions or in constant pain will be devastated by the waves of cuts, of which these regulations are just one. Self-employed people who voted Conservative in May, hoping for protection, but who may earn little or nothing for weeks at a time, will be among the biggest losers. The StepChange Debt Charity says that its clients on average will lose £139 a week, a staggering sum.
All those people have been supported by what I regard as the one-nation Tories of the past. The Prime Minister said in his speech to the Conservative conference:
“The British people … want a government that supports the vulnerable”,
and, he said,
“we will deliver”.
This amendment provides an opportunity for the Prime Minister to honour that pledge. He went on to say that the Conservatives are the, “party of working people”. No wonder dozens of Conservative Back-Benchers—perhaps most of them, in fact—want the Government to think again. They do not want the Prime Minister to have misled the people of Britain. It is this House’s duty to provide that time for a rethink by this Government.
I turn to the idea that the amendment is unconstitutional—and I shall keep this brief. The Cunningham joint committee, as has already been mentioned, made very clear the responsibilities of this House and that we should have unfettered freedom to vote on any subordinate legislation submitted for its consideration. The Motion was carried without a vote and is recorded in the Companion. In 1999, the former Conservative Leader of your Lordships’ House referred to a convention that the Opposition should not vote against the Government’s secondary legislation. The noble Lord, Lord Strathclyde, added:
“I declare this convention dead”.
Finally, I quote our highly esteemed Clerk of the Parliaments, who wrote a clarifying guidance note for the Cross-Benchers at my request. He said: “Procedurally, the Meacher-put Motion is entirely in order under the rules of the House. It is not a fatal Motion because it does not require a new statutory instrument to be laid and taken through both Houses. However, it does delay the approval of the statutory instrument, unlike an amendment which simply expresses regret while allowing the statutory instrument to be approved”.
I hope that the noble Lord, the Chief Whip, will forgive me for quoting him here. He urged me to exchange my amendment for a regret Motion. I said, “Oh, come on—that will have no effect at all”. He said, “Well, yes”. My apologies to the Chief Whip.
Lord Taylor of Holbeach (Con)
I am sorry that my conversation with the noble Baroness, Lady Meacher, has been quoted. That is not what I said. I made it quite clear to all who came to see me—they included all three protagonists in these debates—that the risk to this House was a constitutional one and that they ought to be aware that in my view to delay this Motion, as well as to vote it down, which is what the amendment proposed by the noble Baroness, Lady Manzoor, seeks to do, amounts to the same thing, and that the proper way in which to deal with something with which this House disagrees is to move a regret Motion. It was that to which I referred when I spoke to the noble Baroness, Lady Meacher.
Baroness Meacher
I think I owe my apologies to the noble Lord. According to the Library just over two fatal and three non-fatal Motions were voted on in each year between 1999 and 2012, resulting in 17 defeats. There is nothing odd or unconstitutional about this Motion. According to the Clerk’s office there is no reason why we should not table a delaying amendment.
Lord Lawson of Blaby (Con)
Can the noble Baroness say how many of her so-called precedents were budgetary matters?
Baroness Meacher
As I understand it, this House has every right to place amendments to statutory instruments on any subject—that was the conclusion of the Cunningham Joint Committee.
Lord Deben (Con)
Will the noble Baroness answer the very simple question? How many of those Motions were on budgetary matters?
Baroness Meacher
None of those Motions was on the Budget. That is the constraint on this House as I understand it. Had these provisions been in the Budget they would have gone through the normal procedures and this House would have had a different role. That is the crucial point—here we are dealing with a statutory instrument.
There are four Motions on the Order Paper today. My Motion clearly leaves the matter in the hands of the elected House. The justification for a delay is that the House of Commons will have a full-day debate and a vote on these issues on Thursday. I understand that dozens of Conservative Back-Benchers are urging the Chancellor to adjust the tax credit reforms to protect the most vulnerable. Yes, there have been three votes on tax credits in the House of Commons, won by the Government. However, Conservative MPs—not me—say they did not have the information they needed when they voted for the cuts. I hear that many of them are now livid about this. The third vote was last Tuesday. Conservative MPs made it clear they wanted adjustments to the tax credit cuts but they kept their voting powder dry anticipating the vote next Thursday.
It is extraordinary that at least eight Conservative MPs—
Lord Cormack
My Lords, this just is not the case. The fact is that there was a vote in the other place last week. There was a clear majority and not a single Conservative Member voted in the sense the noble Baroness is indicating.
Baroness Meacher
I apologise to the noble Lord, whom I greatly respect, but I did not imply that the Conservative MPs had voted against the Government. I was saying quite clearly that they had not voted for an Opposition Motion; they kept their voting powder dry because they knew that a cross-party Motion was being considered on Thursday with a full day for debate and a vote. Even with a majority of 13 after the death of my former husband last week, this wipes out that majority.
Lord Tebbit (Con)
I am a little puzzled about the powers the noble Baroness has to understand what Members of Parliament might do next week as opposed to what they did do last week. Are we to guess? I might say that I understand that the Labour Party in the other place is going to vote for the regulations next week. I do not know that, of course, and she does not know what she has just said.
Baroness Meacher
My Lords, eight Conservative MPs—some of them senior MPs; former Cabinet Ministers, indeed—have put their names to a cross-party Motion disagreeing with the Government or seeking information that the Government will oppose. The Government majority is 13, following the death of my former husband last week. I am quoting only what I know. I am not quoting what I do not know. I agree that that is extremely important.
I emphasise again that the justification for this amendment is that there will be an opportunity for the elected House to hold the Government to account. It will not be a legislative vote, and that is why this vote is very important. By supporting the Motion this House will support the democratic process. It will leave the situation open. It will leave this set of regulations on the Order Paper—unlike a fatal Motion—and then the Government can listen to the elected House. I am not asking the Government to listen to this House.
Lord Trimble (Con)
If I understand her correctly, the noble Baroness is saying that a significant number of Conservative people might support this Motion. This Motion will have no legislative effect and the legislation will continue. What is happening here is of a different order.
Baroness Meacher
That is exactly the point I just made. The important point is that if we pass these regulations the debate in the House of Commons—the elected House—will be an irrelevance. The Government can say, “We have got our regulations. We can press ahead with our cuts. The elected House can say what it likes, we will not have to listen to it”. I am not saying they will say that, but they certainly could say that. The important point is that we need to protect the democratic process. The only hope for the Government is that the bullying tactics may persuade Conservative MPs and our colleagues to avoid defeat. At the moment, the situation in the elected House is that eight Conservative MPs have put their names to a Motion which means that the Conservative Government do not have a majority in the other House.
The Earl of Listowel (CB)
My Lords, does my noble friend not find it interesting that the Government are currently taking a Bill through this House that will remove the democratic choice of local people about whether their local school should become an academy? Indeed, during the introduction of academies, academies were taken out of the responsibility of local authorities and placed with the Secretary of State. In this Bill, in future local people will not be able to vote on whether they wish to have their local school turned into an academy. This is a very substantial change because, as I understand it, they are so concerned that the education of our children is so important that no coasting school should be allowed to continue. Therefore, they will take all means possible to ensure that our children get the best education possible. In this case, my noble friend is not asking for that change. She is asking merely for a delay so that the other House can think again. That is a much more minor change to make. Does she agree?
Baroness Meacher
I thank my noble friend Lord Listowel. I should mention that a petition signed by 270,000 members of the public over the weekend was handed to me this morning. There is huge fear and anger about these cuts. I am very grateful for the support of the public and the media—believe it or not—and their appreciation of the efforts in this House, although I personally never sought any of it. That is a rather important point to make: I am really not here to grandstand.
I support the Government’s raising of the tax threshold, the increase in the minimum wage and free childcare for three and four year-olds, but those measures will not protect the most vulnerable. The Institute for Fiscal Studies makes clear in its analysis that the biggest losers from the 2015-16 tax and benefit changes, even by 2020, will be the poorest working families. The very poor will hardly gain at all from the increase in the minimum wage or the national living wage. Very poor self-employed people will not gain at all from the increase in the minimum wage. I have had a pile of emails from self-employed very poor people. The biggest gainers from the increase in the income tax threshold and the higher rate threshold will be those earning £43,000 to £121,000 per year. We seem to have a massive redistribution of income here, but it seems to be going the wrong way.
The Government have for five years urged unemployed people to take a job. The sanctions regime has been extremely brutal, but having said that, it is, of course, much better for people to work, if they can, than to remain unemployed. The main justification for the Government’s policy has been that work pays. Yes, and working tax credits achieved that objective. Working tax credits prevented unemployment soaring in the recent recession.
Finally, I repeat that the aim of this amendment is to support the democratic process to enable the elected House to hold the Government to account. That is the duty of this House. If we cannot do that, we might as well not exist.
Baroness Hollis of Heigham (Lab)
My Lords, on the amendment standing in my name, two issues concern this House. The first is whether this amendment improperly challenges Commons financial privilege—a constitutional issue. The second is whether this amendment improperly challenges Government cuts to welfare—the policy issue.
Let me address the first, on constitutional propriety. As the noble Baroness, Lady Stowell, said, when we have framework Bills on childcare and social security, all the serious detailed work is done, rightly, by regulations—that is, SIs. We can amend Bills; we cannot amend SIs, yet often we do not know the Government’s intent until we see the SI itself. We then face either a draconian fatal Motion or a lamenting regret Motion that changes nothing, so instead this is a delaying amendment. It is not fatal, as the Government know. It was drafted with the help of the clerks and it calls for a scheme of transitional protection before the House further considers the SI. Essentially, the cuts would apply to new claimants only. Frankly, that new SI could be drafted in a week and implemented next April exactly as planned.
However, does it none the less break convention by trespassing on Commons financial privilege? No. The advice from the Clerk of the Parliaments—and he has seen and confirmed my words on the specific issue—is that Commons financial privilege is exercised in two ways. We can amend an education Bill, say, but the Commons can reject our amendment if the Speaker certifies that the Commons has financial privilege on this issue. Secondly, says the Clerk, the Commons can pass a supply or money Bill, which we cannot amend. He goes on: financial privilege does not extend to statutory instruments—it simply does not. Nor are statutory instruments covered by the Salisbury/Addison convention. The more so, I would add, because the Prime Minister ruled them out himself, and he did because these layered elements to tax credits are all affected by the taper and the cuts.
As has been said, if the Government wanted financial privilege, these cuts should be in a money Bill; they are not. If they wanted the right to overturn them on the grounds of financial privilege, they could be introduced in the welfare reform Bill on its way here; they did not. So why now should we be expected to treat this SI as financially privileged when the Government, who could have made it so, chose not to do so? It is not a constitutional crisis. That is a fig-leaf possibly disguising tensions in the Commons between members of the Government. We can be supportive of the Government and give them what they did not ask for—financial privilege—or we can be supportive instead of those 3 million families facing letters at Christmas telling them that on average they will lose up to around £1,300 a year, a letter that will take away 10% of their income on average. That is our choice. Those families believed us when we all said that work was the best route out of poverty and that work would always pay. They believed the Prime Minister when he promised that tax credits—and they are one package—would not be touched.
But why do people need tax credits? There is a lot of misunderstanding about this. If the House will allow me, consider two women in a call centre: one is single, working 35 hours a week, who from April earns £13,000 a year for herself, and the other, a deserted mother with two young children, managing 25 hours a week, earns £9,000 a year for the three of them. The Government are completely right that we should certainly not subsidise employers’ low pay, but no employer could pay the deserted mother twice as much per hour as the single woman on the next phone in the call centre to make up for her family’s circumstances. The employer cannot do that and it is not reasonable to ask it to do so. That is the job of tax credits. They reflect family circumstances, which an employer cannot reasonably do.
Lord King of Bridgwater (Con)
My Lords, I echo the last words of the noble Baroness—
The Lord Bishop of Portsmouth
My Lords, I deeply regret that the Government’s regulations lead me, and others in this House for whom politics is not a vocation, to be part of a debate with constitutional and political implications. I am of course aware of Her Majesty’s Government’s manifesto commitment to eradicate the deficit, including through reduced welfare payments, and of the studied lack of detail about how this was to be achieved. It is impossible to claim now that we should somehow have anticipated these proposals when they were not detailed. Indeed, we were assured that a sharing of the burden was appropriate and that work should pay.
My primary concern with these regulations is with their short-term impact on some of our poorest families. We have been encouraged to consider these measures as part of a package that includes increases in the minimum wage towards the national living wage, childcare provision and raising the income tax threshold. We are told that this is a five-year programme on a journey towards a higher-pay, lower-tax and lower-welfare economy. This argument will be scant consolation to the 3 million and more low and moderate-income working families who will see a very large reduction, as we have heard, in their tax credits from next April. To be assured that you will be better off in five years’ time will not help these families to pay the rent, or gas and electricity bills. The Government are boldly confident that this will be so within five years. Their confidence for the future sounds like extraordinary optimism today for the working families, including 4 million children who will pay such a huge price and bear such a heavy burden immediately on the introduction of these changes.
Of course, I welcome the pledge incrementally to increase the minimum wage, which will benefit some next year and might give small amelioration to those on the minimum wage, but only for them unless and until, as time passes, there might just be some knock-on, rollover impact on wage levels for those on a very modest wage, just above the present minimum. The likeliest knock-on effect in the short term will be indebtedness, which will have a negative effect on parents’ mental health and children’s education and future life chances.
Lord Davies of Stamford (Lab)
The right reverend Prelate is speaking very movingly and rightly about the injustice and suffering caused by the passage of this statutory instrument unamended, but does he not feel in those circumstances that it is our duty not just to talk about it or even record our objections to it, but actually to do something to stop it?
The Lord Bishop of Portsmouth
I am grateful for that intervention. I believe that our first duty is to speak and in a variety of ways to act. That will involve, as many noble Lords know, the very many who participate in charitable organisations and support on the ground. I commit that those in my diocese will do our very best. I myself shall be listening to the rest of this debate before I determine how I shall vote on the amendments before us.
I return to those commitments that I asked the Government to make over the coming weeks. I ask the noble Baroness if she can make those commitments on behalf of the Government. During the past few days, I have wrestled long and hard with the question of how to vote and speak today. Partly the dilemma has been because of the anger, the party-political point scoring and the raising of the issues around constitutional matters. That has obscured what ought to be a measured and careful consideration as to the best interests of the poorest workers in our society.
I am appalled by the Government’s proposals. I emphatically did not table this amendment because of party-political pressures. I am aware of the conflicting views on constitutional matters. This amendment offers an alternative and an opportunity—whatever happens with the other three amendments—for this House clearly to register its disapproval of these proposals and its expectation that our reservations will be addressed. Your Lordships’ House must, in my judgment, make that clear. I will listen carefully to further contributions this afternoon and intend to vote with, at my heart, the interests of those who have most to lose through these regulations. Should other amendments fail or fall, then I present mine as a respectful but firm message to the Government that the regulations are not acceptable in their current form, and that significant work is required for us to be satisfied that the needs of those working for the lowest incomes will be met.
Lord Mackay of Clashfern (Con)
My Lords, we have just heard some very moving speeches on this matter. I have no doubt that, as the Leader of the House has said, the Chancellor of the Exchequer will consider these matters very carefully. I know that it is extremely difficult to analyse the precise effect of income tax or tax credit changes in individual circumstances. Your Lordships will remember that when Mr Gordon Brown, as Chancellor, thought to take out of the tax system the 10% tax band that had previously existed, finding out precisely who was affected and how they were affected turned out to be extremely difficult. I believe that there are difficulties in this connection also. It may well be that the information that arises in the course of the attempt to deliver this will show what in detail is required if changes should be made.
I am intending to deal only with the constitutional question as I see it. These draft regulations are made under the Tax Credits Act, which sets up mechanisms for the payment of tax credits of two types: children’s tax credits and working tax credits. The arrangements were under the control of the Board of Inland Revenue which was entitled under Section 2 to deduct the sums paid for tax credits from the income of the board raised by taxation. So it is perfectly clear that these tax credits are a charge on the taxes raised by the Board of Inland Revenue, as it was then. The details of the credits and the machinery necessary for their administration were set out in the later sections of the Act. Section 66 of the Act provides:
“1) No regulations to which this subsection applies may be made unless a draft of the instrument containing them (whether or not together with other provisions) has been laid before, and approved by a resolution of, each House of Parliament.
(2) Subsection (1) applies to … (a) regulations prescribing monetary amounts that are required to be reviewed under section 41”.
That is the system under which this statutory instrument has been made. Accordingly the statutory instrument before the House requires to be approved by each House of Parliament before it can be made. The instrument, as we know, was approved by the other place and a Motion to reverse it was defeated in the other place. So it has come to us as a matter which has been fully considered so far as the other place is concerned until now.
In considering this, regard must be had to the financial privileges of the other place. It is not a question of the conventions of this House, it has nothing to do with them; it is to do with the financial privileges that belong to the House of Commons. So far as I understand it, there is nothing to prevent a Motion along the lines proposed here being considered by this House, but the question is whether that consideration can properly interfere with the financial primacy of the elected Chamber. Erskine May says that the practice is ruled today by resolutions which were made in the 1670s. The last one of these, the clearest and fullest, states that,
“all aids and supplies and aids to his majesty in Parliament, are the sole gift of the commons; and all bills for the granting of any such aids and supplies ought to begin with the commons: and that it is the undoubted and sole right of the commons to direct, limit, and appoint in such bills the ends, purposes, considerations, conditions, limitations, and qualifications of such grants; which ought not to be changed or altered by the House of Lords”.
It is clear that these tax credit payments are made out of the supply raised by taxation and that the other place has decided that the Tax Credits Act 2002 should be amended in terms of the approved draft. I am clearly of the opinion that a failure on the part of this House to approve the draft of this instrument would be a breach of the fundamental privileges of the elected Chamber.
It may be asked why the approval of this House is required. I believe that it is as a courtesy to the House, just as it is asked to agree to the passing of money Bills on their way to becoming Acts of Parliament. The House never seeks to delay them as it is obliged to respect the financial privileges of the elected Chamber and how it deals with those matters; it should deal with this matter in the same way. To decline to approve these draft regulations or to decline to deal with them until certain conditions are met is a refusal to accept that the decision of the elected House on a matter of financial privilege is the final authority for it. It has to be noted that this is a matter of the privilege of the elected Chamber, not of the Government. The Motions other than that in the name of the right reverend Primate—
Lord Mackay of Clashfern
I am sorry, the right reverend Prelate. That was a bit of a promotion because we are in the presence of the two Primates. The Motions mark a refusal to accept a decision of the elected House on a matter of financial privilege as the final authority for it. That is what they amount to. It has to be noted, as I have said, that this is the privilege of the elected Chamber, not of the Government.
The amendment proposed by the right reverend Prelate—I shall try to get it right this time—is entirely in accordance with the arrangements of this House and with the financial privileges of the House of Commons. Therefore from the point of view of the powers of this House, it is by far the safest of the Motions that have been put forward. In light of what the Leader of the House said in opening, I believe that the Chancellor of the Exchequer is very open to considering the detail—
Lord Thomas of Gresford (LD)
My Lords, does the noble and learned Lord not agree that the conventions to which he has referred, going back to the 17th century, were so uncertain that in 1908 the Conservative Party defeated Lloyd George’s People’s Budget in which he sought to give money to the poor people of this country? Does he also not agree that the 1911 Act set out a mechanism whereby the Speaker would certify that a money Bill was a money Bill, and that would remove from us our powers of consideration? Is he not going back to an argument that failed more than 100 years ago?
Lord Mackay of Clashfern
Not at all. I am stating the present practice, according to Erskine May, in relation to matters of financial privilege. As I said, it is not a matter of the conventions of this House, but of the rights of the other place in this matter. My clear submission to your Lordships is that these amendments challenge the final authority of the elected House on a matter of financial privilege. It is true that the Liberal Democrats—I suppose they were the Liberal Party then, but the succession is probably allowable—found it necessary to take further action to ensure that the practice that had been built up in the 17th century applied in the 20th century and beyond. They put mechanisms in place to prevent financial privileges being in any way transgressed again.
Lord Snape
Does the noble and learned Lord think that a statutory instrument that cannot be amended is a suitable vehicle for passing legislation that will adversely affect hundreds of thousands of people?
Lord Mackay of Clashfern
That is the arrangement that was proposed in the Tax Credits Act, which was passed by the Labour Government in 2002. It was thought to be the right way to do this particular thing, and the Chancellor of the Exchequer and the Government have followed that. It is not a necessary consequence that the Commons or the Government should use a different procedure in order to secure the financial privilege of the House of Commons. The procedure was laid down in the Tax Credits Act, which is the main statute on this matter. For the Government to do anything other than use that course would be offensive to the way in which the system was set up.
The Leader of the House mentioned the Chancellor of the Exchequer’s attitude to considering more detailed material when it becomes available. That is a considerable consolation to me in light of what the right reverend Prelate said. I believe the right reverend Prelate’s approach to be the safest way to secure what a number of your Lordships have asked for.
Baroness Lister of Burtersett (Lab)
My Lords, I have several points to make about the substance of these regulations. First, this represents a lamentable example of non-evidence-based policy-making, the victims of which are going to suffer greatly. Secondly, the arguments used to justify the policy—by reference to other policy changes and to how people could or even should work harder—betray a lack of understanding of policy and of people’s lives.
In its letter to the Financial Secretary to the Treasury, the Social Security Advisory Committee criticised the “scant” evidence to support the policy changes. It thus encouraged the Government to make available to Parliament,
“more detailed information that clearly explains the changes and potential impacts to ensure that they can be subject to effective scrutiny”.
With due respect to the noble and learned Lord, Lord Mackay, SSAC clearly believed it possible to provide such information. Its advice was ignored, leading the Secondary Legislation Scrutiny Committee to observe that the explanatory memorandum laid in September “contained minimal information”.
Getting an impact assessment out of the Government has been like pulling teeth. That which finally emerged is a travesty; much of it simply reiterates repetitively the rationale behind the policy. It certainly does not provide the information about potential impacts that SSAC sought. There is no information on the impact on different groups affected, including the self-employed, who, as we have heard, cannot benefit from an increase in the minimum wage. The information about the impact on protected groups is simply laughable. When I asked in a Written Question,
“how many people in receipt of Carer’s Allowance are also in receipt of Working Tax Credit”,
and are therefore vulnerable, I was told that the information,
“could only be provided at disproportionate cost”.
I know that Carers UK is very worried about the likely impact on all carers receiving working tax credit.
In the letter accompanying the impact assessment the Chancellor excused the delay on the grounds that the Government do not usually publish an IA for statutory instruments of this kind. I found this statement very revealing. It suggests that the Government made no attempt to assess the impact for themselves before going ahead with such significant cuts and that they see an IA simply as a tick-box exercise to pacify pesky parliamentary committees. Surely, given the Prime Minister’s pledge at his party conference of an “all-out assault on poverty”, the Government would want to know the impact on poverty. But no: it was left to the Resolution Foundation to point out that it could mean an additional 200,000 children falling into poverty next year, rising to 600,000 by 2020 when other summer Budget measures have taken effect.
Surely a Government who have promised to apply the family test to every measure would want to know the impact on low-income families—a point made by Heidi Allen MP in her passionate maiden speech demolishing her own Government’s policy. Surely a Government who go on constantly about making work pay would want to know the impact on low-paid workers. But we had to look to the IFS for that. In effect, the Government appear to be contracting out to the voluntary sector genuine assessment of impact. Of course, that is assessment after, rather than as part of, the policy-making process. That is one reason why it is so important that your Lordships’ House asks the Government to think again in the light of the evidence that has emerged of the damaging impact that the cuts will have.
I am grateful to all organisations that have exposed how the overall policy package that the Government constantly cite does not amount to an adequate defence of the policy, particularly in the case of lone parents, who will be disproportionately affected, according to Gingerbread. A key reason why the overall policy package does not provide adequate protection is that with the exception of childcare, which applies to only a very limited age range, the other policies—the increase in the minimum wage, welcome as it is, and in personal tax allowances, which is less welcome because it is wasteful and poorly targeted—cannot take account of the presence of children, a point made by my noble friend Lady Hollis. All the talk about tax credits subsidising low pay ignores the fact that child tax credits were introduced primarily as a child poverty measure. Wages cannot take account of the presence of children. That was one reason why family allowances were originally introduced and why an increase in child benefit, which also helps families below the tax threshold and is currently frozen, would provide more effective mitigation than further increases in tax allowances.
Finally, according to the Health Secretary, the cuts are intended to send a “very important cultural signal” about hard work. Leaving aside his denigrating suggestion that receipt of tax credits is somehow incompatible with “independence, self-respect and dignity”, he does not appear to understand that reducing the income threshold and the universal credit work allowances while increasing the taper rate penalises what he calls “hard work”. Likewise, the Work and Pensions Secretary suggested that the problem can be solved if those hardest hit are encouraged to work a few extra hours. Even if extra hours were feasible and available, the gain from doing so will be reduced by the very changes that they are supposed to mitigate. As the Children’s Society points out, every extra £1 in wages will provide a net income increase of only 3p for those also in receipt of housing benefit and only 20p for those not. What about those with family responsibilities, particularly lone parents and carers, for whom working extra hours could impact negatively on their and their families’ lives?
It is our job to scrutinise legislation. This legislation does not stand up to scrutiny. The policy-making process from which it has emerged does not stand up to scrutiny. It is not noble Lords, or Government Ministers, who will bear the cost of this. It will be people like the low-paid worker who emailed me to say that he was very scared about how he will manage next year. Hundreds of thousands of children will be pushed into poverty. We have a duty to defend them, our fellow citizens.
Lord Taylor of Holbeach
My Lords, perhaps I may suggest, given the very large number of noble Lords who want to speak, that for the benefit of the House they keep their contributions brief and to the point, so that we can get as many people in as possible. Furthermore, if we can go around the House, as we do at Question Time, it will help create a sense of balance in our debate, which I am sure noble Lords will appreciate. I hope the right reverend Prelate will excuse me—because normally he would take precedence—but I have indicated to the noble Baroness, Lady Campbell of Surbiton, that she might speak next. I hope that he will understand why I wish to do so.
Baroness Campbell of Surbiton
My Lords, as a Cross-Bencher in this House, I see it as my job to offer my best expertise and knowledge to help the Government understand the consequences of some of their legislation and statutory instruments. That is what I will now offer.
Working tax credits have provided an unprecedented and effective pathway into employment for disabled people who faced the greatest barriers to employment. Proposals to lower the threshold for working tax credits and accelerate the taper rate to 48p will dramatically reduce the incomes of disabled people in low-paid employment who, for reasons directly linked to their impairment, do not have the option to increase their working hours or to offset their losses. Disabled people—especially those with learning disabilities—are more likely to be in low-paid employment than non-disabled people.
I am not aware of an impact assessment that has evaluated this specific disability element. I fear that this cut will also disincentivise disabled people from taking the very difficult step off benefits and into work. There is little doubt that it will negatively impact on the Government’s other policy, which is to halve the disability employment gap. It does not make sense. Do not forget, either, that that gap is currently running at over 30%. Higher costs in health and social care are the inevitable result of unemployment among disabled people.
Furthermore, we cannot look at working tax credits in isolation. We are promised joined-up government but I am not aware of any cross-government analysis of the cumulative impact of this regulation on working disabled people or families with a disabled member. Where is the Department of Health? Many working disabled people affected by cuts to working tax credits are also suffering because of cuts to their social care support, the closure of the Independent Living Fund and the changes to Access to Work. In effect, the Government are making employment less likely for people with these support needs. I know that this is not their intention.
I hope that this little detail—this bit of reality and evidence—will help us to reflect. Maybe the Government will change their mind; I do not know. But I am deeply worried about the number of people who will effectively be hit by this provision, which will not deliver the Government’s own policy.
The Lord Bishop of Southwark
My Lords, I support the amendment to the Motion as tabled by the right reverend Prelate the Lord Bishop of Portsmouth, in the hope that it will indeed give space for further reflection and reconsideration of the tax credit proposals. I believe that it has the potential to do that.
First, I want to record my appreciation for the welcome rhetoric in recent months from members of the Government saying that employment, not least hard work, merits fair pay and some recognition in the national minimum wage. It is this, rather than buttressing from the state, that should provide the income of working people. It follows from this that rising wages and salaries will, of their own accord, not least from the Government’s own national living wage proposals, reduce the use of tax credits in due course without the introduction of the draft regulations before us.
The diocese which it is my calling and privilege to serve covers most of south London and east Surrey—I have the honour of several of your Lordships living within it. It is a large and populous area, encompassing significant pockets of urban deprivation alongside considerable wealth. The unsustainable cost pressures in the property rental market, as well as rapidly rising house prices, already threaten the balance of many communities. I fear that the introduction of these regulations will push a significant number of hard-working although low-earning families to breaking point. A reduction in the threshold for families’ earnings before credits are withdrawn from £6,420 to £3,850 is a very dramatic change, which will adversely affect all but the poorest members of the communities we serve. Families that strive, struggle, aspire and hope to advance their well-being will be thrown back, since few have the sort of margin between income and expenditure to cushion them from the blow that is coming. In the London Borough of Southwark alone, whose 50th anniversary was commemorated in my cathedral this past weekend, it is estimated that some 20,000 families are in receipt of tax credits and, further, that even making allowance for the mitigating factors being introduced by the Government, some 4,000 will remain worse off by these changes. That is in just one London borough.
The sort of wage rises that would mitigate this and the extra hours worked to catch up will be taken away by the loss in other benefits, even if there were enough hours in the day. The rise in personal allowances which benefits a far wider group of people, including Members in this Chamber, will not compensate for this shortfall. By these regulations, we are in fact asking parents to make their children bear a significant adjustment in their economic circumstances—an adjustment that some children will not understand, which in itself will be an added stress to their families. We risk stripping our fellow citizens of their dignity by these provisions, even though the Government’s stated intention with a whole range of economic and fiscal measures is to do the opposite. We should take this opportunity to counsel Her Majesty’s Government not to seek to add to the burdens of those working hard for their families, and to reconsider in detail the impact of these regulations and the need for more fully worked-out transitional arrangements. I therefore support the regret Motion as tabled by the right reverend Prelate.
Baroness O'Loan (CB)
Before right reverend Prelate sits down, could I just ask him why, if he believes that this will cause such difficulty, harm and distress to so many children and their parents in our community, he is telling us to vote for this Motion?
The Lord Bishop of Southwark
I was persuaded by listening to the noble Lord, Lord Butler of Brockwell, explaining the other day the constitutional differences that exist between the two Chambers .
Baroness Thomas of Winchester (LD)
My Lords, there seem to be two strands to this emotive phrase “constitutional crisis”, which is what I would like to address. The first is that this House should not vote down a statutory instrument—certainly not one that has been through the House of Commons. But there is no Standing Order which lays this down, and the Parliament Acts are silent on the primacy of the Commons over statutory instruments. Yes, it is taking a very rare step, but the footpath is there, even if it is rather overgrown. In this House, we do not look to Erskine May so much as the Companion to the Standing Orders, which is where we find that this House has an unfettered right over statutory instruments. If an instrument is not approved by this House, there is nothing to stop the Government immediately bringing another instrument to both Houses with a minor change. It is time we stopped being bullied over how we consider statutory instruments.
The other strand of the so-called constitutional crisis involves the primacy of the House of Commons over financial matters. Here, I echo what the noble Baroness, Lady Hollis, said. The parent Act from which this instrument comes was not certified by the Speaker as a money Bill, and if this House is entitled to debate the statutory instrument at all—which it is—then it is entitled to approve or to decline to approve it. It is not a question of courtesy; this is what we do and what Parliament has decreed. We would be failing all those affected by this measure if we simply pulled a duvet over our faces and turned our backs to the wall while saying it was none of our business.
If the Government had wanted to avoid this situation, why on earth did they not introduce a very short tax credits amendment Bill? Then we could have debated it in the usual way, with none of this intolerable pressure. If this House had sent back an unacceptable amendment, the Commons could have invoked financial privilege and that would have been that, but we might have found a way to tweak such a Bill that would have found favour with all those Conservative Members who have been calling for just that.
If the Bill route had been taken, we might have had a much more informative impact assessment, which could have told us what was likely to happen to those low-paid workers affected when the tax credit changes happen next April, instead of being told that by 2020 there may not be quite so many losers. We surely know that not all the thousands of employers up and down the country will pay the new living wage immediately to all part-time workers for the same number of hours to make up the shortfall. As it is, for the Government to decide to make a very controversial change by way of an unamendable statutory instrument, and then to bully members of this House into passing it by telling us that we are provoking a constitutional crisis if we do not agree to it, is surely quite unacceptable. We should stand up for what we believe to be morally right. The spirit of 1911 is being invoked, but at least Lloyd George wanted to take from the rich to pay the poor. George Osborne seems to want to do the opposite.
Lord Lawson of Blaby (Con)
I suspect that I am not the only one on this side of the House who feels torn on this issue. The constitutional position, which I will refer to first, has been set out admirably by the noble and learned Lord, Lord Mackay, and it is very clear: budgetary matters are the prerogative of the other place—of the elected Chamber—and this is undoubtedly a budgetary matter, however it is dressed up. What is the purpose of the measure? The purpose of it is to help reduce the budget deficit, and everybody is agreed that it should be—
Baroness Smith of Basildon
The noble Lord seems to imply that because this is a tax credits issue, as was said by the noble and learned Lord, Lord Mackay, for whom the House holds enormous respect, it would be subject to financial privilege. Is he aware that the legislation in 2002 was not subject to financial privilege? It is hard to argue, then, that a statutory instrument from that legislation should be.
Lord Lawson of Blaby
With respect to the noble Baroness, the constitution is more important than nitpicking. This is a budgetary matter.
Baroness Symons of Vernham Dean (Lab)
Does the noble Lord, Lord Lawson, think that the Clerk of the Parliaments was nitpicking when he told my noble friend that statutory instruments were not covered by financial privilege? That was said unequivocally by the Clerk of the Parliaments.
Lord Lawson of Blaby
The point is that this is a budgetary matter and budgetary matters are the prerogative of the elected House. That is the most important constitutional principle. This was designed to reduce the budget deficit, which everybody on all sides agrees has to be eliminated, by something like £4.5 billion. It is quite clear that this is the Chancellor of the Exchequer’s measure, in effect, whosever name may be on the statutory instrument. That is the constitutional position. I said I would be brief, so I will not elaborate, but that is clear.
On the other hand, I also said I am torn, because I believe that there are aspects of this measure which need to be reconsidered and, indeed, changed. The right honourable George Osborne, the Chancellor of the Exchequer, made it clear that he was going to get a lot of his savings, probably the greater part, from the welfare budget, and tax credit, which has ballooned enormously in recent years, is a large part of the welfare budget. I think that is absolutely fair, but the question is the particular incidence of this package in the regulations. What concerns me is not that there are high implicit marginal rates of tax—which are transient, incidentally. That is the case with all means-tested benefits and it is absurd to say that means-tested benefits can never be reduced. Nevertheless the tax credits system—the in-work benefits—rise surprisingly high up the income scale, but here the great harm, or a great deal of the harm, is at the lowest end. That is what needs to be looked at again; that is what concerns me. It is perfectly possible to tweak it to take more from the upper end of the tax credit scale and less from the lower end.
I heard my noble friend the Leader of the House say that the Chancellor would listen to this debate. I would have been surprised if she had said that the Chancellor would not listen to this debate. Of course he will listen to this debate, but it is not just listening that is required. Change is required. I very much hope that my noble friend Lord Howe, when he winds up, will indicate that there will be change, though he cannot indicate what, but I must say that my present intention is to support the amendment in the name of the right reverend Prelate the Bishop of Portsmouth.
Lord Campbell-Savours
I hope that the Chancellor of the Exchequer listens very carefully to the contribution of the former Chancellor of the Exchequer the noble Lord, Lord Lawson of Blaby, because his support for what appears to be the Frank Field amendment should be taken seriously. The Leader can call on all the constitutional arguments she can muster in support of the Government, as indeed can the noble and learned Lord, Lord Mackay of Clashfern, on the issue of financial privilege, but all those arguments pale into insignificance when compared with the greater argument that the general public, millions of people outside this House, are considering today—that being statements given during the course of the general election, solemn undertakings given by Cabinet Ministers to the British people, on what their attitudes would be to tax credits.
Mr Gove gave the undertaking that there would be no cut in tax credits, which he was unable to substantiate by way of any agreement, but that is what he said on television, in an interview. Mr Cameron deliberately misled the British public, who would regard what he said now as a lie to win a general election. The British public are fed up with politicians who tell lies on that scale. It exceeded the misleading of the public in the case of the Liberal Democrats over tuition fees; at least they did not know what was going to come after the election when they misled the public. In this case, Mr Cameron did know, and the Government set out to avoid revealing the facts by hiding behind the statement that they would have to make substantial cuts without going into details. Those lies trump all the constitutional niceties, whether they be financial privilege or the fatality of amendments, and it is on that basis that I intend to support the amendment tabled by my noble friend Lady Hollis this evening. The public cannot take this scale of lying.
Lord Butler of Brockwell (CB)
My Lords, I shall try to put my points briefly. I do not want anything that I say to be taken as implying a lack of sympathy with the concerns of those who have spoken about the effects of the Government’s policy. Like other Peers, I have had moving emails from many such people who expect to lose benefits through the statutory instrument. However, I want to confine myself to the constitutional issue. I usually agree with the noble Baroness, Lady Thomas, about statutory instruments. As has been pointed out, it is a very rare event that the Government are defeated on a statutory instrument; it has happened only five times since the war, but that does not mean that the House could not do it. But there is a combination here, because this is a statutory instrument about a budgetary matter central to the Government’s fiscal policy; it is that combination that is unprecedented, which is why it would be beyond the House’s constitutional powers to defeat the Government today.
Lord Thomas of Gresford (LD)
Would the noble Lord wish to amend the Companion to the Standing Orders and guide to the Proceedings of the House of Lords? It states:
“The House has resolved ‘That this House affirms its unfettered freedom to vote on any subordinate legislation submitted for its consideration’”.
Is this not subordinate legislation submitted for our consideration?
Lord Butler of Brockwell
What I am saying is that the combination of the convention about statutory instruments and the fiscal significance of this one is what makes it special.
Lord Butler of Brockwell
Any—but not since 1911 have a Government been challenged on a matter of this sort, which establishes what the constitutional conventions of the House of Lords are. In that respect—
Lord Richard
The noble Lord says that no Government have been challenged on a matter of this sort since 1911. However, in July 2008 there was a debate in this House on a statutory instrument, in which, after a discussion, the House came to a conclusion and voted down the Government’s suggestion, insisting that any attempt by the Government to raise national insurance had to be done by way of primary and not statutory legislation. Was that not also an example of a Government trying to pursue their financial and fiscal policies and the Opposition voting them down, saying that it had to be done not by statutory instrument but by primary legislation?
Lord Butler of Brockwell
I shall not contest the precedent given by the noble Lord, which I have not myself considered. The amendment proposed by the noble Baroness, Lady Manzoor, is, transparently, a fatal one; she agrees with that—and, in my view, it is outside your Lordships’ constitutional role. I note that my noble friend Lady Meacher agrees with that view. The amendments proposed by the noble Baroness, Lady Hollis, and my noble friend Lady Meacher, raise a more subtle issue. They are not fatal, but they seek to defer our consideration of the statutory instrument until the Government have done certain things specified in the amendment, including, in the case of the noble Baroness, Lady Hollis, surrendering some of the savings that would be achieved by this measure. But they are still blocking amendments. I can best demonstrate that by the following question. What happens if the Government refuse to do what the amendments demand? Will your Lordships then refuse to consider the statutory instruments for ever and a day? In that case, these amendments would block the statutory instrument indefinitely, which in my view is not within the—
Baroness Meacher
I point out to my noble friend Lord Butler that the House of Commons has a very similar request for Thursday: that House also wants more information, because Conservative MPs even now do not feel they have enough information to understand the full implications of these regulations. If the House of Commons votes for more information—in other words, says not to go ahead until we know what on earth is going on—would my noble friend then agree that that should be provided not only to the House of Lords but to the House of Commons?
Lord Butler of Brockwell
If the House of Commons asks for more information, it should be provided. But the constitutional position is that the House of Commons has passed this statutory instrument, and it cannot go back on that. Now what is at issue is whether the House of Lords should pass it, and however much sympathy the House may have for the objectives of those who have moved these amendments, it would be a constitutional infringement of great gravity to pass the first three of them. It would be wrong on three counts. First, this is a budgetary matter. It may be a welfare matter as well, but it is certainly a budgetary matter. Secondly, it is crucial to the fiscal policy that was explicit in the manifesto on which the Government were elected only a short time ago. Thirdly, the statutory instrument has been passed by the House of Commons, which has that responsibility in our constitutional arrangements. It has been passed not once but three times. I am afraid that I cannot find myself persuaded—
Lord Hughes of Woodside (Lab)
Would the noble Lord realise that he is turning his back and not addressing the House, and he should learn the procedures, given his experience?
Lord Butler of Brockwell
I am sorry, my Lords, and I apologise if I have committed a constitutional impropriety, but I still do not understand quite the point that the noble Lord makes.
I am afraid that I am not persuaded by the argument made by the noble Baroness that this House—
Baroness Farrington of Ribbleton (Lab)
I have worked in many roles, and I have listened to the noble Lord giving advice. I know that after this debate many members of the public will ask what an earth was going on in the House of Lords. Could the noble Lord answer the question: if the House of Lords today amended or voted down this statutory instrument, could the Government in the Commons bring back a one-word-change statutory instrument within the next few days? Secondly, would he care to comment on the following? I listened very respectfully to the noble and learned Lord, Lord Mackay, who used an expression that I could not understand. Could the noble Lord explain why the noble and learned Lord thought that it would be offensive for the Government just to choose to bring this item forward in primary legislation? I did not understand the reasoning, but I am sure the noble Lord does.
Lord Butler of Brockwell
My Lords, I think it is a little unfair of the noble Baroness to ask me to interpret the statements of the noble and learned Lord, Lord Mackay. They were perfectly clear. Can I just give the answers I was going to give about the point made by my noble friend Lady Meacher? I cannot be persuaded that this House would be failing in its democratic duty if we did not block this statutory instrument so that the House of Commons could have yet one more debate on it. It has had three already.
Baroness Manzoor
I am so sorry to intervene on the noble Lord. I have an observation. The director of the Institute for Government, Peter Riddell, who is greatly respected in Whitehall and Westminster makes the following point. Forgive me, it is rather long but I want to read it.
Baroness Manzoor
I shall give a short version then:
“The Parliament Acts of 1911 and 1949, establishing the ultimate supremacy of the Commons, do not apply to secondary legislation”.
Lord Taylor of Holbeach
The House was listening to the noble Lord, Lord Butler.
Lord Butler of Brockwell
My Lords, I am afraid I have been rather frustrated in trying to put my points as briefly as I could, so let me put one final point. There have been many times in the past when there has been an opposition majority in your Lordships’ House, particularly when there has been a Labour Government. There have been many occasions when the Opposition have wanted to overturn the Government on a fiscal matter. It has not happened and in these cases the Opposition, recognising the conventions, have exercised self-restraint, bitten their lip and stayed within the constitutional conventions. I believe that the House should do that today.
Lord Richard
My Lords, in response immediately to what the noble Lord, Lord Butler, has just said, there was no doubt that the occasion in July 2008—I will go into it in a little more detail further on—was a fiscal matter. There was no doubt it was government policy and this House demanded that the Government should give it up and insisted that what the Government wanted to do could be done only by primary legislation and not by a statutory instrument. This has been before the House before and the House has done it before.
There are three major issues this House has to consider today. The first is whether financial privilege attaches to this proposition. The second is the effect of the way in which it proceeded through Parliament, and the third is whether any of the amendments is a fatal one.
Let us deal with the constitutional one because we have heard quite a lot about it this afternoon. I totally reject the suggestion made by the Chancellor that somehow or other a vote to postpone the operation of this resolution would be contrary to the financial understandings and conventions that exist between the two Houses. I do not think that is justified. The Government could have avoided these constitutional problems if they had wanted to, had they chosen to legislate for this matter by primary rather than secondary legislation. It would have been open to them to have included these proposals in the Finance Bill. Alternatively, they could have legislated by way of a short and separate Bill. Instead, they chose—it is a government choice, not an opposition choice or anyone else’s—to do it by secondary legislation. That inevitably curtailed debate both here and in the House of Commons and particularly in the country. Of course I accept that it has been dealt with in another place, but inevitably the national discussion has been truncated—to the point almost of extinction. There has been no consultation on transitional measures, nor on measures to alleviate the burden on the poorest—quite the contrary. None of these issues has been even discussed, let alone agreed. We do not know what, if any, transitional measures the Government might have in mind. The Government do not even have the excuse that it was all put before the country at the general election. It most certainly was not—quite the contrary. Considerable efforts were made to conceal the fact that this was the Government’s intention if they were re-elected. From the Prime Minister down we had Minister after Minister appearing in front of the television cameras and in the press saying it was nothing to do with tax credits and they would tell us what it was eventually. There was not a word in the Conservative manifesto about it. We are now told that in that situation this House willy-nilly has to accept what the Government say. What the Government are asking us to do is not acceptable.
Lord Tebbit
The noble Lord has set out an alternative policy which the Government might have followed, but they did not. We are not dealing with the alternative policy but with what actually happened. He is saying that the Government have seen a way of doing things that he does not like. It does not alter the fact that this is a money matter and he wants this House to overturn a majority decision in the Commons on a money matter.
Lord Kakkar (CB)
My Lords, can I ask the noble Lord how your Lordships’ House should interpret the point of order made by Sir Edward Leigh on 21 October in the other place? He said:
“On a point of order, Mr Speaker. Generations of your predecessors defended the privileges of this House, and the greatest privilege of all is the principle of no taxation without representation …We had a lively debate yesterday on tax credits, and many of us would like to see some movement from the Government, but surely it is the elected representatives of the people who decide on tax and spending”.
The Speaker responded:
“I understand entirely what the hon. Gentleman is saying. My own feeling from the Chair is that the other place can look after itself; but we also can and will look after ourselves. I think it would be much more dignified for the Chair not to become drawn into what might be a public spat between the two Houses. In the final analysis, each House knows what the factual constitutional position is, and that position is what it is of long standing”.—[Official Report, Commons, 21/10/15; col. 959.]
Lord Richard
My Lords, I am bound to say to the noble Lord that I am not sufficiently qualified medically, politically or personally to know what is in the mind of Mr Leigh when he gets up in the House of Commons. To expect me to be able to do that is, frankly, unrealistic.
The answer to the noble Lord, Lord Tebbit, again is very simple. Of course the Government chose to do it. Why? Because it cut off discussion. It meant that they were not accountable on the Floor of the House of Commons. They knew when they did it that there was a convention here that we did not vote against statutory instruments; we did not turn them down. By doing it that way the Government thought they were impregnable in their approach. I do not think they are.
Lord Deben
Could it not have been that they did it that way because that is what the Act said they had to do? Would that not be a more proper judgment of what the Government did?
Lord Richard
The Act gave the Government the power to do it. It did not compel them to do it. If they wanted to do it by way of an Act of Parliament it could have been done that way. They could have added it to the Finance Bill and it would have come up here and in the normal way financial privilege would have applied and none of this nonsense would have been created. Perhaps the reason the Government chose to legislate in this way was because it was bound to create political controversy. Perhaps that was the object of the exercise.
I want to say a word about the debate in 2008. It was when this House limited the power of a Labour Government to raise the national insurance upper threshold so that it could be done only through primary legislation. The two cases are almost identical. In each case, the Government were trying to alter tax provisions by a statutory regulation. In each case, this House was standing in their way. The only real difference is that in 2008—
Baroness Stowell of Beeston
I am so sorry to interrupt the noble Lord, but he is referring to a previous case in a way which I do not believe is accurate. The example he is citing relates to primary legislation, not to a statutory instrument. An amendment was properly tabled in this House to that primary legislation, and this House voted on it. This House sent the Bill back to the other place in the normal way. The House of Commons decided that it would invoke financial privilege, and that was the end of the matter, so it is wrong for the noble Lord to draw direct comparisons in the way that he is doing.
The reason why the 1911 Act is relevant is that is quite clear that secondary legislation is not covered by some of the conventions that have been raised in debate in this House. What is at risk here is the financial primacy of the Commons.
Lord Richard
I hear what the noble Baroness says but, as far as the financial privilege of the House of Commons is concerned, if this House decides to vote for my noble friend Lady Hollis’s amendment—as I hope it will—it would not kill the statutory instrument. It would not mean that it was dead. It would mean that its implementation was delayed. According to the clerks—and I understand it is broadly accepted by most people—that is not a fatal attack upon these regulations. If the House were to do that, we would get the best of both worlds. I am not in favour of voting for the Liberal Democrat amendment because I do not, on the whole, think that voting for fatal amendments on statutory instruments is a good thing for this House to do, and I do not think I have ever done it. However, an amendment to postpone the statutory instrument until the other House has a chance to look at the evidence that has now arisen makes a great deal of sense. I hope that, when it comes to a vote, that is what will happen.
The Archbishop of York
My Lords, I want to a repeat a few words of the noble Lord, Lord Richard. I, too, have been listening to this debate, and I listened to the argument made by the noble and learned Lord, Lord Mackay. He persuaded me that the amendment moved by the noble Baroness, Lady Manzoor, to decline to approve the regulations is fatal and perilously would raise all kinds of constitutional matters.
The amendments moved by the noble Baronesses, Lady Meacher and Lady Hollis, simply decline to consider the draft regulations. They do not say that the regulations will not be approved. In fact, they tie our hands because when the regulations are produced, we will have no choice but then to approve them. If the Chancellor is being very mindful, as we have been hearing from the Lord Privy Seal, and is willing to negotiate and to listen to our advice, well, we are giving him our advice, so why does he not take it? I think that the amendments moved by the noble Baronesses, Lady Meacher and Lady Hollis, are not fatal. They are simply delaying, and we can do something about it.
My right reverend friend called on the Government to further consult on the draft regulations and revisit their impact. It is a question of trust. If you are legislators and do not have the facts before you before you finally approve these draft regulations, you are abrogating your legislative responsibilities. If you are a revising and scrutinising Chamber, surely you must do it. If you do not, who else is going to do it? They may even be glad that some people are planning; it will become very clear that some were probably not all that important. The noble Baroness, Lady Hollis of Heigham, in her moving speech, outlined clearly the unintended consequences of this hasty way of reducing and cutting tax credits because the people who are going to suffer most are those who up to now have been relying on them. They are in work, and they are managing to get their things in order, and then suddenly the Government say they are going to take it away. That is not good. The Chancellor of the Exchequer is more likely to meet his target reduction of the budget deficit of up to £4.2 billion a year by introducing the real living wage first, which I trust will be calibrated soon by the Living Wage Foundation.
What is my basis for saying this? Two years ago, I chaired the Living Wage Commission which brought together people from business, the trade unions, industry and civil society to look at how we could inspire and create a brilliant way of dealing with this difficulty. How can we tackle the blight of low pay? We looked closely and objectively at the case for the living wage, and we were sure about what should be done. Let me give the House the evidence. It is in the report. The evidence pointed to the living wage being good for employees, good for business, good for the economy, good for society and good for low-paid people. Employers who have already adopted a living wage policy have lifted thousands of people out of working poverty. They are not claiming tax credits because they have been lifted out. The Exchequer could gain up to £4.2 billion a year in increased tax revenues and reduced expenditure on tax credits. That is a much neater way of doing it. Businesses are reporting increases in productivity and improved morale. The truth is that you and I lose out on poverty wages. Billions of pounds are being spent every year on topping up the incomes of low-paid workers at a time when private finances are very tight. Demand is sucked out of the economy by the lack of spending power of a fifth of our workforce—about 5 million people—and where inequality grows, all of us end up diminished.
Economics was not always divorced from moral and ethical considerations. Adam Smith, the father of modern economics, had been professor of moral philosophy at the University of Glasgow before he wrote The Wealth of Nations. To him and later classical economists such as Ricardo, Mill and Henry George, ethical considerations were of prime importance. Economic justice on a global scale is the only way we are going to deal with this. The issue we are facing here is not just economics divorced from morals and ethics. The decisions we take will affect a lot of men and women throughout the country who want to get out of poverty and out of depending on tax credits, and we should consider them properly and fairly.
Britain has struggled through very challenging times. I hope that the work being done by government, business and the people of the United Kingdom will enable us to take a huge step forward. The minimum wage, when introduced, went some way, but it did not go far enough. Let me give some recent research which seems to suggest that the legislature has considered the possibility of delaying in order that further facts may be brought out. What are they? There has been a rise in demand for unsecured credit, with many people reporting an increase in their need to borrow. This is likely only to get worse in the winter months. Do you want people who have hitherto been dependent on work and tax credits to be driven to the loan sharks of this country? That would be quite unhelpful. What about UNICEF saying that a quarter of children in Britain are living in poverty? Britain is at risk of becoming a place where the haves and the have nots live in parallel worlds, where the common good, or the big society, has been a pious platitude rather than genuine. I want to listen more, and I hope the decision to delay the draft regulations until further facts ties our hands and allows the Chancellor, who is willing to listen to our advice, to come back with all that information. We are almost saying that we will pass it, we will agree with it.
Finally, a wonderful report by the Joseph Rowntree Foundation, Will the 2015 Summer Budget Improve Living Standards in 2020?, states that over seven years there has been a decline in living standards. It is pausing for the moment, but many low-income households are still much worse off than in 2008, leaving them struggling to make ends meet and reliant on benefits to top up their finances. Today, we want to say to hard-pressed families on poverty wages that the Government are serious about deficit reduction, but they want to do it in an orderly fashion that will not leave men and women in the hands of loan sharks.
Lord Fowler (Con)
My Lords, I have two claims to briefly intervene in the debate. First, it was my proposals in the social security legislation of 1986 that led to the introduction of family credit, which was a successor to Keith Joseph’s family income supplement and, of course, the forerunner of tax credits. It then became a Treasury matter when it went to tax credits. Obviously, I have considerable sympathy with the general case being put in this debate. Secondly, I was for six years the Secretary of State for Health and Social Security and, as such, no one’s idea of a natural supporter of the Treasury and all its schemes.
Lord Fowler
Various Chancellors and Chief Secretaries might put it more strongly, and a former one just has. Perhaps I can add in parenthesis in this heated debate that throughout my time doing social security my shadow Minister was Michael Meacher, who died last week. We did not agree on very much but he was a very honourable and totally sincere man and he will be much missed.
Lord Fowler
My Lords, I spent three months every year debating with the Treasury the proposals that it put forward to cut my budget. One counterargument I never used was that the specific cost-cutting measure was not in the party’s manifesto. Frankly, I had quite enough trouble getting the Treasury to recognise the measures that were in the manifesto. Every Government introduce measures not contained in the manifesto. The last thing I did was to introduce the dock labour scheme—there was not a word about that in the manifesto. Back in my old social security days, Barbara Castle, under pressure from the Treasury, altered the whole basis of measuring inflation at a cost and a saving of well over £1 billion.
The truth about reduction in benefit spending is that it is always going to be unpopular. I found that in Cabinet everyone was in favour of doing it in general but when it came to the specifics they always said, “Please, not that way”. Frankly, I think that the Conservative manifesto in 2015 spelled out what was intended with more clarity in this area than any manifesto I can remember on either side. The Government said in words that they would have to find £12 billion from welfare savings. That is a good deal more specific than any manifesto I had anything to do with myself and, indeed, any manifesto which ever came up on the other side.
Lord Campbell-Savours (Lab)
My Lords, in light of what the noble Lord just said, does he think that it was right for Mr Cameron to rule out cuts to tax credits at the time of the general election?
Lord Fowler
We have been round this particular point because the noble Lord has made it several times. More to the point, it has been considered now three times in the House of Commons and has been rejected. In fact, I think he was talking about considering child tax credits and not the whole ball game.
The manifesto also made it clear in words that pension upratings would be protected. In other words, that area of retirement would be ring-fenced. I do not think there was any great controversy about that. By ring-fencing pensioner benefits the Government narrowed the field very substantially from where the £12 billion cuts could come. It follows as night follows day. Not everyone will agree with that diagnosis. Indeed, my major reason for introducing family credit was my concern for low-income working families with children. Even then it was clear that pensioner earnings were improving and increasing and that was not being followed by the low-income families.
I do not think that anyone can have imagined how spending on tax credits was to escalate in the way that it did. Tax credit spending trebled in the 10 years up to 2010 and by the Budget of this year was estimated to be about £30 billion a year. That was a long way from the original aim. However, I accept that none of this was the fault of the families who are struggling to make ends meet, often in very difficult circumstances. I totally accept and agree with that. I therefore welcomed the assurance of the Leader of the House when she said that these matters would now be considered again. I hope that when they are we can find room to look particularly at families with children. That is a priority, and Frank Field has a Motion down on this. That argument is particularly strong. Whether the Government do this or not—and this is the point—is frankly a matter for the Chancellor of the Exchequer, who is answerable on this and other financial matters to the House of Commons and not to us. It is a common-sense position—
Baroness McIntosh of Hudnall (Lab)
My Lords, I hate to interrupt the noble Lord, for whom I have the greatest respect, but he said that the Leader had told the House that these measures would be reconsidered. I listened quite carefully to what the Leader said and I am not sure I heard that, but if I am wrong I am very happy to be corrected.
Lord Fowler
I leave it to the Leader of the House and the noble Earl who will be winding up to put it in specific words, but I think that not an unfair representation of what she said. We are the unelected House. The other place is the elected one. The measure has already been voted on twice, if not three times in the Commons. We cannot have the unelected House trying to impose its will on £5 billion of savings. I say one thing to the ex-Members of the House of Commons who are here: I do not remember their saying when we were in the House of Commons together, “We must give more financial power over what happens to the House of Lords”. I do not remember at any stage that point being made by anyone in any party on this particular position. I think a certain degree of humility might therefore be in order.
Lord Rooker (Lab)
I agree entirely with the point made by the noble Lord. Does this not show, though, that our powers on statutory instruments are far too drastic, as was pointed out in the report on conventions? It would be better if we gave up the power to accept or reject a statutory instrument in exchange for maybe two amendments, which would deal with the point made by the noble Lord, Lord Lawson—we could have tweaked it but we could not have opposed it anyway. There may be a lifeboat in this, if we could get something out of it in the way we deal with secondary legislation and avoid all this in future.
Lord Fowler
That is obviously something we can consider for the future, and on first hearing sounds an attractive proposition. However, we are considering what we are doing now and not in the future.
I make a last point. In spite of some of the criticism—no, the attack—now being directed at this House, it is my view that it carries out a very valuable series of functions. The Members I meet here day by day are hard-working, not just on the Floor of the House but in Select Committees. However, we need to recognise one common-sense thing: that as long as this is an appointed House, we must accept the limitations on our powers, particularly in financial matters. To ignore those limitations is not in the interests of Parliament, it is certainly not in the interests of the House of Lords and it is not in the interests of the public. It cannot be justified and that is why I will be voting against these amendments.
Lord Low of Dalston (CB)
My Lords, we have been going at this now for well over two and a half hours. Strong points have been made on each side of the argument and many points have been made in speeches that have been not only lengthy but weighty. I find it difficult to conceive that any more arguments can be deployed on either side. I submit that we need to make up our minds on the basis of what we have heard and that it is time to come to a conclusion.
Baroness Hayman (CB)
My Lords, I accept what the noble Lord, Lord Low, says but I want to make one or two points that have perhaps not been made before and, if the House will indulge me, I would be grateful for the opportunity so to do.
I shall not go over the case against the regulations in their current form. That has been argued powerfully tonight from all Benches, and I think that we could pass almost nem con that we feel there is a need for reconsideration. The issue before us is whether it is constitutionally appropriate for the House of Lords to use its most potent and well-known weapon—the weapon of delay—in respect of these regulations.
Very powerful speeches were made from the Bishops’ Benches. I am delighted that the right reverend Prelate the Bishop of Gloucester is here for today’s debate. I should warn her—or console her—that it is not always like this. However, I hope that those Benches and others will consider that it might be appropriate for the House to use its powers of delay tonight. I favour the amendment in the name of the noble Baroness, Lady Meacher, because it gives us an alternative to a fatal amendment on a matter which is, I agree, of high political import. It gives us the opportunity to delay the regulations and to ask the Commons—and, through it, the Government—to think again.
In introducing the debate, the noble Baroness the Leader of the House said that she had seen the Chancellor of the Exchequer today. I think that the words used were that he would “listen very carefully” to what was said in the House today. I accept that. However, having had the privilege of being a Member of both Houses, I think he will listen even more carefully to what is said in the House of Commons on Thursday, and I would like him to have the opportunity to do that.
Delaying an SI rather than killing it is innovative, and I have asked myself over time whether it is something we should therefore abjure. My answer is no. If we have the power to kill a statutory instrument and send it back to base, surely we have the power to delay it and wait for reconsideration.
I absolutely accept that this matter has been discussed in another place three times. Does it need further consideration? I think the evidence is that it does. Every time we discuss an amendment to a Bill that has gone through the House of Commons, it has probably been voted on three times: at Second Reading, in Committee and on Report. That does not inhibit us from saying first time round, “Please will you look again?”.
Therefore, for me, the only question that remains is that of financial privilege. I hesitate to cross swords with either the noble and learned Lord, Lord Mackay, or my noble friend Lord Butler, but the situation is not as clear-cut as they have set out. If this were a Finance Bill we would have no part in it, and if it were a taxation SI we would have no part in it. In fact, it would never come here: it would go through only the House of Commons. But it is not. This is an SI under “ordinary legislation”—under a welfare Bill. Under that legislation, this House considers amendments and sends them to the House of Commons. The House of Commons can then do what it likes with them: it can accept them; it can offer a compromise; it can reject them; or it can invoke financial privilege. However, that is after this House has asked it to think again. That is a better analogy than the analogy of a Finance Bill. This statutory instrument comes under welfare legislation, not a Finance Bill.
Lord Butler of Brockwell
Surely there is an analogy with Finance Bills. They come to your Lordships’ House but we pass them without amendment because that is the constitutional convention, and that is similar to what we are being asked to do on this statutory instrument.
Baroness Hayman
I say to the noble Lord, Lord Butler, that the financial convention has not stayed absolutely the same for 300 years. The convention was that this House did nothing about the Finance Bill or, indeed, other economic measures. In 2000, we set up an Economic Affairs Committee. The House of Commons went into free-fall about encroachment on financial privilege. In fact, we were told that Gordon Brown, the Prime Minister at the time—I see the noble Lord, Lord Lisvane, nodding—was incandescent at the idea that there should be a sub-committee looking at the Finance Bill. However, those things happened and the world did not collapse. Financial privilege and the right of the Commons to have the final say was not impeded.
To my mind, this is a matter of very high and clear-cut politics, and of highly nuanced constitutional significance. Overall, I believe that the most important power of this House, while leaving the last word to the other place, is to ask it to think again, and I urge the House to use that power this evening.
Baroness Smith of Basildon
My Lords, this has been a quite extraordinary debate. It is unusual for your Lordships’ House to find itself at the centre of such a ferocious policy and constitutional debate as it does today. It is also extraordinary and unusual that, on a matter that affects the Department for Work and Pensions and the Treasury, we have no Treasury or DWP Minister addressing your Lordships’ House today. I can understand why: the Government feel more comfortable talking about constitutional issues in this regard than they do about the impact of this policy. We all understand that. Again, it was extraordinary that the noble Baroness the Leader of the House supported an amendment to her policy by supporting the right reverend Prelate’s amendment. So there have been some quite extraordinary scenes and what we are seeing today is unprecedented. It is good to see the noble Earl, Lord Howe—
Baroness Stowell of Beeston
I thank the noble Baroness for giving way. It is important that she does so because she has incorrectly interpreted what I said. I was very clear that the Government do not support any amendment to their Motion. I said that the right reverend Prelate had brought forward his concerns in a way that was consistent with the conventions and the proper role of this House.
Baroness Smith of Basildon
I think that that is a bit of an angels-on-pinheads defence, but I take the point that she makes.
I suspect that when the noble Earl, Lord Howe, took on the role of defence Minister, he did not think that his job would be defending all government policies across the House, as he is being asked to do today.
We have been asked to approve the Government’s tax credit order, and we are unable to do so. The reasons for that have been very carefully laid out. Our view is that these are pernicious regulations that do enormous damage. Overnight, at a sweep, they would dramatically cut the income of some of the poorest in society: those who are working hard and doing what the Government say is the “right thing”. About 3 million people will be affected by these cuts. Like many other noble Lords, I have had emails and letters from those who are likely to be affected: from nurses, teachers, cleaners and firefighters—people working hard, trying to raise a family. They are terrified by what lies before them; they do not know how they are going to cope. The noble Baroness, Lady Campbell, echoed some of the emails that I have received when she talked about those who have disabilities being moved into work and finding it so much better for them.
When my noble friend Lady Hollis spoke to her amendment, the House was silent. We could have heard a pin drop as we listened to what these cuts will really mean and the impact that they will have on people across this country. I think that the House was shocked and upset by the information that she provided today. However, she also provided a way through.
The noble Lord, Lord Lawson, said that tax credits have increased to £30 billion. They have; that is part of their success. In almost equal measure, we have seen income support reduce as people went into work. Therefore, they were no longer on income support but were receiving tax credits—that was the success of the measure. Income support went down as people moved into work and received tax credits to reflect their circumstances and help them to work. We have always been told that the way out of poverty is work, and that is what those people on tax credits have done; they have moved into work.
It may be that some people cannot imagine what it is like to lose £25 or £30 a week from their income. For a lot of people out there, the loss of that £25 or £30 a week—in some cases much more—would be devastating. It would mean not putting in the money for heating this winter when it gets colder; it would mean not getting the kids new school shoes; it would mean making the kinds of choices that we should never place on families.
This is a highly contentious area, but it is the policy that is important. Having said that, there are conventional and constitutional issues, which noble Lords have raised, that have given some concern. It would, as we have heard, normally be expected for a measure of this nature and magnitude to be introduced by primary legislation. Thus, a government Bill would go through all the stages that such a Bill goes through and there would be the opportunity to debate it, put amendments to it and vote on those amendments. There would be opportunity to make revisions and to listen to the concerns that were raised. One has to wonder why the Government did not take that route. They could have applied financial privilege, which would have stopped all this, but they have chosen to deal with this measure through a statutory instrument.
Baroness Butler-Sloss (CB)
I am sorry to interrupt the noble Baroness, but we did hear from the noble and learned Lord, Lord Mackay, that this came about as a result of the secondary legislation from the tax credits legislation introduced by her Government. As a result of which, this is a natural progression from that legislation. Therefore, perhaps the noble Baroness could explain why that was wrong.
Baroness Smith of Basildon
I can certainly help. In 2002, the legislation that went through that allowed for amendments to tax credits legislation to be made by statutory instruments or delegated legislation was so that normal uprating, for example, could be applied. It was for minor changes and normal uprating. However, major policy changes would not normally be made by these kinds of regulations. Furthermore, as I said earlier in my intervention on the noble Lord, Lord Lawson, the legislation in 2002 was not itself subject to financial privilege. But now we have a Government saying that the secondary legislation that follows on from that should be subject to financial privilege. I hope that that addresses the concerns that the noble and learned Baroness has raised. I give way to the noble Baroness yet again.
Baroness Stowell of Beeston
An important point for the House to understand is that the original Bill—the Tax Credits Act 2002—was not certified as a money Bill because it included changes to the administration of the welfare system. Had it just been about the financial measures that we are debating, it would probably have been certified as a money Bill. It was the addition of administration that caused it not to be certified as a money Bill.
Baroness Hollis of Heigham
My Lords, I took those two Bills through this House. I can tell the Minister that such considerations never arose.
Baroness Stowell of Beeston
They would not, because certification of a Bill is done by the Speaker.
Baroness Smith of Basildon
In some ways, the Minister makes my point for me. Major issues and changes such as this are undertaken in primary legislation—a case she made for what happened in 2002. It is unusual to make such major changes in secondary legislation. But let us leave that to one side, if we may.
Anybody in the real world listening to us talk today would wonder what on earth we are on about—primary legislation, secondary legislation, delegated legislation, affirmatives and negatives. What really matters is the impact it has and applying a common-sense approach to what is before us today. We know, as parliamentarians, that SIs are more normally used for that specific detail of legislation that we have passed already or for issues following primary legislation where the principle has already been approved into law. As I have said, they can be very properly used for normal uprating in tax credits, and I made the point about 2002 to the noble and learned Lord, Lord Mackay.
The proposal before us today goes way beyond that normal kind of uprating. It is a major policy change that, in the first place, the Government promised not to do. The route that the Government have chosen is not illegal or the wrong route, but there are consequences of taking it. If the Government try to truncate the process, so as not to have that full consideration in the House of Lords, yet at the same time allow this House, through the normal constitutional procedures of your Lordships’ House, to debate and discuss the proposal and the kinds of amendments that we have before us today, it is quite clear that the amendment from my noble friend Lady Hollis is not a fatal amendment, whatever the Minister and her colleagues may think. She has had advice from the clerks and has made numerous references. It is no good the Leader shaking her head at me; the evidence is there and it is very clear cut.
If the Government had gone down the normal route, they would have claimed financial privilege and we would not be here today, and there would have been further debates in the House of Commons. MPs from across the House privately, and now publicly, admit that this goes too far, too quickly and causes too much harm.
The amendment in the name of my noble friend Lady Hollis is what I refer to as the common-sense, practical approach. It can really make a difference and is in line with what most people in this country are asking for: 60% of the population today are reported to want to see a U-turn or change in this policy. That is what my noble friend is seeking to do. Her amendment calls on the House to reject these proposals as they stand and for Ministers to come back with a proposed scheme to protect those already getting tax credits for at least three years—that is all of them.
If the amendment is passed, what happens next? The onus is then on the Government to take the proposals away and reconsider. The Government can bring forward new proposals for consideration. The policy would not, as the noble Lord, Lord Butler, intimated, disappear into the ether—that is a matter for the Government. If they are committed to doing something, the Government can bring new proposals to your Lordships’ House or choose to bring forward new primary legislation. However, if they failed to bring anything back at all, it would mean that they could not proceed with these cuts, would have to look for another route and would have to reconsider their policy. No Government ever have the wisdom such that they are right all the time. This House is right to ask the other place and the Government to reconsider, to pause and to try to get it right.
Lord Butler of Brockwell
But it is a blocking amendment. Nobody can compel the Government to do what the amendment says, and if the Government do not, the House of Lords would be refusing to consider this Motion indefinitely.
Baroness Smith of Basildon
The noble Lord, Lord Butler, seems to be under the impression that, contrary to what the Leader said, the Government want to do nothing. The Government would have us believe, from what they have hinted at, that they are happy to look at things again. Therefore, I do not accept his argument on that. What is clear, though, is that passing the amendment of my noble friend Lady Hollis would force the Government to look at this again. We would have a commitment, a promise: they would have to look at this issue again and say where they could make significant changes to protect those who are currently terrified of the letters they will get at Christmas outlining the cuts to expect in their income.
We have been very clear: this is not a fatal amendment; it does not totally block the Government’s plans; it allows them to reconsider. Although we do not have the right to pass a fatal amendment, we have a moral and constitutional duty to scrutinise, examine and challenge and, when a Government have clearly got it wrong, to ask them to think again. The noble Lord, Lord Cormack, and I were sparring partners at a distance on Radio 4 today, but even those voting with the Government tonight are saying, “But I’ve got great concerns about the policy; I want to see change”. The noble Baroness needs to know, if her troops follow her into the Lobby today, that they are doing so because she has tried to make a constitutional issue out of this, not because they agree with the tax credit cuts. We could give the Chancellor of the Exchequer tonight an opportunity to address the very deep concerns expressed by Peers and Members of Parliament of all parties, including very senior members of her own party and colleagues on the Benches behind her.
I want to explain why these Benches have not put forward a straightforward fatal Motion like the one tabled by the Liberal Democrats at the behest of their party leader, Tim Farron. In policy terms, there is little between us on this issue. It is significant that the fatal Motion was tabled only after the Government had threatened retaliation if your Lordships’ House voted against the cuts. That escalated the constitutional issues and let the Government off the hook a bit, because they were more willing to talk about constitutional issues than about the impact of these cuts. The really important task before us today is to look at how we can protect people from what the Government have proposed, and I regret that the fatal Motion has allowed the focus to go off the issue and on to the constitution. My further concern is that the Government, having won a vote in the Commons, would quickly return with new primary legislation with very little change, if any, to avoid consideration by your Lordships’ House.
We believe that our Motion is the only one that can lead to meaningful change. It gives Ministers the opportunity to take a step back and listen properly to the clamour of voices calling for them to think again. That is the right role for your Lordships’ House to take. Those voices are clamouring not just here in Parliament; it is also the Children’s Society, think tanks such as the IFS, the IEA and the Adam Smith Institute, and newspapers such as the Sun that would normally support this Government.
We have heard the arguments about whether this oversteps our constitutional authority. It does not.
Lord Forsyth of Drumlean
Can the noble Baroness tell us exactly how much the proposal of the noble Baroness, Lady Hollis, would cost?
Baroness Smith of Basildon
My noble friend Lady Hollis is very keen to tell the noble Lord.
Baroness Hollis of Heigham
Yes, my Lords. I had hoped that the noble Lord, Lord Forsyth, in his courteous way, would have heard my argument that the savings would come to the Government automatically; first, by the rise in the living wage, of which three-quarters of a billion pounds each and every year accrues back to the Government; secondly, by the fact that new claimants to tax credits are not covered by our amendment; and thirdly, because the National Audit Office says that, by 2019, more than 90% of those on tax credits will be on universal credit, where they will have their cuts. Over the entire Parliament, the Government will have matching savings that probably exceed the very cuts that they demand.
Baroness Smith of Basildon
My Lords, the point made by my noble friend is that this is a choice for the Government, not a necessity. What we have seen in the last week has enlightened all of us on the Government’s reluctance to accept challenge or proper scrutiny. There is no constitutional crisis looming at all. The Prime Minister has provoked a rather phoney constitutional crisis in this House rather than dealing with the very serious problems with his and the Chancellor’s tax credit policy. In the last Labour Government, we lost many dozens of votes here in the House of Lords on a range of issues, including one on 42 days’ detention, and one on the entire Second Reading of a Bill. Of course we did not like it, but we accepted it and moved on. At no point in this Session of Parliament have this Official Opposition not accepted the right of the Government to get their legislation through, but they have to do so properly, and they do not have a monopoly on getting things right all the time. In this case, we really believe that the Government have it wrong.
The threats that have been made to the House of Lords as an institution have been nothing less than parliamentary bullying.
Baroness Smith of Basildon
Threats to suspend the House of Lords; to pack it with 150 new Tory Peers, or to “clip our wings” do nothing to address the issues that are before us and have given rise to concerns. There is a need for true reform of your Lordships’ House and Labour Peers have already suggested good measures, but those threats have nothing to do with reform and everything to do with the Government not wanting to be challenged and not being willing to think again.
This is a common-sense way to do things. This House looks at the issues; considers them and thinks the Government have got them wrong; so let us send them back to the Government and urge them to rethink and come back with something that is significantly better and does not really harm, and create enormous fear in, those people in work who are struggling to make ends meet and are terrified of the letters that are going to come through their letterboxes near Christmas. We will not exceed our authority, but neither will we be cowed into abdicating our responsibilities to hold the Government to account and act in the public interest.
The Minister of State, Ministry of Defence (Earl Howe) (Con)
My Lords, the privilege falls to me, as Deputy Leader, of winding up this debate, which has proved to be a remarkable one. In many ways, it has been a landmark in the proceedings of the House. We have been treated to some extremely powerful contributions, both for and against the draft regulations, and both for and against the amendments that have been tabled. I listened with care to them all. I suggest to your Lordships that there are, in essence, two aspects of the matter that we are here to consider: the content of the regulations themselves and the issues which, for want of a better term, I will call the constitutional questions that arise out of three of the amendments before us.
Turning first to the policy issues, without unnecessarily going over the ground already covered by my noble friend the Leader of the House, there is one central point to be made at the outset. I make this point given that a number of noble Lords have seen fit to criticise both the intent and the effect of what the Government are seeking to achieve. The Government want a new deal for working people: a deal whereby those who claim either tax credits or universal credit will always be better off in work and always be better off working more. The way in which we are doing this will mean that a typical family man or woman, working full-time on the national living wage, will be substantially better off by the end of this Parliament than at the beginning of it. That is the aim that we have set ourselves and it is an aim that runs parallel with our policy intent, which we have made expressly clear for nearly two years now: that a Conservative Government, if and when elected, would look to find welfare savings of around £12 billion in order to reduce the public sector deficit. I simply say to the noble Baroness, Lady Hollis, that the proposals that she has very constructively put forward are already built into the assumptions that we made. I am happy to look at her proposals in more detail but, from what she said, the Chancellor has already factored those points in.
Achieving those two policies simultaneously is possible only if a series of measures is taken—measures that will move us from a position in which working households are supported by low wages and high tax credits to one where there are higher wages and lower tax credits. The regulations that are before us today are about only the tax credit element of that overall picture. That is why it is unfair to pick up the report from the Institute of Fiscal Studies and point with alarm to large losses that a poorer working family might incur from cuts in tax credits without also taking into account other vitally important things that we are doing. The counterbalance to lower tax credits is a combination of positives—the national living wage, the rise in the income tax personal allowance and, importantly—
Baroness Meacher
The analysis of the Institute for Fiscal Studies is very clear in incorporating the effects not only of the tax credit changes but of the rise in the minimum wage, the move to the national living wage and the increase in the income tax and higher-rate tax thresholds. It makes very clear the redistributional effects of all these things from the poor to the rich.
Earl Howe
I do not dispute that the Institute for Fiscal Studies has looked at these things, but the figure of £1,300 that has been quoted is one that does not take into account the positives that I mentioned. Importantly for families with children, the doubling of free childcare should not be overlooked. For many people, although not for all, that will make it possible to work longer hours. Those are just some of the counterbalances. The noble Baroness, Lady Manzoor, chose not to mention them.
I cannot pretend that these have been easy decisions. However, I put it to the House that the measures that we are taking are the right thing for us to be doing—right not only for individual working families but for the nation. We are still, as a nation, living grossly beyond our means. Even so, eight out of 10 working households will be better off by 2017-18 than they are now because of the combined effect of the measures that we are taking.
Baroness Manzoor
Will the noble Earl say where the evidence is to support that assertion about eight out of 10 households? That is partly the problem, because those sorts of impact assessments have not been done.
Lord McKenzie of Luton (Lab)
My Lords, is the Minister saying that eight out of 10 people currently on tax credits and subject to these cuts are similarly to be better off?
Baroness Kramer
My Lords, for clarification, will the Minister focus on the two out of 10 whom he says are losers and tell us how many people those are? How many children are in those families and what is their loss likely to be? We are talking about something close on 1 million people, largely families with children. I think that he will be able to confirm that they are in the lowest deciles of the population in terms of poverty.
Earl Howe
Let me address that. It has been said by some noble Lords, and the noble Baroness’s question implies it, that the brunt of these savings will be borne by those on tax credits who are relatively worse off. That is not the case. The 10% of tax credit claimants on the highest incomes—incidentally, those on £42,000 on average—contribute nearly four times as much to the savings that we are proposing as the poorest claimants. That is an important point to factor in. The problem with talking about those at the lower end of the scale is that everyone’s circumstances are different. Some people have children and some do not. Some have a disability and some do not. Some work shorter hours, some work longer hours. It is very difficult to particularise.
I can say that the cut in public spending that we propose through this regulation is one that will take us back not to some far-distant point in the past, but to the levels of spending seen in 2007-08 before the financial crash. I am talking of course about the spending position in its totality. One cannot particularise, as I said, to an individual case because people’s circumstances will be different.
Lord Purvis of Tweed
The Deputy Leader is giving a defence of the Government’s position that does not give much of an indication that the Government are prepared to think again, as some Members on the opposite Benches have indicated. Before he came to the House today, I wonder if he had spoken to the leader of his party in Scotland, Ruth Davidson. She said over the weekend:
“If we’re not the party of getting people into work and making it easier for them to get up the tree, then what are we there for? It’s not acceptable. The aim is sound, but we can’t have people suffering on the way. The idea that there’s a cliff edge in April before the uptake in wages comes in is a real practical human problem and the Government needs to look again at it”.
Will they?
Lord Purvis of Tweed
Maybe I was not entirely clear. That was the leader of the noble Earl’s party in Scotland.
Earl Howe
Look, I cannot take those comments in any sort of context, having not read them. Of course, I accept what the noble Lord has reported about the leader of the Conservative Party in Scotland, but I am not aware of the general context in which she was speaking and I hope he will understand that.
Lord Spicer (Con)
Will the noble Earl say how these figures compare with the budget for the nation’s entire defence spending, which he deals with in his day job?
Earl Howe
The regulations before us account for £4.4 billion of public expenditure in the next financial year. That is a large slice of the defence budget, but it is not the total defence budget. It will however mean that the Chancellor has more money at his disposal to spend on schools, hospitals and those with disabilities. Incidentally, I say to the most reverend Primate the Archbishop of York that the national living wage is possible only because the economy of this country is strengthening, and it is strengthening because there is a high degree of confidence in the Government’s economic programme and their ability to deliver economic stability by, among other things, reducing the deficit. One has to look at the totality of what the Chancellor’s programme consists of.
The Archbishop of York
The Living Wage Commission, which I chair, was working in conditions when the economic climate was not very good. We were very clear that those companies that can afford to pay should pay a living wage. The noble Earl will be interested to know that, even before the economy started improving, a lot of companies acted out of an ethical conviction about their workers. As Churchill said here 100 years ago, the greatest evil is that some of Her Majesty’s people are not being paid a living wage. Those companies actually took on the need to pay a living wage and were doing so even when the economic climate was very poor. Of course, I agree that the economy has improved, but if it has improved, why are we not helping the poorest who need us most?
Earl Howe
We are doing so. We are doing so through the national living wage. We should welcome the fact that these companies are already paying the national living wage. There are 200 major companies already doing so. That is a very good thing. I congratulate the most reverend Primate on the work that he has done in this area. I do not think there is anything much between us on this, as a matter of fact.
The Archbishop of York
Sorry—this is about the impression that was being given. I am suggesting that the Chancellor of Exchequer actually may meet the £4.2 billion that he wants to cut in tax credits through the living wage, because the report actually shows that if the 5 million are being paid a living wage, it is more likely that less tax credit would have to be taken off. My worry relates to the people who are going to suffer. That is what my speech was all about.
Earl Howe
Interestingly, the Institute for Fiscal Studies said in terms in its report that the Chancellor made quite a big choice in the Budget to protect some of the poorest people on tax credits. That is self-evidently true. I would add in response to the noble Baroness, Lady Campbell of Surbiton, who I am sorry is not in her place—oh, she is, I beg her pardon—that the disabled and severely disabled elements of working tax credit will not be cut through these measures. They will be uprated by inflation. In fact, the Government are making savings in tax credits, so that they can protect disability benefits which have been protected from the benefits freeze and the welfare cap, including DLA and the support group component of ESA, as well as disability elements of the tax credits, as I have mentioned. I hope that that is of some reassurance to her.
Despite all that I have said about why what we are doing is both necessary and right, I recognise that there are noble Lords opposite who will remain unpersuaded. Let me therefore address the amendments. Other than in the rarest of circumstances, it is against the long-standing conventions of this House—and, therefore, I would suggest wrong—for us to vote down or block secondary legislation. Those rare circumstances, I would argue, do not include this situation, in which noble Lords are seeking to challenge the House of Commons on a matter of public spending and taxation, a point made very effectively by the noble Lord, Lord Butler. The sums involved are not trivial. The regulations before us, as I said, would account for welfare savings of £4.4 billion in 2016-17. We can argue—as I am actually quite interested in doing, but I do not think it would be profitable—about the technicality of whether these regulations are or are not financial, but in substance they are very definitely and very obviously financial. I therefore say to the noble Baroness, Lady Manzoor, that her fatally worded amendment should not be put to a vote.
On the amendments tabled by the noble Baronesses, Lady Meacher and Lady Hollis, the situation, I contend, is simple. There is a choice before this House to approve or not to approve these regulations. It is a binary choice. The noble Baronesses are inviting the House to withhold our approval. We can argue endlessly once again about the technicality of whether the wording of these amendments is or is not fatal in nature. But the reality is that if either amendment is passed, this House will not have approved these regulations. It is no good saying that this would merely amount to asking the House of Commons to think again. They can do that with Lords’ amendments to primary legislation, but with secondary legislation there is no mechanism for a dialogue between the Houses and no mechanism to allow the will of the Commons to prevail in respect of this instrument—
Baroness Smith of Basildon
I sense the noble Lord is coming to a conclusion. Does he accept that the amendment of the noble Baroness, Lady Hollis, does not ask the House of Commons to think again; it asks the Government to reconsider their proposals and think about new ones? It is asking the Government to reconsider.
Earl Howe
Of course, I do accept that. The amendment of the noble Baroness is expressly asking the Government to do something other than what is in the regulations. By definition, that means that if her amendment were carried, we could not bring back the same set of proposals. The implementation of these regulations would not be delayed, as the noble Baroness is suggesting; it would be thwarted entirely. So, she is asking the House to accept a false proposition. It is very interesting that the noble Baroness herself has recently given an interview which certainly implied that the amendment of the noble Baroness, Lady Hollis, is a fatal one. In the interview she gave to the Huffington Post, she said that if the amendment of the noble Baroness is carried, the Government cannot go ahead with the cuts. Well, that, to me, is very fatal indeed. Therefore—
Lord Grocott
I am really quite surprised at the noble Earl, given all his experience and the respect in which he is held in this House. He seems to be suggesting that there is no significant difference between a fatal amendment and a non-fatal amendment. In the time I have been here, which is less than his, there has always been a clear distinction between the two—“binary” is the word he used in another context. Indeed, the Leader of the House seemed to be unclear in her opening remarks about the distinction between the Lib Dem amendment and the Labour amendment, but the difference is surely fundamental. If he does not accept my proposition, could he at least enlighten the House as to the professional advice from clerks to him and the Conservative Front Bench about which of these amendments are fatal and which are not.
Baroness Symons of Vernham Dean
I beg the noble Earl’s pardon. I have the greatest respect for him, but in her speech my noble friend Lady Hollis said explicitly that she had drafted her amendment with the help of the Clerk of the Parliaments, and the Clerk of the Parliaments said that it is not a fatal amendment. Is the noble Earl challenging that?
Earl Howe
—the traditionally worded fatal amendment is that in the name of the noble Baroness, Lady Manzoor. I am sure that the noble Baroness, Lady Hollis, got good advice—the best advice there is—but what we are looking at is what would happen if her amendment were carried. I am saying that it would frustrate the Government’s intent.
Baroness O’Loan
Does the Minister think that it would be impossible, if either of these two amendments were passed, for the Government to bring back regulations in the form of a statutory instrument to this House?
Earl Howe
The problem is that the amendment in the name of the noble Baroness, Lady Hollis, holds the Government hostage. It holds them to ransom. We might be able to bring back some different regulations, but what if those were unacceptable to the House? Let us read the wording of the amendment. It puts us on a perpetual treadmill.
Baroness Meacher
There is a very important distinction between the amendment in the name of the noble Baroness, Lady Hollis, and my amendment. The crucial point about the amendment I have tabled, which is also not a fatal amendment, is that all it asks for is some time and some information. That is a very different thing from asking the Government to spend money on transitional arrangements. I have put down the amendment for only one reason, and that is because the House of Commons has a cross-party Motion on Thursday which they wish to and will debate. It has on it the names of eight Conservative MPs, including those of former Cabinet Ministers. Does the Minister accept that to give the Government time to listen to the Commons is an entirely appropriate duty for this House to perform?
Earl Howe
I understand what the noble Baroness is seeking to achieve here, but the fact is that the House of Commons has looked at this three times and has not overturned the proposals. In fact, it has approved them. I would simply say to the noble Baroness that if we are talking about the advice given by the Clerk of the Parliaments, there is a crucial difference between an amendment that it is procedurally permissible to bring before the House, and one which it is constitutionally proper for the House to approve. I do not take issue with the noble Baroness, Lady Meacher, or the noble Baroness, Lady Hollis, bringing forward their amendments. What I do take issue with is the idea that we should vote in favour of either of them, or indeed in favour of the amendment in the name of the noble Baroness, Lady Manzoor.
I need to conclude. For the House to withhold its consent to the regulations today would, in my submission, mean overruling the House of Commons on an issue which that House has already expressed its view on three times. In other words, it would mean doing what this House has not done for more than 100 years, which is to seek to override the primacy of the House of Commons on a financial matter. So I say respectfully to the noble Baronesses, Lady Manzoor, Lady Hollis and Lady Meacher, that there is a right way and a wrong way to challenge government policy on a matter of this kind. This is the wrong way. The right way is to table an amendment such as the one in the name of the right reverend Prelate—not that I support it, but that is the proper way of doing it—or at a suitable opportunity to table an amendment to primary legislation. Indeed, a Bill is coming to us shortly, the Welfare Reform and Work Bill, which would enable noble Lords to do exactly that, should they so choose.
My contention is this. The measures in these regulations form a central plank of the programme on which the Government were elected to office in May. It is a programme that has been in the public domain for a long time. However, even if it was not and even if these were policies dreamt up by the Chancellor overnight, I respectfully say to your Lordships that this House, under its conventions, should not reject statutory instruments or seek to overturn the primacy of the other place on a matter of very sizeable public expenditure. I therefore invite the sponsors of each of the amendments to withdraw them, and I urge the House to allow the regulations to pass. Moreover, I simply remind the House that in order to support the amendment in the name of the right reverend Prelate, the preceding three amendments need either to be withdrawn or defeated.
Baroness Manzoor
My Lords, I thank everyone who has contributed to this debate. Noble Lords will be relieved to hear that I do not intend to summarise the excellent contributions that have been made from all sides of the House. As your Lordships know, I am a relatively new Member, and for me it is a privilege to serve as a Member of this House. But with that privilege comes responsibility.
Tabling this Motion was not something I did lightly. I do not discount the strength of feeling on the role of the House and I do not believe that this is a situation in which the House should find itself regularly. However, ultimately this is about the House making a decision on whether we think it is acceptable for the Government to cut off vital support for 3 million families which they claim to support. It is about whether we think it is acceptable for the Prime Minister to make these changes not via primary legislation, but by a procedural instrument—in direct contradiction of what he said to people during the general election. It is about whether we think it is acceptable for this House to relinquish its responsibilities to those affected.
I welcome the Leader of the House saying that the Chancellor will be listening to this debate—and I hope also to the country—very carefully. But I could not look myself in the eye tomorrow if I had not done all I could to stop this devastating measure going through. I know that many in my party feel the same, and while I hold no ill will against anyone who does not share our view, I hope that those who agree that the lives of the 4.9 million children who will be affected should be our primary concern will join us in the Division Lobby. Tax credit cuts for low-paid working families are short-sighted and deeply damaging, not only to the parents and children who will bear the cost, but to the Government’s own long-term goals. I urge the Government to rethink, and I hope the House will choose to reject the regulations as they stand. I wish to test the opinion of the House.
Baroness Meacher
As an amendment to the Motion in the name of the Lord Privy Seal, to leave out all the words after “that” and insert “this House declines to consider the draft regulations laid before the House on 7 September until the Government lay a report before the House, detailing their response to the analysis of the draft regulations by the Institute for Fiscal Studies, and considering possible mitigating action.”
Baroness Meacher
My Lords, you will be glad to know I will speak extremely briefly. I thank many noble Lords for setting out so clearly the consequence of these regulations for vulnerable people and the need for the Government to come forward with mitigating measures. My amendment to defer consideration pending a report, nothing more—no money, nothing unusual—raises no constitutional issues. The evidence is absolutely clear on this from our clerks and from many authorities. I ask the House to perform its duty: to enable the Government to think again and to ensure that they listen to the elected House next Thursday. I want to test the opinion of the House.
The Lord Speaker
My Lords, before I put the Question, I should inform the House that, if this amendment is agreed to, I cannot call the amendment in the name of the right reverend Prelate the Bishop of Portsmouth by reason of pre-emption.
Baroness Hollis of Heigham
As an amendment to the motion in the name of the Lord Privy Seal, to leave out all the words after “that” and insert “this House declines to consider the draft Regulations laid before the House on 7 September until the Government, (1) following consultation have reported to Parliament a scheme for full transitional protection for a minimum of three years for all low-income families and individuals currently receiving tax credits before 5 April 2016, such transitional protection to be renewable after three years with parliamentary approval, and (2) have laid a report before the House, detailing their response to the analysis of the draft Regulations by the Institute for Fiscal Studies, and considering possible mitigating action.”
Baroness Hollis of Heigham
My Lords, we have had the arguments. I wish to test the opinion of the House.
Bank of England and Financial Services Bill [HL]
(9 years ago)
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The Parliamentary Secretary, Cabinet Office (Lord Bridges of Headley) (Con)
My Lords, it is now over seven years since the height of the financial crisis. In that time, many steps have been taken not simply to repair the damage done but to reform the entire financial sector. The regulatory system and regulatory standards are now vastly different from those which existed before the crisis—and rightly so. Those reforms, many of which were enacted by the last coalition Government, bear the imprint of a number of your Lordships. I would like to thank in particular noble Lords who were part of the Parliamentary Commission on Banking Standards. Although I cannot claim the considerable expertise that many of your Lordships have on financial matters, I have worked for two banks—HSBC and, more recently, Banco Santander. I mention this not just for the record but to say that, from that vantage point, I have seen the painstaking efforts your Lordships take to ensure that we fully address the failings of the previous regulatory regime, doing so in a robust but proportionate way.
Today our financial services are far more resilient than they were seven years ago. The Chancellor has talked of the British dilemma of being a host for global finance without exposing taxpayers to the costs of financial failures. We have made real progress in tackling this dilemma, but it would be hubristic to say that this is job done. Even if memories of what happened in 2008 may begin to fade, we must never forget the lessons that that crisis taught us. Eternal vigilance is required—but this should not be mistaken for ever more regulation. We must never fall victim to the belief that we can somehow magically regulate risk out of the system. Nor should we try to do so: risk and innovation are two sides of the same coin. Our challenge is to get the balance right—to deliver stability and protect taxpayers, while allowing free markets, enterprise and innovation to flourish.
This is the backcloth to the Bill, which seeks to implement a series of evolutionary changes to the regulatory system as part of this Government’s commitment to deliver a new settlement for financial services. There are four main elements to this.
First, the Bill will strengthen the governance, transparency and accountability of the Bank of England, as well as updating resolution planning and crisis management arrangements between the Bank and the Treasury. Secondly, it will extend the senior managers and certification regime across the whole financial services industry to increase the accountability of the sector and will build a new duty of responsibility into the regime, ahead of its introduction next year. Thirdly, it extends the scope of the Pension Wise guidance service. Finally, it makes technical changes to the Scottish and Northern Irish banknote issuance regime to allow new issuers to be authorised in place of an existing issuer to facilitate group restructuring.
I turn first to the measures which will strengthen the governance and accountability of the Bank of England. As noble Lords will be aware, the Bank was established in 1694 to finance the War of the Grand Alliance against France. At that time, the 24 directors of the Bank were each required to hold £2,000 of Bank stock. The first matter the new court discussed was “the method of giving receipts for cash”. At its third meeting, the court appointed the first officials of the Bank; there were only 19, including two doorkeepers. The new court also made a number of other important decisions, including appointing a committee to inspect the cash, and recommending that the cashiers should be “fenced in to keep off people from disturbing them”. Scroll forward to the 20th century and much had changed, but even in the interwar years the long-serving executive director of the Bank, Sir Otto Niemeyer, observed, “When the Permanent Secretary of the Treasury visited the Bank of England … he took a taxi because he was not quite sure where the Bank was”.
It is fair to say that both the role of the Bank and its governance have seen some changes in the intervening years. From a macroeconomic perspective, some of the most important developments have been in the recent past. In 1997 the Bank was given operational responsibility for monetary policy. During the last Parliament, the Government put the Bank at the centre of a fundamentally reformed regulatory architecture, giving it significant new responsibilities and the powers it needs to deliver its financial stability mandate. The Bank is tasked with delivering monetary and financial stability, and as such plays a critical role in maintaining the stable macroeconomic conditions that are a prerequisite for delivering the Government’s long-term economic plan. It is vital, therefore, that the structure and governance of the Bank put it on the best possible footing to fulfil its critical role in supporting UK economic stability.
The Bank itself recognises this need. Through its “One Mission. One Bank” strategic plan and its 2014 publication Transparency and Accountability at the Bank of England, the Bank has set out a series of changes to reinforce its transparency, accountability and governance and contribute to its strategic objective of operating as a single, integrated institution. The Bill brings forward a set of evolutionary changes that are complementary to the steps the Bank itself is taking. The key measures that I would like to highlight are as follows.
First, the Bill will strengthen the role and governance of the court, including by implementing the recommendation of the Parliamentary Commission on Banking Standards to remove the Oversight Committee and transferring its functions to the court. This will complete the job to enable the court to act as a modern unitary board, with performance overseen by the executive and non-executive together. Next, the Bill will end the Prudential Regulation Authority’s status as a subsidiary of the Bank, integrating microprudential supervision more fully into the Bank. The PRA board will be replaced by a new Prudential Regulatory Committee, modelled on the Monetary Policy Committee and Financial Policy Committee, with sole responsibility within the Bank for the PRA’s functions. These changes will support the Governor’s strategy,
“to conduct supervision as an integrated part of the central bank and not as a standalone supervisory agency that happens to be attached to a central bank”.
The Government also recognise that the PRA’s strong brand and operational independence need to be protected, and that transparency around the use of the PRA levy activities must be maintained. The Bill will therefore ensure that supervision continues to operate with appropriate independence and adequate resources, and the statutory objectives of the PRA, which underpin its forward-looking, judgment-based approach to supervision, will remain unchanged. In line with the approach taken to the MPC and FPC, the Bill will provide for a new remit letter from the Government to the PRC, to highlight those aspects of government economic policy that are most relevant to the PRC’s duties.
Turning to the Monetary Policy Committee, the Bill includes provisions to move the MPC to a schedule of at least eight meetings a year and updates requirements for the timing of MPC publications, implementing the remaining recommendation of the Warsh review, Transparency and the Bank of England’s Monetary Policy Committee, published in 2014. The Bill also includes a set of measures to strengthen and harmonise the legislative underpinnings of the Bank’s three policy committees; the MPC, the FPC and the proposed PRC. As part of these changes, the Bill will harmonise the provisions around conflicts of interest for the MPC, FPC and new Prudential Regulation Committee and put in place a requirement for each committee to publish a code of practice detailing how potential conflicts of interest will be managed.
Next, the Bill will give the National Audit Office the power to launch value-for-money studies across all parts of the Bank, thereby bringing the whole Bank within the purview of the NAO for the first time. This is a significant strengthening of the accountability of the Bank to the public and to Parliament. The Bill implements this important change in a way that protects the independence of the Bank’s policy-making functions. Alongside these changes to the Bank’s governance and accountability, the Bill builds on the existing arrangements and the strong working relationship between the Bank and the Treasury by updating the formal framework for how the Bank and the Treasury should engage with each other on the public fund risks and the financial stability risks of firm failure. These changes improve co-ordination while maintaining the existing clear and separate roles of the Bank and the Treasury in the event of a crisis. It is essential that both the Government and the Bank are in the best possible position to respond to a financial crisis. This will be supported by these measures. These measures concerning the Bank of England form one part of the Bill.
I turn next to the changes that we propose to make to extend the principle of personal responsibility to all sectors of the financial services industry. As noble Lords will be aware, following the report of the Parliamentary Commission on Banking Standards in 2013, we legislated for a senior managers and certification regime to replace the discredited approved persons regime. At the moment, this new regime, which is due to come into force in March 2016, would apply to banks, building societies, credit unions and PRA-regulated investment firms, but not to any other authorised financial services firms. The new regime consists of three key components. The first is regulatory pre-approval of senior managers at the top of the firm. The second is certification by the firm of other key individuals as fit and proper, both at hiring and annually thereafter. Thirdly, the regulators will be able to make rules of conduct for senior managers, certified persons and other employees.
The Government now propose to extend the senior managers and certification regime to all sectors of the financial services industry, replacing the approved persons regime, so as to have a single approach for the entire sector. In 2014 former members of the PCBS called for the regime to be extended, as did the fair and effective markets review. This expansion will create a fairer, more consistent and rigorous regime for all sectors of the financial services industry, enhancing personal responsibility and accountability for senior managers as well as providing a more effective and proportionate means to raise standards of conduct of key staff more broadly, supported by robust enforcement powers for the regulators.
The Bill will also introduce a statutory duty of responsibility to be applied consistently to all senior managers across the financial services industry. This supersedes the “reverse burden of proof”, which would, in the absence of legislative change, apply to banking sector firms when they become subject to the regime in March 2016. Under the statutory duty of responsibility, the same underlying obligation will remain on the individual to ensure that they take reasonable steps to prevent regulatory breaches in the areas of the firm for which they are responsible, but the burden will be on the regulators to prove that a senior manager has failed to do this.
A third part of the Bill extends the remit of the Pension Wise guidance service. As noble Lords will be aware, the Government are making fundamental changes to the pension system to allow people to access their pension pots flexibly without being hit with punitive tax rates. These reforms give people freedom and choice over how they spend their money. Following the decision to extend pension freedoms to those who already hold an annuity in 2017, the Bill will extend the scope of the Pension Wise guidance service, so that pensioners can access a free, impartial service to discuss their new options.
Finally, the Bill makes changes to the legislative framework governing the issuance of Scottish and Northern Ireland bank notes; it gives the Treasury power to make regulations authorising a bank in the same group as an existing issuer to issue banknotes in place of that issuer. This will increase the flexibility for banks to restructure their operations, while preserving the long-standing tradition of certain banks in Scotland and Northern Ireland issuing their own notes. This is a particular issue currently, as some banking groups will be adjusting their group structure in order to ring-fence their retail banking operations.
In summary, the Bill builds on previous reforms to financial regulation with a number of important measures that will contribute to the Government’s commitment to deliver a new settlement for financial services. I am aware that a number of noble Lords have great experience and expertise in these matters, and my door is always open to meet them and discuss the measures in the Bill as it progresses through Committee. I look forward to hearing your Lordships’ views. I beg to move.
Lord Eatwell (Non-Afl)
My Lords, I thank the noble Lord, Lord Bridges of Headley, for introducing the Bill, and welcome him to our debates on financial regulation.
For those of us who spent many hours in your Lordships’ House examining, clause by clause, what were to become the Financial Services Act 2012 and the Financial Services (Banking Reform) Act 2013, achieving creative compromises with the then Minister, the noble Lord, Lord Deighton, and generally advancing the cause of effective regulation, this Bill makes depressing reading. That is not because of the proposals concerning the status of the PRA and consequential amendments, which are entirely sensible; nor because of the extension of the authorised persons regime to all authorised persons—in a seamless financial services industry that is obviously a sensible development. What is depressing is the Government’s back-pedalling on the governance of the Bank of England, and their spineless surrender to industry lobbying on the issue of the burden of proof in the senior persons regime.
First, on governance of the Bank of England, noble Lords will recall that the Treasury Select Committee of another place recommended in its report on the accountability of the Bank of England, published in November 2011, that there be established a supervisory board, replacing the Court of the Bank. The supervisory board would have a wide-ranging oversight role, including ex-post reviews of the Bank’s performance in prudential and monetary policy, and it should be provided with proper staff to perform that review function.
I remind the House why this proposal was made. First, it was argued that there was clear evidence of groupthink in the Bank during the financial crisis, and that it was important that there be appropriate challenge within Bank policy-making. Secondly, it was clear at the time that some of the groupthink emanated from an intellectually powerful and dominant Governor. While there is in this House the greatest respect for the noble Lord, Lord King, and, indeed, for Mr. Carney, we should all remember the maxim of Lord Keynes:
“It is astonishing what foolish things one can temporarily believe if one thinks too long alone, particularly in economics”.
For both these reasons, the Treasury Select Committee and, I recall, almost all who spoke on the matter in this House, agreed that an independent review body of considerable weight and influence should be established. After all, as the Treasury Select Committee put it:
“The Bank is a democratically accountable institution and it is inevitable that Parliament will wish to express views and, on occasion, concerns about its decisions. Our recommendation that the new Supervisory Board have the authority to conduct retrospective reviews of the macro-prudential performance of the Bank should, if operating successfully, provide the tools for proper scrutiny”.
So there is the third reason for the establishment of a supervisory board—that its reports will enable Parliament to do its job properly.
Noble Lords will recall that the Court of the Bank was hostile to the creation of a supervisory board, but instead proposed the establishment of the oversight committee, consisting entirely of non-executives who would perform the retrospective evaluations that the Treasury Select Committee felt were so necessary. Your Lordships’ House accepted the proposal as a reasonable compromise. Now, without ever having had the chance to prove itself, the oversight committee is to be abolished, and its functions handed back to the Court of Directors, the very body the activities of which it was supposed to oversee. Of course, there is reference in Clause 4 to an oversight function being delegated to a small sub-committee of the court. However, as noble Lords will be aware, a sub-committee, however talented, is not the same as a full non-executive director committee.
The impact assessment performed by the Treasury argues—and the noble Lord echoed this argument—that abolishing the oversight committee will,
“bring the Bank’s governance arrangements in line with normal best practice of a unitary board”.
All I can say is that whoever wrote that has not had much experience of unitary boards of major companies. The oversight committee was never intended to replace the court, as the impact assessment also erroneously suggests; it was intended to be a powerful instrument of non-executive director review—an instrument that the financial crisis revealed to be desperately needed.
In Clause 5, we find that the Court of Directors is taken out of its policy-making role and replaced by an amorphous entity called “the Bank”. The result is that Clause 9A of the Bank of England Act now reads: “The Bank must carry out and complete a review of the Bank’s financial stability strategy before the end of each relevant period”. That is typically called marking your own homework. The impact assessment says:
“Making the Bank responsible for setting the strategy … within the Bank … will ensure that Court is responsible for the running of the Bank and that the Bank’s policy committees are responsible for making policy”.
How do we know? We do not know. This Bill renders the governance structure of the Bank of England opaque and not fit for purpose. We do not know what “the Bank” is. Is it the court? If so, why the amendments? Is it the executive? Is it the governor? Where does authority really lie? We do not know.
Nor can any comfort be drawn from the section of the Bill on audit referred to by the noble Lord. Consider Clause 11. There we are told that:
“The Comptroller and Auditor General … may carry out examinations into the economy, efficiency and effectiveness with which the Bank has used its resources in discharging its functions”.
However, it is also in Clause 11 that:
“An examination under this section is not to be concerned with the merits of the Bank’s general policy in pursuing the Bank’s objectives”.
Moreover, Section 7E describes how the court may forbid the comptroller from proceeding with the examination if,
“the court of directors … is of the opinion that an examination under section 7D, or any part of it, is concerned with the merits of the Bank’s general policy”.
No wonder that Sir Amyas Morse who heads the National Audit Office—he is the Comptroller and Auditor-General—told the Financial Times on 15 October:
“The legislation proposed by the government includes a statement about my role. … However in departing from the existing legislative parameters governing my role it imposes unacceptable restrictions that, if enacted, would create an impression of increased public accountability without the reality”.
An impression of increased public accountability without the reality—that is what we are being asked to endorse.
Now I turn to the other major retreat in this Bill—the reversal of the proposal from the Parliamentary Commission on Banking Standards that in the case of senior managers the burden of proof with respect to the performance of their roles should rest with the managers themselves. The noble Lord, Lord Newby, the then government Minister, put the case clearly—what a shame he is not here this evening to enlighten us further. He said:
“The Parliamentary Commission on Banking Standards concluded that the current system for approving those in senior positions in banks—the approved persons regime—had failed … The commission’s central recommendation in this area is for the creation of a senior persons regime applying to senior bankers. The regime for senior managers in banks will … reverse the burden of proof so that senior bankers will have to show that they did what was reasonable”.—[Official Report, 15/10/13; col. 386.]
The most powerful speech in favour of the Government’s proposal was made by the noble Lord, Lord Lawson, who made it clear that he had wearied of the excuses paraded by senior bankers before the commission, including, “It wasn’t me; it was a collective board decision, so no individual is responsible,” or “It wasn’t me: I had no idea what the traders in my bank were doing; it was all them,” or blaming the regulators or monetary policy or anyone but themselves. The noble Lord, Lord Lawson, concluded:
“The standards in the City of London should be the highest in the world. The whole thinking behind the commission on banking standards was that we wanted to clean up banking … Personal responsibility is not the whole of the solution, but personal responsibility of the senior management is a vital and necessary element”.—[Official Report, 15/10/13; col. 398.]
I agree with the noble Lord, Lord Lawson.
So how is the Minister to explain Clause 22, which reverses the reversal? Can he explain in detail exactly why what was at the very heart of government policy two years ago is now to be abandoned before it has even been tried? Will the Minister also spell out in detail the rationale for ignoring the carefully considered arguments of the parliamentary commission?
Turning again to the Treasury’s impact assessment, we read that the “duty of responsibility”, as contained in the new Bill,
“will maintain the same tough underlying obligation on the individual to ensure that they take reasonable steps to prevent regulatory breaches”.
These words were also echoed by the noble Lord in his introduction. If it is the same, why bother to amend it? Clause 22 is unnecessary; but if it is necessary then the “underlying obligation” cannot be the same. The Government cannot have it both ways. Which is it?
Fortunately, the impact assessment gives the game away. It tells us:
“One of the unintended consequences of the enforcing this obligation using a ‘reverse burden of proof’ has been that firms will have to incur greater costs than originally envisaged in preparing the documentation required by the regulators setting out the allocation of responsibilities in firms”.
So there we have it: the Bill will result in less comprehensive documentation and hence less awareness of responsibilities and less detailed examination of the relationship between responsibility and risk. That is what the Treasury’s own impact assessment says. Is that what we want? Less clear responsibility and less appreciation of risk? The requirement to fully document was not an unintended consequence. We knew that effective regulation of individual responsibility would cost more, and so it should when the failure to exercise individual responsibility imposes heavy costs on the community as a whole.
So for the—let us call us—regulatory old lags among us who worked late into the night to get regulation right, this is a seriously defective Bill. It must be amended.
Lord Sharkey (LD)
My Lords, this is a much shorter and simpler Bill than its two financial services predecessors, and I congratulate the noble Lord, Lord Bridges, on this welcome innovation, but, on the whole, it does not work to strengthen the regulatory framework put in place by those predecessors. On the contrary, and in very significant ways, it appears to weaken much of the work done in the past two Sessions.
There are four major areas of concern. The first is the abolition of the Bank’s oversight committee alongside the reduction in the number of non-executive directors on the court. There is also the role of the National Audit Office, the change in the status of the PRA and the changes to the senior manager regime and, particularly, the U-turn on the reverse burden of proof.
I shall start with the abolition of the oversight committee. The committee was recommended by the Parliamentary Commission on Banking Standards and was introduced into the Financial Services Bill by lengthy and detailed government amendments at the suggestion of the Bank. The very helpful Treasury briefing note to this Bill says that these new oversight functions have been a successful innovation, but it describes the oversight committee as an “unnecessary layer of governance”. As a reason for removing a key part of the Financial Services Act, this “unnecessary layer of governance” seems pretty weak. Will the Minister explain exactly how the existence of the oversight committee harms the bank’s ability to operate or how its existence as a separate body, as Parliament deliberately designed it, is damaging in any real or significant way?
The oversight committee consists only of non-executive directors. Its replacement, the court, has five bank officials and seven non-executive directors. This inevitably raises questions about robust independence, which was entirely the point of the non-executive director-only structure in the first place. The Bill reduces the number of non-executive directors on the court from nine to seven, although it contains the rather odd provision to allow restoration of the number to nine. There is nowhere any justification for the reduction in the number of non-executive directors from nine to seven: not in the Explanatory Notes, not in the HMT briefing note and not in the impact assessment. Will the Minister say why there is to be a reduction in the number of non-executive directors and why to seven? The abolition of the oversight committee seems certain to reduce the independence of oversight activity. The Government have presented no convincing reason why this committee should be abolished, and I am certain we will want to have a much better justification before agreeing to it.
The second area I want to discuss is the role of the NAO. The Treasury briefing note asserts that the purpose of this part of the Bill is to increase the accountability of the Bank to Parliament. There seems to be some significant disagreements on this. In evidence to the House of Commons Treasury Committee, the chair of the Court of the Bank of England, Anthony Habgood, said that the extent of the NAO’s proposed involvement had come as a surprise. That is a surprise in itself. Will the Minister say why Mr Habgood was taken by surprise? Was he consulted? Will he say whether the chair of the Court of the Bank of England is in favour of the NAO proposals in the Bill and whether he believes they will in fact increase the accountability of the Bank to Parliament? Certainly, Sir Amyas Morse, the Comptroller and Auditor-General and head of the NAO, does not think so. As the noble Lord, Lord Eatwell, said, the Financial Times reported on 11 October that Sir Amyas had,
“attacked ‘unacceptable’ government plans to increase transparency at the Bank of England, saying that they created a false impression of greater accountability”.
These are very important matters.
We welcome the prospect of increased public accountability of the Bank via the NAO, but it is not at all clear that that is what the Bill really offers. As the Financial Times pointed out, under the Bill’s proposals the Bank would have a veto over what the NAO could scrutinise. This would be the first time that a public entity could restrict the scope of a value-for-money study. It is very hard to see why the Bank should have this power of veto and fairly easy to see why it should not. At the moment, the NAO is responsible for the financial audit of the PRA. The Bill proposes to end that arrangement and hand over the financial audit responsibility to the Bank’s auditors. This seems a retrograde step and seems to signal a reduction in the independence of the PRA, which is the subject I want to turn to next.
The Bill proposes to end the PRA’s status as a subsidiary and make the Bank itself the Prudential Regulation Authority, exercising its functions through a new prudential regulation committee. The chief reasons given for this proposed change in the impact assessment are that it will,
“maximise the synergies between micro-prudential supervision and macro-prudential policy”,
and be,
“better able to exploit internal efficiencies by sharing knowledge, expertise and analysis”.
Will the Minister explain this in a little more detail and perhaps in plainer language? Will he give concrete examples of the synergies anticipated? Will he explain how internal efficiencies can be exploited in a way not possible under the current set-up?
Both the HMT briefing notes and the impact assessment assert that the PRA’s independence will be retained. The impact assessment says that the new PRC will have a majority of external members. However, the chart provided with the Treasury briefing note is open to a quite different interpretation. This chart says that the PRC will consist of the governor, three deputy governors, the CEO of the FCA, one governor’s appointment and at least six external Chancellor’s appointments. Unless one counts the CEO of the FCA as an outsider, which seems completely implausible after the summary sacking of Martin Wheatley, the outsiders are not in a majority. Would the Minister care to clarify this? Is he counting the CEO of the FCA as an outsider and, if so, on what grounds?
I now turn to the Bill’s proposal to make changes to the senior managers regime. I welcome the extension of the regime across all sectors of the financial services industry, as was recommended in 2014 by former members of the Parliamentary Commission on Banking Standards and by the 2015 Fair and Effective Markets Review. However, I am very concerned about the U-turn on the reverse burden of proof. This reverse burden of proof test has not even come into force-yet the Government are now proposing to abolish it before it does. The reverse burden of proof was a key recommendation of the Parliamentary Commission on Banking Standards, which said that it would,
“make sure that those who should have prevented serious prudential and conduct failures would no longer be able to walk away simply because of the difficulty of proving individual culpability in the context of complex organisations”.
The Government accepted this and wrote it into law. They were right to do that: the issue remains a serious problem.
Members of the House of Commons Treasury Select Committee, in February this year, investigating the scandal in which HSBC reportedly helped people around the world evade tax, were frustrated by senior executives, one after another, disclaiming personal responsibility. The Parliamentary Commission on Banking Standards was right to conclude that having a named executive with personal responsibility for key risks, accompanied by reversing the burden of proof, was essential to removing what it called this “accountability firewall”.
It seems to me that the Government have advanced three main arguments in favour of this U-turn. They are, first, that it was necessary because the Bill extends the scope of the senior managers regime to financial institutions for which the reverse burden of proof would not work. The Chancellor said that he wanted to avoid a dog’s dinner of a two-tier accountability system. This is very unconvincing. It is not obviously the case that a two-tier system would be problematic. In fact, a two-tier system may be necessary to keep the large, globally systemic financial institutions accountable.
The second reason, advanced by Harriet Baldwin in our recent meeting, was that senior bankers were losing focus on their real jobs because of the compliance burden imposed by the reverse burden of proof—presumably in preparation for it. We need to see the evidence for this. I assume that this is what the banks are claiming. Can the Minister say how these assertions have been evaluated? How do we know they are true and not the obvious special pleading?
The Minister also told us that the looming reverse burden of proof was causing senior managers to avoid the jurisdiction. This is a serious charge and I think we need to see evidence for it. Could the Minister provide us with some examples? The Bank has described the removal of the reverse burden of proof test as a matter of process rather than substance. I believe that is simply, straightforwardly incorrect. The issue of abandoning the reverse burden of proof is extremely serious and is central to the ability to hold bankers properly to account. I have no doubt we will return to this issue at later stages in the Bill.
There is one other provision in this part of the Bill that raises concerns: the removal of a senior managers regime obligation to report breaches of rules of conduct to the regulator. I can see no rationale for this in either the Treasury brief or the impact assessment. The impact assessment simply notes that this measure is likely to “mainly benefit larger firms”. Can the Minister say why this provision is in the Bill?
Our discussions of this and other changes to the senior managers regime will be helped, I think, by the full, quantified impact assessment covering these measures promised in paragraph 103 of the current impact assessment. Can the Minister assure the House that we will have sight of this further impact assessment well before Committee?
This is an unsatisfactory Bill. It undoes much of Parliament’s work on the previous two Financial Services Bills; it overturns a key recommendation of the Parliamentary Commission on Banking Standards; and it acts to reduce accountability and independent supervision. We have recently seen many moves in favour of the banks: we have seen changes to the banking levy and the sacking of Martin Wheatley, and we have heard talk of imposing a time limit on PPI claims. We should not let this Bill add to all that.
Lord Lawson of Blaby (Con)
My Lords, I begin by echoing the noble Lord, Lord Eatwell, in welcoming my noble friend Lord Bridges to this area of his responsibilities, and we look forward to the further debates that we may have in the future. I am also grateful to my noble friend for his kind remarks about the Parliamentary Commission on Banking Standards, of which I was a member, as were others who will be speaking in this debate.
The hour is late, for reasons that we are all aware of, so I shall be very brief and refer simply to two areas, one of which has already been spoken about this evening; the other one has not.
The one that has been spoken about already is personal responsibility, and the noble Lord, Lord Eatwell, even went so far as to quote me on it. It is something to which I attach the first importance and I do not think that the change to the burden of proof affects it. Personal responsibility is important, and indeed the Parliamentary Commission on Banking Standards had other proposals to nail it. It is absolutely vital that there is personal responsibility. It is not banks but bankers who commit wrongdoing. If we are to deter bankers from committing wrongdoing, they have to be held personally responsible. What happens if it is not clear who is personally responsible? I hark back to my time in the Navy many years ago. Then, if a ship ran aground, the captain was court-martialled. There was always personal responsibility and there was no way in which it could be escaped.
Currently, too often when the authorities discover wrongdoing, they fine the banks. That is, if anything, counterproductive. Not only does it enable those who are personally responsible to escape scot free but very often it is harmful for the banks to have their capital ratios adversely affected by heavy fines. That is not in the public interest. Furthermore, at the end of the day the people who suffer are the shareholders, who have done nothing wrong, and those who have done something wrong are completely immune from any punishment. Therefore, we have to take personal responsibility seriously. It has to be front and centre of the business of disciplining and supervising those in the banking system.
My second point, which has not been referred to, concerns the ring-fence. We on the banking commission took very seriously the need to separate out deposit-taking and high-street banking from investment banking and merchant banking or whatever. Indeed, we did not think that the Government had been strong enough and we recommended that the ring-fence should be strengthened or, to use a term of jargon, electrified. What has happened now is that some, but not all, of the big banks have been campaigning and lobbying very hard for the Government to back down on the ring-fencing. That has happened so much that Martin Taylor, a member of the Financial Policy Committee in the Bank of England, was moved to make a very outspoken speech attacking the banks for trying to prevent the ring-fencing coming about.
Ring-fencing is essential for a number of reasons. First, as noble Lords taking part in this debate are well aware, banking is of particular importance to the economy as a whole. Therefore, there is an implicit taxpayer subsidy, which is, in my judgment, inescapable when it comes to the deposit-taking banks. However, it is quite wrong that investment banks, which often undertake a lot of risky trade of one kind or another—including proprietary trading, where there are no clients at all; they are just doing it for themselves—should be able to benefit in any way, however remote, from the taxpayer subsidy. That subsidy is there because of the need to prevent deposit-taking banks, which are not just retail banks but also finance SMEs, from folding.
There is another reason why there has to be a separation. One thing that was clear was the importance of the culture of banking when things went wrong. The culture of deposit-taking banking and that of investment banking are completely separate. It is very difficult to see how we can have two quite separate cultures in one organisation. All too often, the high-risk-taking or go-go culture of the investment banks takes over what should be the prudent, risk-averse culture of the deposit-taking banks.
However, the banks that are complaining do have a slight point about one thing. They say that this curious thing, which came out of the Vickers commission and which has not been tried anywhere in the world, is unworkable for governance reasons. It is very difficult to see how the governance of two quite separate, ring-fenced banks could work. But they have a remedy; the remedy is in their own hands. They could separate completely, and then all the governance problems would be gone. I believe that complete separation is the right answer and have been publicly arguing that for more than six years now. Nothing that I have seen has persuaded me that that is not the case.
The Government have said that they will monitor the ring-fence to see how it is working in practice. If individual banks are gaining from the system—as some, but not all, will try to do—the Government will move from ring-fencing to complete separation. I would like the Minister to confirm that it is still the position that not only are the Government not going to give way to this lobbying, which Martin Taylor spoke out about, but furthermore that they are monitoring the ring-fence very carefully and will, if that ring-fence is bringing gains in any way, move to complete separation.
The Lord Bishop of Portsmouth
My Lords, this Bill offers an important way to confirm the Government’s commitment to promoting real diversity in the financial services sector. I want to make a very brief contribution in support of such diversity.
I hope that your Lordships will allow me a very mundane analogy, appropriate to someone like me—an amateur in this complex area. In the recent past, the international Anglican communion has been wrestling with the question of how its local ministry relates to global structures. I will not bore you with any details: there have been quite enough of those to contend with this evening already. Suffice it to say that at the heart of our deliberations has been the question of which aspects of church life are best agreed, shared and implemented internationally and which best happen locally. We have realised that, although global and national structures enable us to deliver much in terms of ministry, local delivery is of prime importance. When people think of the Church, they do not predominantly relate to international structures or even national bodies: they relate primarily to the local church and the local vicar, who may have helped them out when the going got tough.
For those of us close to the ground, in the banking sector in my lifetime, we have seen a shift from the local bank manager who knew your affairs and could guide you—we hoped—wisely and discreetly, to rather larger and often faceless multinational institutions that cannot relate, never mind respond, to localised needs of customers. Therefore, I want to place on record the importance today of credit unions, which—now that the building societies seem to have stepped away from local engagement—are often the best vehicle by which banking can take place responsibly and accountably within the local community. A requirement for the Bank of England, including the PRA and FCA, to consider diversity of provider would be a significant commitment to the benefit of both consumers and the wider economy. I invite the Minister to confirm on behalf of the Government that commitment to locally accountable, directly accessible facilities and advice, which are so important in our communities.
Lord Naseby (Con)
My Lords, I, too, welcome this Bill. I am only going to concentrate on one aspect: diversity, because the Bill gives us an important opportunity to solidify the Government’s commitment to promoting real diversity in the financial services sector within legislation. A properly functioning, healthy and genuinely consumer-focused financial sector requires a broad range of different types and sizes of financial institutions operating in it to drive competition and financial resilience. This range of institutions should include customer-owned financial mutuals such as building societies, credit unions—as the right reverend Prelate has mentioned—and mutual insurers and friendly societies.
I recognise that, in the annual remit letters to the PRA and the FCA, the Government give a commitment to aim for, and follow up, diversity of provider and that is helpful, but it would be far better if it were put in legislation. I do not need to remind your Lordships of the difference between the mutual sector and the plc sector. One of the principal differences is the methodology of raising capital, whereby plcs can go to the market but mutuals have to raise organic capital. Your Lordships will be aware of the Private Member’s Bill that I took through in the last Session, which was the beginnings of an easing up on how the mutuals can raise capital. That was the Mutuals’ Deferred Shares Act 2015, but there is a long way to go still.
Why is it so important that this be put into legislation? There are two reasons. First, diversity increases the effectiveness of competition. After all, competition creates a better consumer environment in financial services through choice and so forth. Secondly, it makes the whole system a degree more resilient. We saw that in the recent financial crisis. Of course, out of it flows competition, which is helpful. One gets a superior service—and the evidence is there—from the mutuals. There are fewer complaints, and the evidence is there for that as well. Interestingly, one gets more competitive interest rates. What I found most persuasive is that, between 2012 and the end of June 2015, building societies provided no less than £52 billion of net new lending for mortgages. The rest of the mortgage market provided £7 billion. That is £52 billion from the mutuals and £7 billion from the plcs. That in itself is a demonstration of the importance of the mutual movement.
It goes wider than that. We have already heard about the great inclusion that comes from credit unions. There is a gap between the plcs and the high-cost providers. It is in that area that the credit unions are playing a key part. I submit to your Lordships that there is better conduct all round, more stable profitability and a lower risk appetite in lending; and they are, and remain, very efficient operations.
The thought that may be going through the mind of my noble friend on the Front Bench is, why do we have to put this into law? I submit to the House that, at this point in time, as we review the Bank of England and the financial sector, one size fits all is not acceptable. There were too many incidents in recent times where, as a last gasp, after much representation, either the European Union or our own Treasury suddenly remembered that there is a mutual sector. The fact that the mutual sector is a very important part of our financial sector should be right up front. What I and others in the mutual movement will be asking for is an environment where all types of firms can operate on a fair basis with regulations that are proportionate and appropriate to them, rather than this one-size-fits-all approach.
I should mention to my noble friend that I will be tabling an amendment to the Bill. It is important, but all it would do is impose a duty on the FCA and the PRA to consider models of ownership, such as mutual societies and firms of different sizes, when formulating any policy changes. I very much hope that when I have finished drafting it properly, it will find favour with my noble friend.
Lord McFall of Alcluith (Lab)
My Lords, I welcome the opportunity to participate in this debate. I welcome the Minister to his place and my fellow members of the Parliamentary Commission on Banking Standards, the noble Lord, Lord Lawson, and the noble Baroness, Lady Kramer. We started off on a three- or four-month project, which ended up taking over two years, with 10,000 questions. We presented the Government with recommendations and I am pretty disappointed in the Bill tonight, as are the noble Lords, Lord Eatwell, Lord Lawson and Lord Sharkey. I will focus on the ring-fence, the senior managers’ regime, Bank of England governance and, lastly, transparency and disclosure.
The noble Lord, Lord Lawson, and I were at one from the very beginning in that we wanted separation in banking. But we went along with the concept of ring-fencing to give it a chance. We actually spent almost a disproportionate amount of time on it, so it was a big issue in our deliberations. I well remember Paul Volcker coming to give us evidence on that. He was very clear. He said, “You are going to have two boards. It is naive to expect the holding company directors to have anything other than an unremitting interest in responsibility for the retail”. So you cannot separate those issues. He was very clear—as we were—that the culture is different. If it boils down to one thing, it is that the retail bank has to be customer focused, whereas the investment bank is trading and it is anonymous. It devalues and eliminates the personal relationships. That is the difference between the two of them. I do not think that this will ever change. We had individuals who came to the committee who were very supportive of the ring-fence—for example, Sir David Walker, who was chairman of Barclays. But hey presto, five or six months later, he has an article in the Daily Telegraph saying that ring-fencing has had its day—even before it has come in. The issue of lobbying is right at the heart of this very Bill.
Let us not forget that, post-crisis, banks are both bigger and more complex. The big issue now is “too big to manage”. I well remember the chairman of HSBC, Douglas Flint, coming before us. I asked him the question, “Is HSBC too big to manage?”. He said, “That is a good question”. There was no other answer on that issue.
Look at the size of the 28 global banks: in 2006 their combined total was $38 trillion—an average size of $1.4 trillion per bank. In 2013, seven years later, it has gone up from $38 trillion to $50 trillion, with an average $1.8 trillion for each bank. We speak here in trillions. Can we understand what trillions are? If we ask the question “What is a trillion seconds?”, the answer will come back: “32,000 years”. Trillions are a hell of a lot of money—and lots of people in the banking sector do not understand what the issues are in their individual institutions.
When Lehman’s went down, there were hundreds of legal entities connected globally. The issue was that it could not connect the individual pieces, hence it went down. Is it any different today? I do not think it is. So the concept of separation, as the noble Lord, Lord Lawson, said, needs to be kept alive by this Government. It cannot be dismissed.
On the senior manager regime, the main recommendation of the Parliamentary Commission on Banking Standards concerned the lack of individual accountability at the top. There was a no-see, no-tell policy, with no one responsible. We were very clear in our recommendation when we said that the problem is that:
“Top bankers dodged accountability for failings on their watch by claiming ignorance or hiding behind collective decision-making. They then faced little realistic prospect of financial penalties, or more serious sanctions”.
Now the Government are dropping the plans to reverse the burden of proof, which would have forced senior managers to demonstrate that they have done the right thing if there was wrongdoing on their watch. That is a concern. Why the change? We are changing the burden of proof from the senior manager to the regulator. It will be necessary for the regulator to prove that the senior manager had not taken steps before bringing disciplinary proceedings. The previous FCA chief executive, Martin Wheatley, was very clear when he said that there is an accountability firewall within institutions. Here we see the Government watering down that very proposal.
There is a history to the attempt by the regulator to hold banks to account. We should look at that history when we are filing this legislation. The mis-selling and misconduct of PPI, which went on for 15 years or more—we still have the remnants of it—has cost UK banks £40 billion in fines and redress. That £40 billion is three and a half times the cost of the London Olympics. Who has been fined or brought to account on this? If we look at Land of Leather, we find that the chief executive was disciplined by the FCA for mis-selling, but he is the only senior manager to have been disciplined. What is the moral in that? It is that if you mis-sell in a sofa shop, they are coming after you, but if you mis-sell in a financial system that is systemically important, then you are safe. What a condemnation.
I recall one regulator saying in a speech made in 1998 that senior managers were not held to account. He was very clear. He said that:
“One of the least appealing features of a number of the scandals I referred to at the outset was that while junior and operational managers have lost their jobs and been disciplined”,
the senior managers get away without that responsibility. He followed that up in a speech made in April 2001 when he said that, when things go wrong, we should look directly to the senior manager, whom we should hold accountable. In the case of the failure of Barings Bank or the pensions mis-selling debacle, senior management has not been held directly accountable. He asserted that:
“Now we have a system of personal registration, where specified individuals at the top of the firm have clearly set out responsibilities for risk management and compliance, for which we hold them accountable”.
Who was this individual who spoke in 1998 and 2001? Why, it was none other than the chairman and chief executive of the FSA at that time, Sir Howard Davies, who is now the chairman of the Royal Bank of Scotland. He said, in 2001, that they had a system in place. So, what price believing the Government when they say they have a system in place, given that the man whom they ensured was appointed chairman of the Royal Bank of Scotland made a statement 15 years ago that is full of holes, if ever anything was? We have a real problem in that, 15 years later, we have no decent remedy. The Government are jettisoning any chance of achieving that in this Bill, which is a matter of sorrow for us all, including the Parliamentary Commission on Banking Standards and others here tonight.
On the issue of Bank of England governance, much of the Bill does seem to be technical, but perhaps that is largely to do with the Governor wanting to reorganise the Bank. But the real problem is a lack of constitutional accountability. Mention has been made of Clause 12, entitled “Bank to act as Prudential Regulation Authority.” The Prudential Regulation Authority has responsibility for the microprudential regulation of the solvency of banks. As Chairman of the Treasury Select Committee at the time, I can tell noble Lords that the PRA did not work. That is why the Chancellor, George Osborne, changed it. But now, through his own architecture he is downgrading the PRA to a mere committee, not a subsidiary of the Bank that works as a separate authority. Given the experience of the past seven years or more, there is a need for a free-standing PRA with its own rule book. The recent failures of the Co-operative Bank and the Britannia Building Society should warn us that microprudential regulation is still vital. More answers need to be given as to why it is to be downgraded.
My noble friend Lord Eatwell made the very important point that the structure of the Bank is becoming opaque and not fit for purpose. Given the experience of the past seven years, there are many questions regarding the Bank and monetary policy. For example, what changes to the remit might have improved its performance before, during and after the recession? What has the true effect of QE been? Has it enriched the rich at the expense of the poor? Has it increased inequality? One thing we do know is that it has added £15,000 more debt to every person in the United Kingdom. Who pays that? Is it the banks or the investment companies? No, it is the ordinary citizen. These are relevant questions to ask of the Bank of England, which has not been probing enough.
Should the Bank of England have a broader, dual mandate similar to the Fed’s? In the light of devolution, should we have broader regional representation, as the Fed has with its 12 regional banks? How will an independent Bank of England be more accountable to Parliament, and what will the role of the court be with the Treasury Select Committee? This issue of the court is not finished. It proved itself not to be up to standard during the financial crisis, and this just seems to be shifting different responsibilities about with seemingly no coherent strategy from the Government.
We need a wider engagement and a review looking at the future of the MPC. A number of years ago, when I was Chairman of the Treasury Committee, I established the Future Banking Commission to take the matter up with Parliament. I asked David Davis to chair it and he did an excellent job; the Liberal Democrat Vince Cable was also on it. We came out with our proposal, reported in June 2010 and the Conservatives accepted it—David Cameron said he would take it forward. As a result, we had the Vickers commission, which also reported in due course. We then had a Parliamentary Commission for Banking Standards, and now we have the Banking Standards Board, of which I have been asked to be deputy chairman. A focus outwith Parliament—a social dimension—has led to politicians and regulators looking at this issue again.
That is why, when Professor David Blanchflower phoned me earlier this week to ask me to join a committee—along with Adam Posen, the former MPC member, and Simon Wren-Lewis, professor of economics at Oxford University—I accepted. He told me that John McDonnell, the Shadow Chancellor, had asked him to form the committee. I replied that I would be delighted to be on it, on two conditions. The first is that it has to be independent, having nothing to do with any political party; the second is that it should have no resources from any political party. We need a cross-party, wider social engagement and we will report to any and every party. It is very important that we undertake this work. I hope that over the next two years, we will be able to engage with different people who can point the way forward to the future for an independent Bank of England, because there is a big democratic and constitutional issue still to be resolved. If our recommendations are taken up after 18 months or two years, we will be delighted.
I would like to finish on a note of transparency, with the disclosure of a contemporary issue. A few weeks ago, the Investment Association sacked its chief executive, Daniel Godfrey. He had tried to establish a set of principles, following the recommendations of the Kay review, for the industry as a whole to abide by. Two of the principles are that,
“we … always put our clients’ interests first and ahead of our own”,
and that:
“Costs and charges should never be so high as to compromise the likelihood of achieving agreed objectives”—
that is, the objectives agreed with clients. It all seems quite reasonable, but Schroders, Fidelity and M&G adamantly refused to sign up—though others did, such as Hermes Investments, which has put the principles on its website. Consequently the Investment Association chief executive was booted out the door. I thought that seemed a little superficial and needed to be examined a little more, to see why it happened.
Further examination indicated to me that at the heart of the matter was the issue of dealing commissions. For every trade, as noble Lords know, a broker is paid—usually an investment bank. However, part of that sum is put into another account to buy research from the investment bank. In the United Kingdom, £3 billion per annum is spent on dealing commissions, with half that figure passed back to the fund managers who then pay investment banks and others for their research. That £1.5 billion—which does not appear on profit and loss accounts—is paid out of clients’ money. It is the ordinary person in the street, striving for a pension, who pays—and let us keep in mind that the average pension in this country is £15,000. Some £1.5 billion is being siphoned off these dealing commissions, which are paid by ordinary people. Should we not see this as a kickback—as bribery? Meanwhile people on small pensions are struggling to make their way to ensure a decent reward for themselves. That is a contemporary scandal: £1.5 billion of customers’ money being used not to satisfy customers’ own ambitions but those of fund managers. It is one of many scandals in the global banking sector—I think the total is getting near $300 million of fines or redress. Again, that money is not paid by institutions; it comes from the ordinary saver.
All these scandals could be reduced to one, core scandal: that the customers’ interests are secondary to the interests of the industry. I suggest to the Government that they are compounding the problem with the change to the senior management regime. Until they address the issue of personal responsibility properly, as the noble Lord, Lord Lawson, and others said, society will continue to be cheated and the Bill will do nothing to address that.
Lord Northbrook (Con)
My Lords, in general I welcome the Bill as it applies to the Bank of England, but in the second part of my speech I will say a few words about overregulation. As other speakers have stated, the Bill is split into three main parts. The first sets out the proposed changes to the Bank of England’s governance and procedures connected to its accountability. The second includes a number of provisions linked to the regulation of financial services, in particular the introduction of the SM&CR regime. The third contains provisions on the issuing of bank notes in Scotland and Northern Ireland.
What I like is that many of the Bill’s provisions linked to the governance and accountability of the Bank of England build on changes and suggestions announced by the Bank in 2014. The announcement was accompanied by two reports containing further details on the proposed changes—the Warsh review and the Bank of England’s own report. The Bill was in the Queen’s Speech, when the Government said that this would ensure that,
“the Bank is well positioned to fulfil its … role of overseeing monetary policy and financial stability”.
It will also ensure that the UK’s regulatory framework remains at the forefront of internationally agreed best practice standards.
Clauses 1 to 15 contain the proposed changes to the Bank of England’s governance, financial arrangements and prudential regulation. The Bill changes the membership of the court—it adds an additional deputy governor post. This has not been mentioned by other speakers, so I ask the Minister: what is the rationale behind that? As other speakers have said, the Bill also assigns the oversight functions to the whole court to operate more like a unitary board. The Financial Policy Committee becomes a committee of the Bank, rather than a sub-committee of the court.
The Bill also intends to clarify the Bank’s responsibilities for prudential regulation by ending the status of the PRA as a subsidiary of the Bank. I note the concerns raised by the noble Lord, Lord McFall, on that front. Instead, the Bill provides that the PRA is the Bank of England and creates a new Prudential Regulation Committee with responsibility for the Bank’s functions as the PRA.
The Monetary Policy Committee is also subject to change in the Bill. Generally, the MPC has worked pretty well in recent years, judged by the low level of inflation and of interest rates. The big move is in the timing of publication of the MPC’s minutes. It is proposed that they are now published as soon as is reasonably practical following a meeting. The MPC will meet fewer times in the year, changing from at least once a month to at least eight times a year. I do not really know what effect that will have, but it may be less or more valuable in these circumstances.
As other noble Lords mentioned, the Bill gives the National Audit Office the power to carry out examinations of the economy, efficiency and effectiveness with which the Bank uses its resources in discharging its functions. It also gives the Treasury power to carry out value-for- money reviews of the prudential regulation functions of the Bank. I disagree with other speakers; it seems to me that that is a sensible role for the NAO. Also, I like new Section 7D(3), in Clause 11, which says:
“An examination under this section is not to be concerned with the merits of the Bank’s general policy in pursuing the Bank’s objectives”.
Clause 3 gives the oversight functions previously delegated to the oversight sub-committee of the court to the full court. I note the comments from the noble Lord, Lord Eatwell, on this. I am slightly concerned about the reduction of the oversight committee’s role, although the Government say that it will simplify the way the Bank’s oversight functions operate.
Part 2 of the Bill makes a welcome change. Here I disagree with most other speakers. I think that the reverse burden of proof in situations of regulatory breach was a very bad idea: that you should be presumed guilty until proved innocent does not seem to go down well in many other areas of the law. The original regime meant that a senior manager responsible for certain areas of a firm’s business would be presumed accountable when regulatory requirements were contravened in that area. Now it will be necessary, quite rightly, for the regulators to prove that a senior manager has not taken reasonable steps to prevent that contravention to avoid being found guilty of misconduct.
SM&CR is due to come into force in March next year for financial services firms, defined as banks, other deposit-takers and those investment firms which are regulated by the PRA. The Bill extends the operation of SM&CR to cover all firms carrying out regulated activities under the Financial Services and Markets Act 2000. Part 2 also extends—which I welcome—the remit of the Government’s Pension Wise service to holders of annuities specified by the Treasury, so that it can deliver guidance to pensioners who will be eligible to sell their annuity income stream in 2017. I also welcome the duty that Part 2 imposes on the Bank to give the Treasury information about what action the Bank proposes to take if a particular bank fails, such as what impact the failure will have on the financial system and on public funds.
In the rest of my speech I have a few words to say about a paper produced by an organisation called New City Initiative, which supplies an independent expert voice in the debate on financial reform. Its intention is to restore society’s trust in the financial sector. I worked in the investment management sector until 2005.
The UK investment management industry generates about 1% of GDP and remains Europe’s leading centre for fund management. It earns an estimated £12 billion a year for the UK, and London is the hub of specialist boutique firms. The financial crash of 2008 was especially damaging. The serious long-term cost was, perhaps, the death of trust.
Extra regulation was clearly necessary, but the extent is open to debate. The UK SME asset management sector has traditionally been vibrant and grown strongly, but is now stagnating, because start-ups cannot afford the cost of increased regulation. A chart from the FCA shows how the number of new firms—approvals—declined from 230 in 2004 to between 150 and 170 in 2014.
Boutique asset and wealth management firms find compliance increasingly onerous. New financial regulations from the EU and UK are applied equally to the very biggest and smallest asset management firms, disregarding their ability to shoulder the consequent financial and legal burdens. If financial regulation is not imposed more proportionately on large and small asset management firms, New City Initiative is convinced that many fewer start-up firms will come to market. This arrest of competition will damage all, but especially the consumer, because choice will become more limited. The complexity of new regulations, and the potential punishment for infringement of them, pose massive obstacles to the growth of competition in the sector.
A new priesthood, called compliance officers, has emerged from the financial crash. Extra regulation is necessary, but as the regulatory regime continually evolves, becoming ever more complex, and the scale of potential punishments becomes so damaging to small firms, the temptation is for compliance officers to engage in gold-plating, to avoid any possibility of failure to comply. Their numbers—again according to the FCA—have more than doubled in the last 14 years.
I make a final point on banking regulation generally. Can the Minister say whether it is true—as I have read—that retail banks are going to be allowed to pay dividends to their investment banking operations?
Overall I welcome the Bill and wish it safe passage through the House.
Lord Bichard (CB)
My Lords, I should declare an interest as the chair of the board of the National Audit Office and it is in that capacity that I want to address the audit proposals contained in Clauses 9 to 11. I should say at the outset that, unlike the previous speaker, I have major reservations about these proposals. Those reservations are shared by the Comptroller and Auditor-General, as has been mentioned. We believe that the clauses as drafted are deeply flawed and that, if they remain, they will create an expectation that the Comptroller and Auditor-General is prepared to carry out value-for-money studies in circumstances that would compromise his independence. They would also create a damaging precedent for other audit work across government. Let me explain those concerns by reference to specific clauses.
Clause 11 seeks to provide the Comptroller and Auditor-General with powers to undertake value-for-money studies at the Bank but does not provide for the audit independence that is essential to genuine accountability. The importance of this independence is enshrined in the National Audit Act, which applies to most of the C&AG’s work. Under that Act the C&AG has,
“complete discretion in the discharge of his functions”,
whether any examination is carried out,
“and … the manner in which any … examination is carried out”.
Under the Bill, the C&AG would not be able to decide whether an examination was carried out but would instead have to persuade the Court of the Bank of England to allow him to examine an area. This clearly limits greatly the C&AG’s freedom of action and therefore his ability to hold an important public entity to account for the use of its resource.
The Bill also states that the C&AG’s examinations are,
“not to be concerned with the merits of the Bank’s general policy in pursuing the Bank’s objectives”.
This is a further unacceptable constraint on the independence of the NAO and differs again from the language used in the National Audit Act. That legislation prohibits the NAO from questioning the merits of policy objectives but, in contrast, the Bill prohibits the questioning of the policy fulfilling those objectives and, as such, it limits and confuses the C&AG’s remit. I assume that the Bank, or maybe others, have argued that to give the NAO full value-for-money rights would limit the Bank’s own independence. But the NAO already operates in many different sectors with full rights, without impinging on the independence of the public bodies concerned.
It has always been accepted by the C&AG that he cannot, for example, question the merits of policy objectives. In many circumstances—for example, in the military—it is accepted that it would not be appropriate to question operational decisions. In the context of the Bank of England it is entirely accepted that it would not be appropriate, for example, to examine the Bank’s interest rate decisions. To suggest that the NAO might take a different view is to ignore decades of experience of successive C&AGs in the most sensitive areas of government. If this clause remains as drafted it will inevitably set a damaging, indeed dangerous, precedent for audit and accountability right across government. The NAO currently audits a wide range of public bodies, including the recent addition of Network Rail. Many of these, like the Bank of England, are concerned to be independent of government in their operational decision-making. If these provisions remain as drafted then every new body, and many existing ones, will want the same ability to veto and limit the NAO’s work, to the great disadvantage of Parliament and the taxpayer.
I can be more succinct in dealing with Clauses 9 and 10. Clause 9 seeks to provide the C&AG with some of the powers he would have if he was the auditor of the Bank’s financial statements. This aims to ensure that he has access to the information he would need to identify and undertake VFM studies. However, given the severe limitations placed on the C&AG’s VFM examinations, this is little more than ceremonial in reality. Clause 10 seeks to ensure that the activities of the Bank which are the subject of an indemnity or guarantee given by the Treasury, and which therefore represent a risk to public funds, are audited by the C&AG. The Bank would still, however, have the power to elect which aspects of the relevant financial reporting framework to accept—thus limiting again the NAO’s ability to conclude on the truth and fairness of financial statements.
I will make three further points of clarification. First, the NAO did not at any point lobby for powers over the Bank. The NAO was approached by the Treasury, not the other way around. When it became clear that the proposed clauses, as drafted, were unacceptable, the C&AG informed the Treasury of his strong concerns at the earliest opportunity. However, the clauses remain.
Secondly, the C&AG has sought to achieve some consensus with the Bank, and met with the deputy governor for prudential regulation on 3 September. At that meeting, he offered further discussions on the audit arrangements. Regrettably, that offer has not been taken up by the senior management at the Bank.
Finally, some might argue that some access on the part of the C&AG is better than none. However, limiting access in the way the Bill now proposes would create an expectation that the C&AG was prepared to carry out value-for-money studies in circumstances that would compromise his independence. He is not. It would also, as I have said, create a damaging precedent. Neither the C&AG nor the board of the National Audit Office regards this as acceptable, and I will therefore seek the removal of these clauses from the Bill, if the further discussions already kindly offered by the Minister do not find us a way forward.
Lord Flight (Con)
My Lords, I regret to say that I, too, have reservations about this legislation. First, with regard to the restructuring of the Bank of England and the PRA, I agree with much of what the noble Lord, Lord Eatwell, said. It also, to some extent, came across to me like shuffling the deckchairs—I will not say on the “Titanic”—and I wonder really whether there will be much or any effect. Power will stay with the governor. The Bill is full of contradictions in that it says it is aimed at integrating the PRA and microprudential policy more fully into the Bank—not, by the way, why or how—but then makes the PRA responsible to the Bank’s Prudential Regulation Committee and at the same time counters this by moves to protect the PRA’s operational independence. What does it want? To be candid, I think the PRA needs to be an independent regulator. It should obviously liaise with the Bank of England on its other functions, but I would have thought that that would be pretty automatic.
I did not like the abolition of the oversight committee and agree with the comments made by other noble Lords. There are also measures that are described as strengthening governance, but to my mind what is missing is something comparable to the senior managers and certification regime which banks are going to have. At present there is no laying down of responsibility or accountability by regulatory staff in the PRA, the Bank or the FCA, and yet I think we all know that the FSA had significant involvement in causing the banking crisis through wholly inadequate and inappropriate regulation.
There is a code of practice for all Bank committees on handling conflicts of interest. That is excellent, but I am surprised to discover that, at least at present, the Bank is banning anyone joining the court who is either an executive or non-executive director of a bank. It seems to me that NEDs, in particular, are very much the eyes and ears of regulators and the court should have people on it who can actually report on what is going on in the real commercial banking world. I agree with what the previous noble Lord said about the National Audit Office. Again, it seems that the Bank wants to have its cake and eat it, in that, while the National Audit Office has power to launch value-for-money searches, the Bank is there to define what is policy and to exclude the NAO from anything it chooses to define as policy. That undermines the independence.
Back in 2012, as noble Lords will know, the Act set clear rules for the Bank’s operational responsibility and the Treasury’s responsibility in the light of the banking crisis, the Treasury having the whip hand as being responsible for any decision involving public funds. We now have a detailed MoU of how the two are to interact. Personally, I think it is inappropriate and unnecessary and could actually be cluttersome in a crisis, when speed is of the essence, but there seems to be an obsession everywhere nowadays with writing every last micromanagement detail down.
As for the senior managers and certification regime, the objective of raising standards of conduct—not just of senior managers but of the next layer of management also—and of identifying responsibilities is clearly excellent. However, I was disappointed to find no mention of the fundamental principle of integrity and honesty. In that context, I declare my interest in the register and, in particular, as a director of Metro Bank. I am seeing the other end of this coming in at Metro Bank. By the way, I think that “guilty until proven innocent” had to go. As Andrew Bailey pointed out, the courts would throw it out in due course anyway, as being contrary to the very fundamentals of British law.
At the other end of the new regime, again, there is an awful lot of paper. I chair the nomination and remuneration committee and at our first session looking at it there were 40 pages of detail and 26 different areas of responsibility to be worked out and gone through. To me, it has come across as somewhat overprescriptive, but, I repeat, without the all-important requirement of principles.
There is also a strange requirement for senior managers to notify the regulator every year if they think the regulator would have grounds for withdrawing approval from any particular senior manager. I think that a rather strange requirement; I certainly would not want to be the manager or director responsible for that.
The time limit for disciplinary action is raised from three to six years. I can understand the reason for that. I am slightly more critical of making a criminal liability for alleged reckless decisions leading to bank failure. It is fine after the event, but something viewed as reckless subsequently may not have been viewed as such at the time, so there are definitional problems there.
With the next layer certification regime—that is, internal management certifying annually the next layer of management’s fitness and propriety—there is a complication of three material risk areas: European Banking Authority criteria, PRA criteria and FCA criteria. It also covers staff with the ability to take independent decisions to commit the bank and to affect the bank’s risk profile, and all staff giving any form of advice. I think the certification regime is rather sensible and ought to be capable of being managed well by the banking industry. My main criticism is that it is wrong to include NEDs who chair one of the main committees within the management grouping, in that, first, NEDs are increasingly the agents of regulators on a bank board anyway—their duties are very much in the area of making sure that the bank is run properly. Secondly, they are not actually involved in the day-to-day management of banks, so I have yet to have anyone explain to me or particularly convince me as to the appropriateness of the chairman of the various committees being within the management regime.
Furthermore, I may be overly concerned, but extending the regime to all the financial services industry beyond banks seems strange, in that banks are quite different from fund management or insurance businesses. How they are run requires an appropriate oversight regime. I also make the point that the investment management industry came through the crisis perfectly well, and I do not really see that there is a huge need to impose new layers of management monitoring on it—it is quite a well-managed industry. But it is not yet clear what extending the regime across the whole sector actually means.
I have a few final points. When looking at the consultation document, it seemed to me that those who participated were nowhere near a representative sample of the City or the financial services industry generally. I would have thought that whoever organised the consultation should have roped in some other more suitable parties. I remain concerned at the mounting costs of regulation, ultimately borne by clients, pension funds and the public, and raised by the noble Lords, Lord Lawson and Lord McFall. Yes, indeed, the volume of fines paid since 2010 by the top five US banks and top 20 European banks is equivalent to $300 billion. As pointed out, that is shareholders’ money and, frequently, pension funds’ money; more seriously, it limits the ability of the banking system to lend. If there is one thing staring you in the eye that was wrong with the banking system, it was that it was under-capitalised, and it still is under-capitalised. I believe that banks should have a capital ratio of towards 8%; that is what one was taught when learning economics 50 years ago. So you are just taking away the capital—and I should like to see some attempt to address the ability of regulatory authorities to fine institutions in this way. It would probably at least need UK and US co-operation; it has got out of control and is completely damaging.
Lord McKenzie of Luton (Lab)
Despite the hour, I have enjoyed listening to the deliberations thus far and the many knowledgeable banking contributions. In fact, I signed up to speak on just one clause—Clause 24, concerning pensions guidance. As we have heard, this clause is an enabling provision which expands the scope of the guidance service, Pension Wise, to those considering selling their income from their annuities to a third party. It leads to regulations, what type of annuities might be covered and the interest therein. Doubtless, all this will be aligned with the legislation that ensues from announcements already made, and the Treasury consultation on the creation of a secondary annuity market.
The extension of Pension Wise to cover these situations is, in principle, unobjectionable, but it gives the opportunity to reflect on how the service is working so far and how the implementation of the reforms commencing in April this year are working out. It will be a pointer to whether Pension Wise is actually fit for purpose. The Budget 2014 announced that individuals aged 55 and over would be able to access their DC pensions savings as they wish, subject to their marginal rate of income tax. That was, for good or ill, a profound change to the tax landscape. It was recognised by most that for change to work, individuals would need help to review and explore the options available to them. So the Government determined that individuals should have a guarantee that at the point of retirement they would be offered guidance that was free, impartial and of a consistently good quality and that covered a range of options to help them make decisions, including taking further advice.
These arrangements were, of course, legislated for in the Pension Schemes Act 2015 and were debated at length in your Lordships’ House and the other place. A particular bone of contention was whether there should be a second line of defence in encouraging referrals to the service, which has certainly proved to be necessary. The upshot of all this is a service that consists of a face-to-face component to be provided by CABs, branded Pension Wise, a telephone service to be provided by TPAS and an online service organised by a Treasury team drawn from the Government Digital Service and the Money Advice Service. New duties have been placed on the FCA to have responsibility for the setting of standards and monitoring compliance. It seemed to be the Government’s original intent that the Treasury would retain responsibility for service design and implementation until it was,
“very satisfied that it is working well and is seen to be in a stable and successful state”.—[Official Report, 12/1/15; col. 568.]
Can the Minister therefore tell me how it considers this requirement has been met, given the announcement in September that, because of a strong strategic fit, Pension Wise should move to the DWP by April 2016, and the announcement in October that there is a need to identify a long-term home for the service? What on earth is going on? How does this uncertainty help the service, particularly in its early period, and especially if it is to take on the wider requirements for guidance which the creation of a secondary annuity market will entail?
Of course, we now have the benefit of the report from the House of Commons Work and Pensions Select Committee, hot off the press. The committee had a number of significant concerns about the current situation. One of these was the dearth of information on the use being made of the new pension freedoms, and in particular a near complete lack of data about Pension Wise itself. It pointed to there being no research programme tracking consumer outcomes. The committee noted that the take up of face-to-face and telephone guidance appeared to be lower than many had expected. Expectations when the Pensions Bill Committee was under way were that the take-up rate for guidance would be over 75%, and some 25% initially. The FCA found that, in the three months to June 2015, more than 200,000 individuals accessed their pension pots but fewer than 20,000 completed face-to-face and telephone Pension Wise appointments. This would seem to be consistent with suggestions that the CAB is running at 10% to 15% of its capacity and is redeploying staff to other duties. Would the Minister care to comment on this?
A number of reasons have been advanced for this slow take-up: limited early publicity because of parliamentary purdah, the propensity of individuals to take the path of least resistance and to look to existing established providers, and that the requirement on pension providers to give risk warnings and signpost consumers to Pension Wise is being followed more in the letter than in the spirit.
This is all deeply worrying. Pension Wise was designed to fill a gap in support for consumers, and the Government should see these concerns addressed before loading the service with further obligations arising from the secondary market. Of course, the service currently is predicated on the flow of those reaching retirement; causing the stock of those with existing annuities to be covered raises different issues of capacity. It is estimated there are some 5 million individuals with 6 million annuities.
The Select Committee report makes a number of recommendations, some of which the Government appear to be taking forward, although we would wish to probe these further in Committee. These recommendations include the Government publishing or causing to be published regularly a range of data on such matters as consumer characteristics, take-up of guidance and advice, and the decisions individuals make. Given that the pension freedoms have increased the prospect of people being conned out of their life savings, the recommendations urge a redoubling of publicity around pension scams, advise that the FCA strengthen its rules on guidance for pension providers regarding Pension Wise signposting and risk warnings, and state that there should be a research programme to track consumer outcomes.
It is acknowledged that the Government have launched a nationwide marketing campaign to raise awareness of the guidance service, and that two related consultations are under way. A consultation on public finance guidance has just been launched, and a financial advice market review consultation commenced in August. I presume we are unlikely to see these reports by the time the Bill leaves your Lordships’ House; nevertheless, we will use this legislative opportunity to take stock of how the pensions relaxations are progressing and to consider the protections that need to be in place for the secondary annuity market, which is a very significant development.
Lord Carrington of Fulham (Con)
My Lords, I start by declaring my interests as in the register which are, I am afraid, rather specific to the Bill. I am a non-executive director and deputy chairman of a small British bank regulated by the PRA and the FCA. As a director of a bank, I am also an approved person, so I potentially have some conflicts of interest in the Bill, which I fully recognise.
New to the debate on banking regulation, the Bank of England and so on, I rather naively thought that the Bill would be relatively uncontroversial. Listening to this debate has rather changed that view, and I look forward to our debates in Committee because they have every potential to be quite interesting. I express my sympathy to the Minister because he is obviously in for a difficult time.
I welcome the changes proposed to bank regulation. They almost look like a tidying up of the internal structure of the Bank of England, but potentially they do more than that by integrating still further the PRA into the Bank of England. I hope that this will give the Bank of England the opportunity to strengthen the regulation of the financial sector in the UK. One of the reasons London is successful is because foreign investors and institutions have confidence in our tough but flexible financial regulations. In my experience, one of the weaknesses of the late, not very lamented, FSA was that it was very rules-based. Its rules ran to several substantial volumes, as those who dealt with it will remember well.
Financial institutions, and banks in particular, are not easy to regulate. On the face of it what they do is very simple, so to make a decent living banks have to devise clever ways of adding value and of distinguishing themselves from the competition. Many are very innovative and pay key staff a lot of money to find new ways of providing services to their clients. They are always developing new products and new ways of doing business. Regulating them based on what they did last year, or last time there was a financial crisis, will guarantee that the regulator is behind the curve on the risks that banks are taking. Arguably, this was a major contributory factor to the crash of 2008. Regulators around the world did not understand, or if they did, they did not have the powers to stop the banks taking unreasonable risks or selling products whose risks neither the banks nor the regulators could assess. I do not know if fully integrating the PRA into the Bank of England will make this better come the next financial crash, but it should make it easier for the Bank of England to run financial regulation on a holistic basis rather than on rules designed to stop the previous financial scandal.
I am not advocating a return to regulation by a nod and a wink, which formed at least part of the regulatory system prior to 1998, but it is vital for regulators to have access to market intelligence and to be able to act on it. Maybe market intelligence is putting it too high; what I really mean is that regulators should be able to listen to gossip and rumour. Perhaps this is a similar point to the one made by my noble friend Lord Flight when he was talking about the Court of Directors. Regulators have to have the power to follow and act on leads that no self-respecting lawyer would consider evidence-based. This would be helped if the Bank of England could take back some of the day-to-day money market activities presently undertaken by the Treasury. As an aside, I hope that the closer integration of the PRA and the Bank of England will enable the regulators themselves to be paid properly. If they are not, the good ones will be sorely tempted to switch sides and work for the banks they used to regulate, weakening the ability of the regulator to regulate and enabling the banks to game the system.
The other part of the Bill I want to mention is the proposed extension of the authorised person regime to all financial institutions in the UK including:
“UK branches of corresponding foreign institutions”,
and all types of financial service firms. This has to be long overdue although I can see that it will be fraught with difficulties. We are seeing a convergence of the risks taken by investment banks, hedge funds, family offices, sovereign wealth funds and investment managers. I dare say that some of these will not be capable of regulation under this—or probably any other—Bill or, at any rate, not without severely damaging London as a financial centre, which would be throwing the baby out with the bathwater, so to speak.
I welcome the Bill. I hope that when it comes into force the Bank of England and the PRA will use it to develop ever-smarter means of controlling risk in the financial sector, while encouraging innovation and the growth of the UK as a worldwide financial centre. I look forward to our discussions in Committee.
Baroness Worthington (Lab)
My Lords, the hour is late and I am sorry to detain the House longer than might have been expected. I wish to make a short contribution on a specific theme relating to the role of the Bank of England in helping deliver the Government’s economic policy for strong, sustainable and balanced growth. I wish to focus on the word “sustainable”. As we debate the Bill in this House, I hope we will think about the wider sustainability of our financial sector. In particular, I have questions I would like to put to the Minister. These relate to the role of the financial sector’s regulatory frameworks in helping to ensure that we are not susceptible to future shocks or crises born of growing global environmental risks.
At the start of the financial crisis, investors went from believing they knew the value of products containing sub-prime mortgages to realising they knew little about what they were worth, and that was a very disorderly transition. The lesson for the challenges we face from climate change is that we should not underestimate risks we know exist because we lack a sufficiently clear framework to understand their implications. I believe our financial regulators must have a role in ensuring that climate risks are properly appreciated and that the transition is as orderly as possible. The City of London has a particular exposure to climate risk: close to one-fifth of FTSE 100 companies are engaged in upstream fossil fuels and, according to the Bank of England, 30% of equity and fixed-income products are exposed to climate risk.
I would therefore like to touch briefly on three areas. The first is disclosure. In its response to the consultation on the Bill, the Treasury referenced the governor’s recent speech which talked of the need for more and better disclosure about climate risk. Does the Minister agree that there is currently an information gap and that better disclosure of information is needed? Are we, for example, monitoring the extent of the exposure to fossil-fuel-based risk that the UK-listed company market is carrying and how this risk is changing over time?
My second point concerns time horizons. Typically, monetary policy has a future time horizon of only one to three years, and other financial regulatory horizons, including credit rating agencies’ modelling, are typically also short term. How can longer-term risks be better incorporated into the Bank’s thinking without overloading it with impractical burdens? Both the Committee on Climate Change and DECC regularly use decadal-long timescales in advising on and setting policy. One answer could therefore be to require more joined-up thinking between different parts of the UK governance framework through, for example, a closer working relationship between the Committee on Climate Change and the Bank of England, both of which are independent bodies of experts reporting to Parliament.
Finally, is there more that can be done to enable stress testing of economic policy and investment decisions, through the use of carbon pricing scenarios? What role can the Treasury, the City of London and the Bank play in helping to ensure that comprehensive carbon-pricing policy is introduced and works effectively? We know that well-regulated capital markets can be incredibly efficient and drive strong and sustainable and balanced growth, but they do need to be well regulated.
We know that multiple risks lie ahead in relation to climate change and that London is a city well placed to think through its implications in advance of its becoming a crisis. We also know, in advance of the international climate talks in Paris, that the UK rightly wishes to be seen as a thought leader on climate change and our response to it. We must ensure that our economic regulatory framework protects us against the non-linear risks associated with the impacts of climate change and that it also helps to deliver an orderly transition to a world with a safe climate. I hope in Committee to progress this line of argument, and I thank noble Lords for their patience this evening.
Baroness Kramer (LD)
My Lords, the hour is indeed late and I suspect that, like me, noble Lords are feeling utterly exhausted. However, this has been a genuinely brilliant debate and I am delighted that I have had the opportunity to listen to the speeches that have been presented so far. I shall try to restrain my comments because so much has been said, and I shall contribute to the debate only where I have something additional to say.
A number of Peers addressed the fundamental issue of oversight of the Bank of England. I share their concerns—in this, I am with the noble Lord, Lord Eatwell, my noble friend Lord Sharkey and the noble Lord, Lord Flight, rather than with some of the other speakers. During all the conversations that we had, particularly during the passage of the 2012 Bill, we were utterly focused on the issue that the noble Lord, Lord Eatwell, defined as “groupthink”. We had a financial services industry that allowed a systemic risk to grow and eventually lead to a crisis, in large part because independent thinking was continuously crushed. The Bank of England was just as guilty as any other party of becoming engaged in groupthink. This led to the demand for an independent oversight group. As I read the changes that this Bill puts forward, that group is now captured by the insiders within the institution, and that has to be examined. Independent supervision and oversight are surely critical. I know that the Bank does not like it but we who sit on the outside know that it is no insult to an institution to insist on independent oversight.
That brings me to the issue of the audit. We must listen to the noble Lord, Lord Bichard. He speaks with an expertise that, frankly, few in this House have. I hope very much that he will bring forward amendments at later stages of the Bill, because the concerns that he has expressed are absolutely central and key. I also hope that the Government will take notice of the issues that he has raised. The lack of independence in the audit provision is surely of fundamental concern.
I am with those who are very concerned about the absorption of the PRA back into the Bank. I remember the conversations around this—again, they concerned the groupthink issue. We talked about the importance of making sure that the Bank was not one single monolith and that there should be an opportunity for real challenge rather than groupthink. The sharing of agendas and the pursuit of the same priorities were things that we all sought to avoid when we looked at the 2012 Bill. I would much rather see the PRA move to greater independence than be absorbed back into the Bank. I see no reason for the latter other than a sense of architecture. We will be pursuing that issue.
The noble Lord, Lord Lawson of Blaby, along with many others, talked about personal responsibility. I rather disagree with the noble Lord, Lord Lawson, because he is willing to accept a change to the reversal of the burden of proof. He, the noble Lord, Lord McFall, and I sat in hearing after hearing where former chief executives of institutions constantly claimed that they had no knowledge of the abuses being perpetrated within their organisations, even though those abuses and the profits that they led to drove very large bonuses for those individuals. It is a fundamental principle that if you take the bonus, you take the rap. We heard chief executive after chief executive say things such as, “I was shocked when I read about it”. The LIBOR scandal, PPI, money laundering and the simple failure to follow decent credit standards all seemed endemic across banking institutions, but senior management and chief executives did not take responsibility.
What also struck me when we talked to those who had to enforce the regulations was the inability, having identified the abuse, to track up through the system and find the chain to senior management. That was one of the real drivers in reversing the burden of proof. When we listened to Tracey McDermott or Hector Sants, it was so evident that they could not find the email trail or track of phone calls; they could not find the path that took them up to senior management. I do not believe that the change to the statutory duty of responsibility deals with that adequately. The whole point about reversing the burden of proof was to overcome the ease with which that firewall was created between what happened inside banks and the awareness and responsibility of senior management.
We often talk about how limited regulation is in its ability to make fundamental change and that it is culture that counts. By making those senior managers responsible, we drive the change in culture. We saw banks with boards that never challenged what a chief executive did. However, a chief executive who is concerned that they might be liable for abuses in their own institution will want a challenging board. We saw bank after bank that failed to drive its culture down through the bank itself. Again, a chief executive is going to lead on this issue if he or she thinks that they are particularly at risk. It is that shift in the burden of risk that we wanted to achieve by the reversal in the burden of proof. I am very concerned that that has been abandoned.
A number of other noble Lords raised issues of great interest that this Bill gives us an opportunity to address, including that of diversity. The noble Lord, Lord Naseby, talked about the mutual sector and the right reverend Prelate the Bishop of Portsmouth talked about the importance of credit unions. We have in this country a real paucity of different types of financial institution. Look at the Mittelstand in Germany; it is very much supported by community and regional banks. In the United States, small businesses are very much supported by networks of community and local banks. We are missing those layers of banking. Regulators have always resisted any responsibility to have regard to that kind of diversity and the access that it offers, and have been satisfied with a very narrow definition of competition. In this Bill, we have a chance to change that and to emphasise the importance of diversity for long-term financial stability and also because of the way that it can create that generation of new activity and prosperity, particularly in local communities. I hope that we very much take advantage of that.
The noble Lord, Lord McKenzie of Luton, focused on Pension Wise. This is an excellent opportunity to be able to review where pension guidance is now, in a field that is constantly expanding. If change is needed, it would be an opportunity to use this legislation as a vehicle. I am personally very concerned by the number of people I talk to who do not understand the difference between guidance and advice and are getting themselves into a trap of faulty decision-making as a consequence of that.
This will be a useful Bill. However, I am sad that the direction in which the Government seem to have taken it is to roll back some key provisions, particularly around the reversal of the burden of proof and the oversight of the Bank of England.
There is nothing in the Bill that addresses the issues of ring-fencing. However, the noble Lord, Lord Naseby, raised the absolutely key issue. When we on the Parliamentary Commission on Banking Standards looked at the retail banks, it was evident that the taxpayer subsidy—the protection of the taxpayer deposit—created a pool of cheap cash that was funnelled from those retail banks up to their investment banking arms and drove a lot of the wild trading that we saw, which ended up undermining our financial stability. It is really important that that chain is broken. Therefore, the issue of ring-fencing is an entirely appropriate one to address within this Bill as we move forward to ensuring that the ring-fence, as the noble Lord, Lord Lawson, says, moves towards being electrified rather than weakened.
It has been tremendous to be part of this debate; I really look forward to the following stages. Like the noble Lord, Lord Carrington, I think this is going to be an exciting Bill if not a simple one.
Lord Davies of Oldham (Lab)
My Lords, the House owes the Minister a degree of thanks for the effective and precise way in which he introduced the Bill, though I perhaps detected that, as this is a fairly modest Bill of only 30 clauses and four schedules and contains some measures of limited contention, he thought that this was a fairly straightforward exercise. As soon as my noble friend Lord Eatwell had made his contribution, however, the Minister probably realised that, in fact, there were going to be a series of challenges on some quite fundamental points. I am going to discuss those in some detail, but we all recognise that the great opportunities we have for following through the broad arguments put today are during the remaining stages of the Bill, on which we all will strive to be active. In my own party, the shadow Chancellor is carrying out a review of the very issues that have been commented upon in relation to this Bill, and my noble friend Lord McFall is due to serve on that committee, which will be chaired by David Blanchflower, formerly of the court of the Bank of England.
There have been a number of excellent contributions to the debate but I wish to acknowledge that of my noble friend Lord Eatwell, who has very considerable knowledge of these issues. He was unremitting in his trenchant criticism of certain aspects of the Bill. I assure the Minister that those issues will be presented further as we go along. In particular, questions of transparency and scrutiny have come out in this debate. I do not want to put words into the Minister’s mouth, but I hope he will accept that two key planks for the reforms the Government need to get right are in exactly these areas.
Furthermore, there were comments on the financial stability strategy and where the ultimate responsibility for that lies. Of course, this relates to the changes to the structure of the Bank and the new position of the Prudential Regulation Committee. We are bound to be interested in how effectively the Bank pursues financial stability strategies, against a background of its having to take some responsibility for the catastrophic failure that occurred in 2007-08.
There are two other areas that might have looked technical—the National Audit Office and the restrictive role envisaged for it in relation to the Bank—but it is quite clear from the comments of the noble Lord, Lord Bichard, that this idea will not be accepted in committee without the most vigorous debate. The Minister will also have noticed that several anxieties were expressed about the reverse burden of proof being abandoned before it had been significantly tried. We will certainly want to look at the Government’s reasoning behind that concept in the Bill.
Transparency and proper lines of accountability are key for any institution, particularly those whose decisions have such an impact on the public. They are also critical to the trust and confidence that people have in an institution. We need to ensure that the changes being made—particularly changes to the membership of the Court of Directors, the abolition of the Oversight Committee and the changed status of the Prudential Regulation Authority—meet those standards, a point made by my noble friends Lord Eatwell and Lord McFall, who made some trenchant comments on these matters.
On the Court of Directors, the Bill gives the Treasury the power, after consulting the governor, to remove or alter the title of deputy governor. That, along with the reduction in the number of non-executive directors on the court from nine to seven, will clearly alter its structure. The Bill also establishes that in future, alterations to the Court of Directors will no longer need to be done through primary legislation but will be subject to regulation. Who in the Treasury will determine the changes in relation to the deputy governor, and can the Minister outline how that decision will be taken? The Bill states that the Treasury can make changes to the Court of Directors after consulting the governor. Can the Minister say how that will work in practice, or be prepared to answer that fundamental issue in Committee?
Will the Minister go into more detail about the rationale behind the reduction in the number of non-executive directors on the court, and what does the Treasury regard as the benefits of this reduction? I would also be interested to hear why the Minister feels it is appropriate to make these changes through secondary rather than primary legislation.
Noble Lords also commented on the disappearance of the Oversight Committee, which the Bill intends to abolish, of course. It was established by the Financial Services Act 2012 in order to keep under review the Bank’s performance. As part of that, it may commission reviews and keep track of the delivery of any recommendations. The Government need to explain why they think they can dispense with that body, and how effectively its functions will be carried out in a different way. They will be transferred to the Court of Directors. However, Clause 4(3) states:
“The oversight functions of the court of directors (as defined by section 3A(2)) may be delegated to a sub-committee of the court consisting of 2 or more non-executive directors of the Bank.”
How on earth can this be removing a layer of governance, if the legislation gives enabling powers for another committee to be formed? There is an essential contradiction in the Government’s thinking on these issues. What safeguards are in place as a result of moving this committee in-house? Are the Government convinced that this will lead to self-evaluation, rather than some independent judgment? On the future make-up of the sub-committee for oversight, how far will oversight stretch if this function is being delegated to two non-executives? Previously, six non-executives were expected to perform that function. What prompted that change?
On the issue of transparency and oversight, the changes being made to the Prudential Regulation Authority and the reforms included in the Bill end the PRA’s subsidiary status and integrate its microprudential policy into the bank. The PRA board will be replaced by the Prudential Regulation Committee, which will be solely responsible for exercising the Bank’s functions as the PRA. We are concerned about whether this represents a downgrading, as it is no longer a freestanding committee, and we will want to explore that in Committee.
Turning to the financial stability strategy, the Bill moves the responsibility from the court to the Bank itself. What is unclear is how the various bodies that have previously been involved in developing this strategy will be affected by the proposed change. The Government’s impact assessment states:
“At present, the Bank’s financial stability strategy is set by the Court after consultation with the FPC … and HMT”.
It goes on to say:
“Making the Bank responsible for setting the strategy, and allowing the Court to delegate production of the strategy within the Bank”
—which is the essence of clause 5—
“will ensure that Court is responsible for the running of the Bank and that the Bank’s policy committees are responsible for making policy.”
We need to examine that further. Who in the Bank of England is responsible for producing the financial stability strategy? If it is the FPC, that needs to be made clearer than it is in the Bill.
The role of the MPC has been discussed in great detail as well, but I have a couple of technical points to make at this stage for the sake of clarity. The Bill makes changes to the make-up of the committee, the requirement on the number of meetings and the publication of minutes. Does the Minister anticipate that this will improve the MPC's work, and how? What prompted the change? More fundamentally, I ask the Minister how these alterations really succeed in terms of protecting consumers of banking services.
Then there is the crucial question of the operation of the National Audit Office. I do not need to repeat, but I fully support, the remarks made by the noble Lord, Lord Bichard. He is right that the quality of independence, which is critical to a successful and proper audit, may be compromised in the arrangements made in the Bill. The Minister will have to address that issue, too. It is quite clear that the National Audit Office will continue to have independence in determining a value-for-money programme within the framework proposed: it is for the Government to make sure that that framework guarantees that position.
The noble Lord, Lord Lawson, raised the crucial issue of how we hold banks and financial institutions responsible—in terms of personal responsibility, as he saw it. He also introduced the issue of ring-fencing, although I would imagine that as far as the Government are concerned that is also a fairly contentious measure. Nevertheless, the noble Lord, Lord Lawson, is quite right to raise that issue within the framework of this Bill. I hope that it, too, will be pursued in Committee.
A number of noble Lords—my noble friend Lord McFall and the noble Lords, Lord Flight and Lord Sharkey, and others—raised the question of why in replacing the approved persons regime the reverse burden of proof was being altered. We are by no means convinced of the arguments on that front as yet. The Minister will be asked to make those points clear in Committee.
A number of other issues were raised. The noble Lord, Lord Naseby, introduced the issue of the mutuals. We could not possibly deal with a Bill of this kind without paying attention to their significant role. The right reverend Prelate commented on credit unions. They, too, have their proper place for consideration in this Bill. My noble friend Lord McKenzie identified the anxieties about the progress with regard to pensions advice—in what is one of the most crucial years for this, but it is only the first or second of crucial years. It is quite clear that we are going to have to wrestle with this issue of adequate advice for those who are seeking to change their position with regard to pensions and annuities. They will need a great help on that. Finally, my noble friend Lady Worthington raised quite fundamental issues about the financial strategy being responsive to environmental risks. We surely would be remiss if we did not take that into account as well.
This has been a fascinating debate. The Minister does not have to reply to every point at this stage—we would be here for an unconscionable time if he did—and we have the delights of Committee, Report and Third Reading ahead of us before the Bill completes its passage. But if the Government think that the Bill is a relatively modest one, and even one with limited contentious issues within it, what has been established this evening is that it has much that we need to challenge them on.
Lord Bridges of Headley
My Lords, I begin by thanking all those who have spoken and for their excellent contributions. I am very conscious that the hour is late, so I am delighted that the noble Lord, Lord Davies, says that I do not have to respond to every single one of his points, as we would all need our sleeping bags if I were to do that. I think that the noble Lord also said that this Bill is exciting, and on a typically dull day in your Lordships’ House, I am sure that we could all do with some excitement to pep up our lives. Let me assure noble Lords that if I fail to respond to points that have been made, my door is open and I will certainly either write or meet to discuss them.
Let me start by addressing points that were raised by the right reverend Prelate the Bishop of Portsmouth and my noble friend Lord Naseby. They both stressed the importance of the diversity of business models, especially mutuals and credit unions. I agree entirely with the noble Lord, Lord Davies, on the need for diversity. As noble Lords will know, the PRA is required to have regard to differences in the nature of and the objectives of businesses. This important recognition of diversity is preserved under the new arrangements, but I would be delighted to meet and discuss these matters further.
My noble friend Lord Lawson talked about ring-fencing, as did the noble Lord, Lord McFall. Let me tell your Lordships that the implementation of the ring-fence is obviously the primary responsibility of the PRA, but we are monitoring the way in which firms are implementing it. There is no evidence to date that firms are gaming the ring-fence, and as noble Lords know, we discussed at length whether it was necessary to have full separation during the debates on the banking reform Bill, but obviously we decided to go for ring-fencing. The Government remain of the view that it is appropriate.
I turn to the issue of dividend payments, raised by my noble friend Lord Northbrook. The PRA proposed rules on dividend payments are entirely consistent with the ring-fencing legislation and the recommendations made by the Independent Commission on Banking. There has not been a watering down of what are very robust requirements. The ring-fenced bank will be required to be legally, economically and operationally separate from the wider banking group and will have to interact with entities in the wider group on an arm’s-length basis. It is entirely appropriate that excess profits from the ring-fenced entity can be used to capitalise the parent company. This must be viewed in the context of the significant extra capital that the ring-fenced banks will be required to hold. Only excess capital above and beyond this would be eligible to be moved to the parent company. The PRA has rightly retained the power to prevent these payments, which the ring-fenced bank must inform the PRA of in advance if it feels that they would impact on the resilience and resolvability of the ring-fenced bank. There is no threat that these rules will result in a poorly capitalised ring-fenced bank.
I am sure that we will return to that issue, as we will to the next one I wish to address, which is the oversight function and committee and groupthink, which the noble Baroness, Lady Kramer, and others referred to. Let me start by saying that the court will have the ability to appoint independent experts to manage reviews as well as the continued ability to delegate to a sub-committee, including a sub-committee of non-executives. The balance of non-executive and internal members will ensure external challenge, while the abolition of the oversight committee will ensure that the statutory oversight functions are the responsibility of the whole court. It is worth noting that Andrew Tyrie has welcomed this change. I suspect—although I do not want to put words into his mouth—that Mr Tyrie, like me, sees this as an issue of transparency and accountability, both of which I believe are improved by this Bill. The noble Lord, Lord Eatwell—who has had a lot more experience of these issues—described the Bill as,
“opaque and not fit for purpose”;
I dispute that, but I am sure we will return to that issue in Committee.
I would like to refer briefly to one of the problems caused by the oversight committee. I shall just quickly outline this, if I may. In 2013-14, the foreign exchange market investigation sought to establish whether any bank officials had been involved in or aware of FX market manipulation. As your Lordships may know, the Bank governors initiated an extensive internal review on this and made regular briefings to court. In March 2014, when it became clear that an independent investigation would be appropriate, the oversight committee took over the investigation, appointing the noble Lord, Lord Grabiner QC. That was a good use of the oversight functions, but in practice the executive needed to join the oversight committee discussions for them to function and be effective, both as the investigation progressed and once attention turned to delivering recommendations. It would have been better, in practice, to make the oversight function the responsibility of the whole court, which is what we are now doing.
I turn now to the question—which I believe the noble Lords, Lord Davies and Lord Sharkey, asked—of why the number of non-executive directors will be reduced to seven. This is to make the court a smaller, more focused unitary board, as I said at the start. The Bank’s 2014 report Transparency and Accountability at the Bank of England said that,
“consistent with best practice in the private sector, the Bank sees the value of continuing to evolve towards a slightly smaller body, with a non-executive chair and majority”.
It cited the Walker report—the review of corporate governance in UK banks and other financial entities, published in 2009—which identified the optimum size of a board as between eight and 12 people.
On the subject of the board, the noble Lord, Lord Eatwell, raised concerns about the shift of financial stability strategy from the court to the Bank. Under current legislation, the court is responsible for determining the financial stability strategy, but this Bill will make the Bank responsible for determining the strategy. The noble Lord suggests that this was a shift to an “amorphous entity” and may serve to weaken the production of the strategy. This Bill ensures that aspects of its preparation can be delegated, so that the full expertise of all relevant areas of the Bank can feed into production of a single overarching strategy for delivering the Bank’s financial stability objective. The court, as the governing body of the Bank, will retain ultimate responsibility for the strategy, as it has now.
I turn now to those who have made an eloquent defence of the reverse burden of proof. I would like first to address a small point that the noble Lord, Lord Eatwell, raised about lobbying. Concern has been expressed that the Government have removed this provision in response to lobbying from big banks. I wish to be very clear. We are aware of the views of the banks on this matter. It is no secret and no surprise that they were not in favour of the reverse burden of proof policy, but the Government did not discuss their intention to make this change with any Bank before they made their decision.
I ask noble Lords to let me explain why the Government believe that the reverse burden of proof should be superseded by the duty of responsibility. I am sure we will return to this in Committee, but I would like to make some points now. In the interests of fairness and regulatory coherence, it is vital that the regime is rolled out consistently across the industry. Otherwise, a senior manager in a small building society would become subject to the reverse burden of proof, but one in a large investment firm that did not quite meet the criteria to be PRA-regulated would not. That is not fair, nor is it proportionate. While misconduct by firms of any size can seriously impact on the welfare of consumers or on market integrity, the potential impact is larger in the case of the large investment firm than the small building society.
Secondly, it would clearly not be proportionate to apply the reverse burden of proof across the financial sector, including to the small organisations that will now make up the majority of firms which will come under the regime, and which pose more limited risks to market integrity and consumer outcomes. The reverse burden of proof makes it much harder for such firms to recruit senior managers, since they cannot offset the personal risk attached with high remuneration. This is particularly problematic for credit unions, for example, which provide vital services to vulnerable people.
Our solution is a tough statutory duty for senior managers to take reasonable steps to prevent regulatory breaches in the areas of the firm for which they are responsible, applied consistently across all authorised financial services firms and coupled with the other elements of the regime. This will deliver the intended benefits of the reverse burden of proof in a much more proportionate way. I draw your Lordships’ attention to my phrase “coupled with other elements of the senior managers and certification regime”. It is important that we do not underestimate the step change that the other reforms recommended by the Parliamentary Commission on Banking Standards, and those noble Lords who were part of that, will deliver.
As I pointed out earlier, the SM&CR marks a move to a situation where firms and senior managers must take responsibility for how a firm conducts its business. Crucial among the provisions that deliver this are the statutory statements of responsibility that each senior manager must keep up to date, sign and submit to the regulators, setting out clearly the areas of the firm’s business for which they are responsible.
The noble Lord, Lord Eatwell, raised the issue of transparency. I argue that these steps will mean that there can never be any doubt for the individual concerned, the firm or the regulators what each senior manager can be held accountable for. This makes a statutory duty to prevent regulatory breaches in these areas a powerful incentive for senior managers to run their businesses well and a formidable enforcement tool if they fail to do so. Let us not forget that if a senior manager does not fulfil this duty, the regulators can and will enforce against them. Penalties could include prohibition and/or an unlimited fine.
I will briefly touch on the point that my noble friend Lord Flight made. I believe that he is concerned about the mounting cost of regulation. The PRA and the FCA are committed to implementing the SM&CR in a proportionate way, particularly for small firms. The SM&CR will lead to a significant reduction in the number of appointments subject to prior regulatory approval, from just more than 200,000 approved persons to just more than 100,000 senior managers. The extended SM&CR will not include the obligation to report to regulators all known or suspected breaches of rules of conduct for employees. Feedback during the SM&CR implementation process for banks has shown that these obligations can have significant cost implications for firms, quite apart from their other burdens on firms or the individuals concerned.
I turn to the other major issue discussed, which is the issue of the NAO conducting value-for-money studies. The noble Lord, Lord Bichard, was concerned that the mechanism built into the Bill to protect the Bank’s independent policy-making goes too far and could impede the NAO’s ability to conduct independent value-for-money reviews. I note the noble Lord’s extensive experience in this field. His concerns are well argued and should be taken very seriously. No doubt we will debate them and I look forward to meeting him to discuss this in due course. However, pulling in the other direction are equally serious concerns for the vital policy-making independence of the central bank, where drawing the line between what does and does not constitute policy is particularly complex.
We have had to strike a balance in the Bill to protect the independence of two vital public bodies. That is why the Bill requires that, in the event of disagreement between the NAO and the Bank over the definition of policy, the NAO must make public the disagreement, ensuring that the process will be transparent and open to full public and parliamentary scrutiny. I hope that noble Lords will understand the desire for this balance and I look forward to discussing the mechanism we have chosen to achieve this in more detail in meetings and in Committee should that be useful.
The noble Lord, Lord McKenzie, raised some very specific questions on Pension Wise. To do him justice and merit, I will write to him to address them specifically. The noble Baroness, Lady Kramer, raised the issue of distinguishing between advice and guidance—a point very well made. The financial advice market review, which published its consultation document on Monday 12 October, recognises that the distinction between advice and guidance is not always consistent with people’s understanding of what advice is. It seeks views on how there could be greater clarity in this respect. As I am sure the noble Baroness knows, the consultation period for this will close shortly before Christmas.
I am very conscious that, at a late hour, I have not done justice to the excellent points that have been made. I look forward in the weeks ahead to debating and discussing these measures with your Lordships in more detail, and my door is always open. I thank noble Lords for their contributions today. To conclude, I would argue that—
Baroness Kramer
My Lords, before the Minister sits down, can he comment on the sustainability issue that was raised by the noble Baroness, Lady Worthington, and that I happened to overlook?
Lord Bridges of Headley
Indeed I can. These issues were raised and I am more than happy to meet the noble Baroness to discuss them in due course. This issue was raised by the Governor, Mark Carney, in a recent speech, and it is one that the Bank is always looking at. I am happy to discuss that in due course.
To conclude, the reforms in the Bill will strengthen the governance and accountability of the Bank of England, update resolution planning and crisis management arrangements between the Bank and the Treasury, and extend the principle of personal responsibility to all sectors of the financial services industry.
Finally, I return to a point raised by the noble Lord, Lord Sharkey, about the balance on the PRC and the role of the FCA CEO. First, it is right to consider the FCA CEO as external to the Bank: he or she is not a Bank appointee. The legislation therefore ensures that there is a majority of externals on the PRC, since the legislation provides for at least six externals plus the FCA CEO, compared to five Bank committee members. It is also worth noting that, for the PRA board, the legislation requires a majority of externals on the board and includes the FCA CEO as an external for these purposes. The legislation, therefore, will reinforce the independence of the PRC compared with the PRA board.
Lord McFall of Alcluith
In the debate I raised the issue of transparency and disclosure regarding the Investment Association. This is a current issue and I would like an assurance from the Minister that they will take this issue up with the regulators—both the Bank of England and the FCA—to see if we can do something to assist transparency and disclosure in this industry.
Lord Bridges of Headley
My Lords, I am all in favour of transparency and am happy to meet the noble Lord to discuss those issues. I hope the noble Lord will forgive me for not giving a blanket commitment here and now, but I am more than happy to meet him. Transparency must be in the interests of everyone, as long as it is applied proportionately. I am acutely aware that the noble Lord has a lot of experience in this field, so he will forgive me for not agreeing to that request here and now.
I thank your Lordships for all your contributions today.
Lord Davies of Oldham
It would be helpful if the Minister, after reading the debate, and after his officials have looked at it and seen areas in which he could usefully enlighten us before the Committee stage, could write to the Members concerned. Everyone in the House would appreciate that.
Lord Bridges of Headley
I certainly will do so, my Lords. Communication between us all will be very fruitful as we proceed. There are many technical issues here that we cannot perhaps do justice to on the floor of the House. It would be good to meet beforehand. I should also extend my apologies to the noble Lord, Lord Davies, because I believe he was unable to come to the briefing we had on this Bill, but that is my fault, not his. I am entirely in favour of good communication.
Lord Sharkey
Can I simply ask whether the Minister agrees that we will see the new impact assessment, promised in the current impact assessment, prior to Committee?
Lord Bridges of Headley
My Lords, I can agree that it is certainly being worked on. We will continue to work on it, and share and discuss the issues of the impact of these measures with the noble Lord. I absolutely agree that we need to make sure that the measures on the extension of the SM&CR, which is what I presume the noble Lord is referring to, are done in a proportionate and careful way. We must heed previous cases where that has not been properly, so I entirely agree on that.
Let me end by thanking your Lordships for your contributions today. I ask the House to give the Bill a Second Reading.