Cultural Property (Armed Conflicts) Bill [ Lords ] (First sitting)
Tuesday 15th November 2016
(7 years, 11 months ago)
Public Bill CommitteesRead Full debate Cultural Property (Armed Conflicts) Act 2017 View all Cultural Property (Armed Conflicts) Act 2017 Debates Read Hansard Text Amendment Paper: Public Bill Committee Amendments as at 15 November 2016 - (15 Nov 2016)
The Chair
Before we begin, could everyone ensure that their phones are switched off? The selection list for today’s sitting is available in the room and online, and it shows how the amendments have been grouped together for debate. Amendments grouped together are generally on the same or similar issues. I am aware that there are very experienced Members in the room, but there are also some who are not so experienced, so I will spend a moment running through the process.
A Member who has put their name to the lead amendment in a group is called first. Other Members are then free to catch my eye to speak on any or all of the amendments within that group. A Member may speak more than once in a single debate. At the end of a debate on a group of amendments, I shall call the Member who moved the lead amendment again. Before they sit down, they need to indicate whether they wish to withdraw the amendment or seek a decision. If any Member wishes to press any other amendment or new clause in a group to a vote, they need to let me know. I will work on the assumption that the Minister wishes the Committee to reach a decision on all Government amendments tabled.
Please note that decisions on amendments take place not in the order in which they are debated, but in the order in which they appear on the amendment paper. In other words, debate occurs according to the selection and grouping list, but decisions are taken when we come to the clause that the amendment affects. New clauses are decided after we have finished with the existing text—that is, after considering schedule 4 to the Bill. I shall use my discretion to decide whether to allow a separate stand part debate on individual clauses and schedules following the debates on the relevant amendments. I hope that explanation is helpful.
Clause 1 ordered to stand part of the Bill.
Clause 2
“Cultural property”
Kevin Brennan (Cardiff West) (Lab)
I beg to move amendment 2, in clause 2, page 1, line 18, at end add
“and shall be taken to include cultural property in digital form.”
The Chair
With this it will be convenient to discuss amendment 6, in clause 8, page 5, line 5, at end insert—
‘( ) Where cultural property is in a digital form, the cultural emblem may be displayed in a digital format.”
I call Kevin Barron.
Kevin Brennan
We are very good friends, Ms Buck, so I do not need to remind you that I am Kevin Brennan, not Kevin Barron, although that mistake has been made previously; the Daily Mail online accidentally knighted me, briefly—
Kevin Brennan
The hon. Lady is quite right. Like her, I am much more shovelry than chivalry.
Amendment 2 stands in my name and that of my hon. Friend the Member for Tooting. As with all the Opposition’s amendments to the Bill, it is a probing amendment. Having closely looked at what was said on Second Reading, Members will realise that we merely seek to scrutinise and stress test the Bill a little. The Bill has completed its stages in the House of Lords, but some outstanding issues remain that we need to explore in Committee, particularly through the amendments that my hon. Friend and I have tabled. An amendment has also been tabled by a Government Back Bencher.
We made it clear on Second Reading that we very much support the Bill, which has been a long time coming. It brings into UK law the 1954 Hague convention, which the UK did not ratify at the time and which has been hanging around waiting for ratification for some considerable time, including after the second protocol was added in 1999. Indeed, it was the Labour Government in 2004 that announced their intention to legislate in this way. They introduced a draft Bill in 2008, which was then scrutinised by a Select Committee but unfortunately ran out of time prior to the 2010 general election and then went into a deep sleep under the coalition Government. It has been revived by this Government, which we think is a good thing, although it is now 62 years since the convention was originally passed.
We are not seeking to challenge the spirit of the convention or the principles of the Bill. In fact, we understand that it is in many ways a different kind of Bill. As the Minister reminded us yesterday in the Programming Sub-Committee, the schedules are in effect there to give the Committee information, rather than to be debated or amended. They actually represent the wording of the convention and the subsequent protocols to it. The first six parts of the Bill are very much for us to debate and amend. As I have said, our amendments will, for the most part, be probing amendments, as this one is. I agree with what the Secretary of State said on Second Reading:
“We want to get on with it”.—[Official Report, 31 October 2016; Vol. 616, c. 700.]
That is why we are here today. I hope that we will be able to conclude our proceedings in the plenty of time given by the programme motion that was agreed by the Government and the Opposition.
We would like the Government to clarify some aspects of the Bill that could create difficulties in future for those who have to interpret and implement it when it becomes law. Amendment 2, which we are considering in conjunction with amendment 6, speaks to one such difficulty. An inevitable consequence of the Bill’s 62-year gestation is that certain aspects of it may well have become outdated. The convention was written in the light of the cultural destruction of the second world war, but quite a lot has happened in the intervening period. The descriptions of the types of cultural property that are in need of protection, which can be found in schedule 1 to the Bill, show their age in the way they refer to physical artefacts and the buildings that house them, with no mention of, for example, those objects that take a digital, rather than physical, form.
The convention, as it is worded, covers cultural property that is “movable or immovable”, but the question that was quite reasonably raised in the other place is whether it covers digital cultural artefacts. For example, would it cover moving images as well as movable or immovable images? I understand that the list in schedule 1 is illustrative and not necessarily exclusive, and that the omission might be seen in some ways as a natural consequence of technological developments rather than any particular negligence at the time, but I still think that it would be useful for the Minister to set out the Government’s position on that.
Having said that it is because of technological developments, it may also reflect a change in mindset since 1954 with regard to what are regarded as cultural objects. It is quite telling that the wording of schedule 1 and the definition of cultural property under article 1 of the convention do not seem to say or to imply that, for example, film would be included as cultural property in that regard. Perhaps people in 1954 did not envisage that film, which was still a relatively new form of artistic expression, albeit more than half a century old, would fall into the category of a cultural object. Lord Stevenson spoke quite eloquently in the other place about the growing and indisputable importance of film, and subsequently television, and the way that they are woven into everyday life, and the way that they reflect, reproduce and challenge the worlds that we inhabit. Therefore, the national film archives in England, Wales, Scotland and Northern Ireland, as well as regional archives, are all of critical importance.
In fact, a couple of years ago I was fortunate enough to visit the British Film Institute’s archives, which are located near Milton Keynes—if the Minister gets an opportunity in her busy life, I recommend she visits them at some stage—to see the work being done to preserve the cultural heritage of the British film industry. In recent years we had the fantastic discovery of the very early Mitchell and Kenyon films, which catalogue life in the Edwardian era in an incredibly moving and powerful way. They reveal the cultural life of ordinary people in this country, not just so-called high culture, showing how they lived and spent their leisure time and their working lives more than 100 years ago with an amazingly vivid quality. While I was there, I was given a DVD of some of the early colour films of Claude Friese-Greene, who developed an early technique for making colour films but was largely forgotten for many years. There are amazingly vivid images of life in the UK from a tour he took in the 1920s.
To confirm that “cultural property” can be interpreted to include that which takes a digital form would clarify that items do not need to be ancient to be covered by the Bill and by the convention. Our creative industries are thriving, dynamic and constantly changing, producing precious commodities that deserve our protection. I therefore hope that the Minister will assure us that they will be granted the protection outlined in the Bill in the event of armed conflict.
The Minister may argue that the Bill, once passed, will take its place among other UK laws on the protection of cultural property and that we would be better off ensuring that digital culture is covered by those Acts, rather than risk amending the Bill. I understand that argument, which is why I outlined that this is a probing amendment to ensure that we have the Government’s position on the record. However, to ensure that we have informed the future interpretation of the Bill, we want to ensure that UK law is as consistent as possible and that there can be no doubt about the importance of digital cultural property or the severity or importance of anything done to destroy it. I hope that the concerns raised are remembered when we decide which items of cultural property are to be safeguarded by the cultural protection fund.
When this topic was debated in the House of Lords, the Minister, Baroness Neville-Rolfe, said that the wording of schedule 1—in other words, the 1954 convention—was
“flexible enough to meet the concerns expressed about what sort of cultural property might be covered.”
However, earlier in the same speech she responded to Labour’s amendment on the topic by saying
“the noble Lord’s amendment risks allowing the development of an interpretation of the definition in the United Kingdom which is not consistent with its internationally accepted interpretation. That would be undesirable. It would create uncertainty and inconsistency in the application of the convention and its protocols and could result in the UK failing to comply with its obligations under them.”—[Official Report, House of Lords, 28 June 2016; Vol. 773, c. 1478-1479.]
In those two statements there is some possibility of misunderstanding. Is interpreting cultural property so as to include that which takes a digital form a fair interpretation of flexible wording, as the Minister seemed to hint at one point in her remarks? Alternatively, is that interpretation—as expressed in a probing amendment in the House of Lords—a threat to the ratification of the convention? She seems to be suggesting that, and both those things cannot be true. We would be most grateful if the Minister clarified the Government’s exact position on that point. The more strongly she expresses the Government’s view that digital property is covered under the wording of the convention, and therefore by the Bill, the better.
Amendment 6 probes how part 3 of the Bill, which relates to the cultural emblem, fits into the digital age. Hon. Members will have noted that the Bill is unusual in another way, besides the fact that we are not debating the schedules, because it contains a picture. That is unusual in a parliamentary Bill.
Kevin Brennan
As my hon. Friend the Member for Rhondda notes from a sedentary position, there is an analogy with the Red Cross symbol, in the sense that we are dealing with an international emblem recognised in law. The picture is not in colour, but the Bill tells us that the colours of the emblem, which is intended to indicate cultural property protected under the convention, should be royal blue and white.
As I mentioned earlier, it is inevitable that a Bill based on a convention written more than six decades ago will be framed partly in ways that are outdated. I have discussed that in relation to the definition of cultural property, but it may be equally applicable to the form of the emblem. There has been broad cross-party agreement on the importance of protecting cultural property. The cultural emblem is crucial to that process, making the protected status of an item known to all those surrounding it, and reducing the chances of it being damaged because that status was not known.
On Second Reading mention was made of the famous use of the cultural emblem in recent years, during the second Iraq war—perhaps in the first Iraq war as well—when it was painted on the roof of a museum in Iraq so that those flying above would know that it was under the convention’s protection. However, there is the potential for that to backfire, as it could signal to looters where cultural property is being stored—we know what happened in Iraq after the invasion.
Leaving that aside, the blue shield is often described as the cultural equivalent of the Red Cross symbol, as my hon. Friend the Member for Rhondda noted. I reiterate the point, made on Second Reading, that the Red Cross supports the Bill. That is a testament to the fact that culture is recognised as important to identity, even by those such as the Red Cross whose first responsibility is the protection of life. Given the importance of the blue shield, we have tabled the amendment to clarify the potential scope of its use.
We welcome the measures that protect against unauthorised use of the blue shield. Its impact should not be diluted. However, the wording in schedule 2 about its authorised uses may be slightly outdated. My concern is to ensure consistency as to formats and the protection available.
I appreciate that the wording of schedule 2 is flexible in the sense that the regulations on the execution of the convention specify that the cultural emblem
“may be displayed on flags or armlets; it may be painted on an object or represented in any other appropriate form.”
The Government have previously said that there is nothing to preclude the emblem being displayed in digital form, for example on a screen or by projection. There could be clear benefits to being able to use the blue shield in digital form; in certain circumstances, for example, it could be projected to prevent the need for it to be painted or physically fixed on protected objects. When this issue was discussed in the Lords, the Government said that digital property such as recorded music could be marked as protected by the emblem if it were added to the physical object containing the digital data.
Kevin Brennan
The Minister refers from a sedentary positon to MP4. I do not think we would meet the high bar required for cultural property.
I remain concerned that the Government’s previous statements on the importance of consistent interpretation could prohibit such an understanding on digital data being implemented in practice. Will the Minister reiterate and expand on the assurance that the emblem could take a digital form? Could the wording of the schedule be interpreted as allowing the emblem to be included in digital format—in a digital file which is protected—as well as on its casing?
Tracey Crouch
It is a pleasure to take my first Bill through Committee under your chairmanship, Ms Buck. I look forward to receiving wise counsel and guidance if I get anything procedurally incorrect.
I am grateful to the hon. Member for Cardiff West and the Opposition for their support for the Bill on Second Reading and in Committee, here and in the other place. Members should always feel honoured to be on a Bill Committee, but I am sure colleagues share my pride in being on this particular Bill Committee ratifying The Hague convention and both protocols, which will make us the first permanent member of the UN Security Council to do so. That will give us great gravitas and status around the world and ensure that we protect cultural property in the future.
I am grateful to the hon. Gentleman and to Lord Stevenson for the amendments. It is important to recognise Members’ concerns that the Bill should enable appropriate protection of all forms of cultural property, including those which have been created using modern digital technology. The tabling of these probing amendments enables us to reassure hon. Members and to reiterate that we do believe that that is the case, and that the amendments are therefore not necessary.
On amendment 2, the definition of cultural property set out in article 1 of the convention and incorporated into clause 2 of the Bill as
“movable or immovable property of great importance to the cultural heritage of every people”
is broad and flexible. It is not limited to those things that are specifically mentioned in article 1 of the convention, which are presented as examples of the sorts of cultural property that are protected by the convention. Other cultural property can also be protected under the convention if it is
“of great importance to the cultural heritage of every people”.
We consider that the definition is already sufficiently broad and flexible and can accommodate modern forms of cultural property such as digital material.
As Members will have seen, Professor Roger O’Keefe of University College London states in his written evidence to the Committee:
“There is no ground for concern and no cause for doubt on this point.”
We also received support on this point from Michael Meyer, the head of international law at the British Red Cross. In his view:
“The examples set out under Article 1 are extensive, but not exhaustive”
and the definition in the convention is
“able to apply to a very broad range of items, which may well include those of a digital nature, such as rare and/or important film and music.”
I reiterate the statement made in the other place that using the definition from the convention does not mean that it is not flexible enough to include modern types of cultural property.
As we stated in the other place, there is also a risk that the amendment would allow the development of an interpretation of the definition in the United Kingdom that is not consistent with its internationally accepted interpretation. That would be undesirable. It would create uncertainty and inconsistency in the application of the convention and the protocols, and it could result in the UK failing to comply with its obligations under them. I must therefore oppose amendment 2.
On amendment 6, the Bill specifies not the format in which the cultural emblem should be displayed, but only the design. The regulations to the convention provide that the emblem may be represented in any appropriate form. The emblem was devised in the ’50s, and although at the time there may have been an expectation that it would be fixed to or painted on objects, there is nothing to preclude it being displayed in a digital format—for example, on screen or by projection. For modern, born-digital material, such as films and music, in practice we would expect the emblem to be displayed on the physical object on which the material is stored or on the building in which the physical storage object is kept, rather than being displayed digitally. That would help to ensure that the emblem is readily visible. That is not to say that it cannot also be depicted in digital form. Next month, we will be holding a roundtable on particular aspects of the implementation of the convention, which will provide a further opportunity to discuss implementation measures. This issue will be on the agenda.
The Government are not aware of any other state parties that have raised concerns about the definition or the rules for displaying the emblem. When the second protocol was agreed in 1999, the definition and the rules relating to the emblem were still considered to be appropriate at a time when digital culture was already well developed.
In conclusion, the amendment is unnecessary and I oppose it. I thank the hon. Member for Cardiff West for giving us the opportunity to clarify that we believe that that issue is included within the wider definition of the convention.
Kevin Brennan
I thank the Minister for her response and for giving the Opposition access to her officials before Second Reading. For a Bill of this kind, it is very helpful to be able to have such discussions and to clarify things in advance.
In a sense, the Minister did not address my point about the potential conflict between Baroness Neville-Rolfe’s remarks in the House of Lords that clarifying the Bill by amending it to include the words “in digital form” would damage the international interpretation of what is meant by cultural property and that the wording of the convention effectively includes digital cultural property. I am not going to press that point, because the Minister and the Government have made it clear that they believe that the definition should be flexible enough to include digital property. It is useful for her to put that on the record and repeat it to the Committee today.
Later in the Bill we will get on to the very interesting subject—hon. Members from both sides of the Committee might want to contemplate this—of which cultural objects and what cultural property in this country, and indeed in each of our constituencies, are regarded as being of sufficient importance to all the people of the world, not just to us and our constituents, to be worthy of protection under the convention. I am sure everybody will spring to life later to give examples from their constituencies, because every hon. Member has in their constituency a cultural treasure that is important to all the people of the world. I look forward to hearing about the cultural richness of this country, including Queen’s Park and north London—your part of the world, Ms Buck, although you are not allowed to talk about it. I accept the Minister’s assurances on amendment 6. On that basis, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Question proposed, That the clause stand part of the Bill.
Victoria Borwick (Kensington) (Con)
It is a pleasure to serve under your chairmanship, Ms Buck. I would like to declare that I am the president of the British Antique Dealers’ Association, and I have been advised by the British Art Market Federation, the Antiquities Dealers’ Association and LAPADA, all of which have made written representations to this Committee.
I wish to draw the Committee’s attention to the art and antique market’s concerns about the definition of cultural property in the clause, which draws on the convention. I am grateful to the Minister for her clarification. A number of representative bodies of the art and antiques market, which is the second largest such market in the world, have made written submissions to the Committee. I draw Members’ attention to the submissions from the British Art Market Federation, the Antiquities Dealers’ Association, Professor Janet Ulph and LAPADA, among others. They all make clear that they are fully supportive of the Bill.
It is particularly important that honest and well-intentioned dealers and auction houses do not risk criminal prosecution when conducting reasonable due diligence. As the Committee will have read in those submissions, the three aspects of the Bill that concern the trade relate to avoiding uncertainty in the art market and ensuring clarity in the practical operation of the law. There is no doubt that uncertainty hampers the successful operation of any market, and it is reassuring that my right hon. Friend the Secretary of State made it clear on the Floor of the House that she does not want the market to be hampered.
The clause 17 offence that we will come to later of dealing in unlawfully exported property depends directly on clarity and understanding of what is meant in the Bill by the term “cultural property”. As it stands, the punctuation used in sub-paragraph (a) of article 1 of the convention, which is reproduced in schedule 1 to the Bill, means that cultural property is not limited to property of great importance to the cultural heritage of every people, although the Minister has just clarified that cultural property can be protected if it is of great importance to every people. The market seeks absolute clarification of those points. Other categories of property are covered in the definition, regardless of their cultural significance, including works of art, manuscripts, books and other objects of artistic, historical or archaeological interest.
It has been drawn to my attention that the original—and, as article 29 states, equally authoritative—French and Spanish texts of the convention, which I have to hand, are not worded in that way. They use commas, not semi-colons. On account of that, in the French and Spanish versions a work of art must be of great importance to the cultural heritage of every people for the convention to apply to it. I was delighted that the Minister confirmed in the House on 31 October that the Government intend to take the same restricted approach to the definition of cultural property and that the clause 17 offence of dealing in unlawfully exported property will apply only to a very small but very special category of cultural objects—those which are of great importance to the cultural heritage of every people. I thank the Minister for her clarification on that point this morning.
Given what we know about the other versions of the convention and the Government’s intention that the Bill should apply only to objects that are of great importance to the cultural heritage of every people, it cannot surely be right for the wording of the law to be at odds with its intention. I have not tabled an amendment on this important point, but the Government might consider a little clarification on it.
Kevin Brennan
The hon. Lady is making an important point. Given the benefit of her expertise, will she give an example of a cultural object located in the UK that she believes would pass the test in the convention, under the wording as she and the Government interpret it, and perhaps one that she thinks might not pass the test but that some might regard as an object of importance?
Victoria Borwick
I cannot think of something instantly, but the important point is whether the restricted view should apply that the object should be
“of great importance to…every people”.
We are making sure that we do not by mistake include things that are not covered in the convention—in other words, that we do not, through loose punctuation, fail to make it absolutely clear which objects are covered.
Tracey Crouch
I am grateful to my hon. Friend the Member for Kensington for her contribution. The clause defines cultural property by reference to the definition in article 1 of the convention, as we discussed in the debate on the amendments. This is a broad definition, covering a wide range of movable and immovable property of great importance to the cultural heritage of every people.
The convention provides a non-exhaustive list of examples, simply mentioning monuments, buildings, historical and archaeological sites, books, objects and scientific collections. We are clear that all cultural property must be of the greatest importance to all people to be covered by the definition; the punctuation should not be seen as limiting the definition to only the first items listed.
The definition includes buildings where cultural property is preserved or exhibited, such as museums, major libraries and archives, but is sufficiently broad and flexible, as has been said, to accommodate modern forms of cultural property, such as rare or unique film or recorded music, because the list of objects covered is not exhaustive.
Although the definition was drafted some time ago, it is sufficiently flexible to deal with the developments of the digital age. Changing it would risk the development of a definition in the UK that is inconsistent with the current international interpretation. However, I confirm and reiterate that the definition will cover only a very small and special category of objects.
Question put and agreed to.
Clause 2 accordingly ordered to stand part of the Bill.
Clause 3
Offence of serious violation of Second Protocol
Kevin Brennan
I beg to move amendment 3, in clause 3, page 2, line 16, leave out “or”.
The Chair
With this it will be convenient to discuss the following:
Amendment 4, in clause 3, page 2, line 17, at end insert
“, or
(c) a foreign national serving under the military command of the UK Armed Forces.”
Amendment 5, in clause 3, page 2, line 17, at end insert
“or if the act was committed by a private military contractor or an individual employed by a private military contractor, including persons contracted to the UK armed forces.”
Kevin Brennan
These are probing amendments in my name and that of my hon. Friend the Member for Tooting. Amendment 3 is a technical drafting amendment that allows amendments 4 and 5 to make sense. We are exploring which military personnel are bound by the second protocol, specifically in relation to foreign nationals embedded in UK armed forces. At the heart of this debate is the question: who is classed as being subject to UK jurisdiction, for the purposes of the convention and the Bill, and who is not?
I said earlier that it is inevitable when ratifying a convention that was written more than six decades ago that some elements will no longer chime with modern reality and practice, and we are limited in how we can amend the Bill because it forms part of an international convention. The hon. Member for Kensington illustrated the complications when referring to whether the difference between a comma and a semicolon could lead to misinterpretation. She said that she had the Spanish translation available; I am sure that my hon. Friend the Member for Rhondda could cast his eye over that. Although I am tempting him, he is not contributing with his fluent Spanish.
The passage of time provides less of an excuse for uncertainty regarding those parts of the Bill that were written more recently, so gaining clarity is all the more important. On amendment 4, which refers to embedded soldiers, I welcome the fact that the Minister, Baroness Neville-Rolfe, said in the Lords that under the Armed Forces Act 2006,
“regular members of the Armed Forces remain subject to UK service law”—[Official Report, House of Lords, 28 June 2016; Vol. 773, c. 1488.]
even when they are embedded within another army. They remain under the UK’s jurisdiction, and so would remain bound by the second protocol. It is also important to note that the UK armed forces already behave, and are instructed to behave, as if they were bound by the convention and its protocols, and that the impact assessment for the Bill showed that their conduct will have to change very little when the Bill becomes law.
However, the Government have not quite clarified the reverse, which is how the convention and its protocols apply when a foreign national is embedded in UK armed forces, particularly if that other nation is not a state party to the convention or its second protocol. That concern is particularly pressing as the use of embedded forces has become much more prevalent since the convention was originally passed in 1954. The Armed Forces Deployment (Royal Prerogative) Bill, which is awaiting its Committee stage in the other place, is testament to the growing concern about how, when and where the UK armed forces use embedded forces.
The uncertainty that amendments 4 and 5 aim to clarify points to one of the Bill’s vague points: while it is clear about which institutions will be affected, it does not address their internal nuances, or how those institutions interact with each other. That is particularly obvious in clause 5; its interpretation and implementation is complicated by the frequency of use of coalition forces, and the rise in the use of private security firms.
During line-by-line scrutiny of the Bill in the House of Lords, Lord Howarth of Newport recalled that private military contractors had participated in terrible destruction of cultural property at crucial archaeological sites during the Iraq war. However, when asked whether such contractors and the individuals in them would be bound by the Bill, Baroness Neville-Rolfe concluded her remarks by saying:
“I think they are covered.”—[Official Report, House of Lords, 28 June 2016; Vol. 773, c. 1489.]
It is not enough, for our purposes, for a Minister to say “I think”, so I look to the Minister to confirm that they are most certainly covered. Given that we all agree on the severity of the crimes listed in the Bill, it is absolutely right and only fair that we ask for more certainty on who exactly is considered to be under UK jurisdiction—and so criminally liable if they commit such crimes.
I appreciate that the Government have previously referred to clause 29, which states that senior managers of private military contractors are criminally liable for actions committed by their company if they were involved in making those decisions. Our amendments are intended to clarify the remaining ambiguity surrounding the criminal liability of individuals who are under the command of UK armed forces without being members of them, and are not necessarily UK nationals.
In the same debate, Baroness Neville-Rolfe went on to say:
“By making explicit reference to embedded forces and private military contractors in the Bill, we could risk creating doubt and confusion in the interpretation of both the Bill and other legislation.”—[Official Report, House of Lords, 28 June 2016; Vol. 773, c. 1489.]
In my experience, doubt and confusion are created by a lack of clarity, not an abundance of it, so clarity is what we need from the Minister in responding to our amendments. Will she provide us with that? Will foreign nationals embedded in the UK armed forces, private military contractors and the individuals in those contractors, including those contracted by the UK armed forces, be bound by the second protocol and the provisions of the Bill?
Tracey Crouch
I thank the hon. Gentleman for tabling the amendments; that allows the Government to reassure the Committee on this important issue. It also allows me to pay tribute to the UK armed forces, which, as he said, already apply the convention in their actions and behaviours. We should take a moment to thank them for doing so. In addition, it allows me to pay tribute to the excellent monuments men and women, who have done a great deal to protect cultural heritage in conflict zones. We cannot praise them enough for what they have done.
The amendments seek to extend the UK’s jurisdiction over the offences described in article 15(1)(d) and (e) of the second protocol. Under the second protocol, the UK is required to establish jurisdiction over such acts only when they are committed on UK territory or by UK nationals. Extending that to foreign nationals committing these acts abroad would be exceeding our obligations under the convention and protocols.
The amendments would mean that foreign nationals committing such offences abroad would come under our jurisdiction if they were serving under the military command of the UK armed forces, or were private military contractors or their employees. To deal with embedded forces first, when any foreign military personnel are embedded in UK forces, a bespoke status of forces agreement or memorandum of understanding is drawn up that sets out responsibility for the individual involved. That will normally outline that the embedded individual continues to be subject to the jurisdiction of their home state. We would expect that same principle to apply to UK military personnel embedded in overseas militaries.
Therefore, if a foreign soldier were to commit an act set out in article 15(1)(d) or (e) while embedded in a UK unit, we would dismiss them and send them back to their home state to be dealt with for disobeying orders. The individual would face the consequences of their actions on their return home, and there is no loophole for embedded forces; that would apply whether or not a foreign state had ratified the convention or protocols, as the individual would be disobeying an order. Similarly, if a UK soldier embedded in the armed forces of another state broke military rules, we would expect them to be dealt with under the UK’s jurisdiction.
Our concern in the Bill must be to focus on protecting cultural property in the UK and to set clear rules for how UK military personnel and UK nationals operate abroad. We should not be extending our jurisdiction to police foreign nationals committing crimes abroad; that is beyond what is required by the convention and protocols. Private military contractors and their staff are already covered and would be criminally liable in the same way as any other legal or natural person. That means that if an employee of a private military contractor who is a UK national or subject to UK service jurisdiction vandalised or looted cultural property, they would be potentially criminally liable under clause 3 on the same basis as any other person.
Clause 29 also ensures that the senior management of private military contractors are personally liable for offences committed by their organisations if they consented to or connived in the offence. That ensures that senior managers cannot escape the consequences of the actions of their organisations if they were personally involved in them. However, in accordance with our obligations under the protocol, that is limited to UK nationals and those subject to UK service jurisdiction for the offences in article 15(1)(d) and (e) of the second protocol.
To extend our jurisdiction to non-UK nationals for all offences committed abroad would be to go beyond what is required to become party to the convention and protocols. It should be remembered that jurisdiction over the acts in article 15(1)(a) to (c) already extends to foreign nationals committing the most grave offences abroad, as required by the convention and protocols. We would be extremely concerned if amendments to the Bill were to lead the UK to extend our jurisdiction beyond what is necessary to become party to the convention and protocols.
I am sure that we all agree that the UK should not attempt to exceed the boundaries set out in this internationally agreed approach, or become a world policeman in going beyond that. I hope that I have clarified the Government’s thinking on this matter, and that the hon. Gentleman will feel able to withdraw the amendment.
Kevin Brennan
I thank the Minister for her response. On amendment 4, I think she was saying that the answer is no—that foreign nationals serving with the UK armed forces will not be covered, and that the Government do not wish them to be included, because that would go beyond the requirement in the convention. We could debate at some length whether it would be desirable for the UK to seek to do that, but given that we accept that the purpose of the Bill is to bring the convention, as written, into UK law, I will not seek to extend our debate and press the amendment to a vote.
On amendment 5, the Minister has made it clear that as far as the UK Government are concerned, contractors are covered by the Bill and the schedules to it. She gave a clearer explanation than her colleague in the House of Lords, Baroness Neville-Rolfe, who said:
“so I think they are covered.”—[Official Report, House of Lords, 28 June 2016; Vol. 773, c. 1489.]
I thank the Minister for being clear on that point.
That raises an interesting question. Prior to this Committee, I asked the Secretary of State for Defence in parliamentary question 52310 how many members of foreign armed forces have been embedded in the UK armed forces in each year since 2010. I thought that information might be of use to colleagues on both sides of the House in understanding how our armed forces operate. I got back an answer from the Minister for the Armed Forces on 14 November at 5 pm saying:
“This information is not held centrally and could be provided only at disproportionate cost.”
I say gently that that is a good example of how Governments—of all colours, before the Government Whip, the hon. Member for Beverley and Holderness, does his usual chunter at me for saying this sort of thing—fail to answer parliamentary questions. That annoys me, as it should annoy us all, whatever side of the House we are on. Lloyd George, when driving in north Wales, once stopped to ask directions from a local farmer—in Welsh. He said, “Where am I?” and the local farmer said, “You’re in your car.” Lloyd George said that was a perfect example of how civil servants draft and Ministers answer parliamentary questions: the answer was short, accurate and told him absolutely nothing he did not know already.
It would be helpful, if we are properly to scrutinise and understand the Bill, if the Minister’s colleagues in the Ministry of Defence made an effort to tell us how many members of foreign armed forces have been embedded in the UK armed forces in recent years. I understand the point that she made about how they would be disciplined in the event of them breaching the Bill, but it would be useful to all of us in the House to know the answer to that question. I do not know whether the Defence Committee is interested in pursuing that. I may pursue it further, depending on my other priorities, but I would certainly like to know the answer to that question. Perhaps the Minister could pass on our concerns to her colleagues in the Ministry of Defence. On that basis, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 3 ordered to stand part of the Bill.
Clause 4
Ancillary offences
Question proposed, That the clause stand part of the Bill.
Kevin Brennan
Although we have not tabled amendments to the clauses in this part of the Bill, it would be useful if the Minister briefly explained this clause and some of the others as we go along.
Tracey Crouch
I am delighted to respond to the hon. Gentleman’s request to explain the clause, which contains one of my favourite subsections of all time. I am one of those Members of Parliament who likes to read the legislation that we pass, alongside the explanatory notes. I know that is a terribly quaint thing to do these days. I draw hon. Members’ attention to the wonderfully worded subsection (7), which states that
“an offence that is ancillary to an offence under section 3 includes a reference to an offence that is ancillary to such an ancillary offence, and so on.”
It is an infinite provision, and I thoroughly enjoyed trying to work it out.
Kevin Brennan
On that point, will the Minister explain subsection (7) to the Committee?
Tracey Crouch
I need not do so, because the explanatory notes do it absolutely brilliantly. The lesson for anybody reading legislation is that they should do so alongside the explanatory notes, because that is what they are there for. May I instead recommend that the hon. Gentleman read paragraph 37 on page 10 of the explanatory notes, which gives an absolutely excellent explanation? When I took a picture of the clause and put it up on my personal Facebook page, a lot of my friends who have nothing to do with politics found it as interesting as I did.
Turning to the clause itself, the second protocol requires parties to extend criminal responsibility to persons other than those who directly commit an act outlined in article 15, paragraph 1, of the protocol. It also obliges parties to assert extraterritorial jurisdiction in specified circumstances. The clause ensures that those obligations are fully implemented. Its purpose is to ensure that the UK has extraterritorial jurisdiction to try all ancillary offences in the same circumstances in which clause 3 establishes jurisdiction to try the substantive defence. It does not itself establish the ancillary offences, which already exist under other legislation and apply automatically to offences under clause 3. It applies only to ancillary offences if there is uncertainty about their extraterritorial application. Where the existing law is clear about extraterritorial application, as it is in relation to aiding and abetting and offences under the Serious Crime Act 2007, no provision is made. To make such express provision unnecessarily would be bad drafting practice and could create doubt about other situations for which no express provision is made.
Subsections (1) to (3) set out provisions about jurisdiction that mirror those for the principal offence set out in clause 3. In relation to any of the acts listed in article 15, paragraph 1, sub-paragraphs (a) to (c) of the second protocol, a person can be prosecuted for an ancillary offence committed abroad, regardless of their nationality. In contrast, in relation to ancillary offences concerned with the other acts set out in the article, only a UK national or a person subject to UK service jurisdiction can be prosecuted for an offence committed abroad.
Subsections (4), (5) and (6) take into account the differences in the criminal law in the different legal systems of the UK with regard to the definition of ancillary offences. The intention is to produce the same effect in each legal system. On Report in the other place, an amendment was made to subsection (6) to ensure that the Bill’s provision relating to ancillary offences has the intended effect in Scotland. The amendment was tabled by the Government following consultation with the Crown Office and the Scottish Government. I am grateful to the devolved Administrations for their help and support in drafting the Bill.
Subsection (7) ensures that offences that are ancillary to ancillary offences are also provided for.
I hope that, following that explanation, the Committee is fully appraised of the intention of the clause.
Kevin Brennan
I thank the Minister for a thorough explanation. As I understand it, an example of an offence ancillary to an ancillary offence under subsection (7) might be when someone involved in the theft of an item of cultural property decides to destroy evidence in relation to the theft, and the clause provides for such an offence to be covered.
Kevin Brennan
The Minister is nodding, so I take it that that is also her understanding. Although she is right that we should always read the Bill and the explanatory notes, the explanatory notes—I intend no particular criticism here—do not always tell us much more than the clause. They sometimes seem just to paraphrase rather than attempt to elucidate or give a figurative example. However, on the basis of what she has said, we shall not oppose the clause.
Question put and agreed to.
Clause 4 accordingly ordered to stand part of the Bill.
Clause 5
Responsibility of commanders and other superiors
Question proposed, That the clause stand part of the Bill.
Kevin Brennan
As previously, I would be grateful if the Minister outlined the meaning of the clause for the Committee.
Tracey Crouch
The clause provides an additional form of individual criminal responsibility—that of commanders and superiors for the actions of their subordinates. That concept is one of the recognised principles of international law referred to in article 15, paragraph 2, of the second protocol, which parties to the protocol are obliged to implement.
The wording of the clause is based on article 28 of the statute of the International Criminal Court, which is regarded as an authoritative statement of the general principles of international law in relation to criminal liability. It mirrors the UK’s implementation of other international law, in particular the International Criminal Court Act 2001.
Subsection (1) provides that liability under the provision is to be treated as aiding and abetting in England, Wales and Northern Ireland, and being art and part in Scotland. That takes into account the different criminal law in Scotland. A distinction is drawn between the standards expected of military commanders in relation to the military forces under their command, and other superiors, such as Government officials. That distinction is made to recognise that the latter may not have the same degree of control over their subordinates.
In the case of a military commander, liability will arise only if he or she knew, or owing to the circumstances should have known, that his or her forces were committing or about to commit an offence. In contrast, a superior who is not a military commander will commit an offence only if they knew or consciously disregarded information clearly indicating that the subordinate was committing or about to commit an offence. Importantly, subsection (7) makes it clear that liability under the clause does not preclude any other criminal liability in relation to the same event, so a commander can still be prosecuted as a principal offender under clause 3 as well as under this clause.
The clause ensures that the UK adheres to the requirements of article 15, paragraph 2, of the second protocol, and complies with the general principles of international law in relation to criminal liability.
Stephen Doughty (Cardiff South and Penarth) (Lab/Co-op)
It is a pleasure to serve under your chairmanship, Ms Buck. I apologise for my late arrival in Committee this morning; I was at a Select Committee meeting.
I have some specific questions for the Minister about how the clause will be put into practice. I have had the pleasure of seeing UK armed forces being trained, at very close quarters. I saw infantry, artillery and tank training, and I have always been impressed by the teaching in practice of compliance with international law, including the Geneva conventions. I was in Canada last year at the BATUS training area—British Army Training Unit Suffield—where much of our heavy armour training is done. The Bill will clearly be very much applicable to conduct with respect to artillery, tanks and other vehicles capable of seriously damaging cultural property, so will the Minister say a little about how it will be incorporated into training and what plans the Ministry of Defence has to bring that about?
A point has been made about embedded forces, and situations when UK forces are in command of forces from other countries. The clause states that
“references to a military commander include a reference to a person effectively acting as a military commander”.
There have been circumstances where civilians from the Department for International Development and the Foreign Office have held senior command roles—for example, in the provincial reconstruction teams in Afghanistan. Will the Minister say a little about the practical arrangements for ensuring that personnel, whether they be military, foreign military or civilians acting in a military capacity, comply with the terms of the Bill?
Tracey Crouch
I am grateful for the hon. Gentleman’s contribution. He will of course understand and appreciate that I am not an expert on all things military, but I can tell him that the Bill applies equally to all the armed forces. No distinction is made for the specific services.
Cultural property protection is included in the annual training of all services of the UK armed forces. Specific cultural protection training is not tailored to the RAF, Army or Navy, but is provided for individuals across all three services when a certain deployment determines it necessary. For example, specific cultural property protection issues are covered on the joint targeting course run at RAF Cranwell and the Royal School of Artillery. Those courses are held for all three services and are attended by personnel who have responsibility for target selection and planning. The graduates of those courses have to demonstrate an awareness of cultural property protection issues in various planning exercises throughout the course.
As the hon. Gentleman pointed out, we should recognise that such training is already heavily embedded in our armed forces and we should be incredibly proud of that. There is a great deal of co-operation between the Department for Culture, Media and Sport and the Ministry of Defence in ensuring the ratification of the convention through the Bill, and work is being done to ensure the continued expansion of that. Members will be aware of the specific unit being set up in the Ministry of Defence. That is well under way and a great deal of progress is being made. Everybody, right from the very top of the Ministry of Defence down to the early recruits undergoing training, is certainly 100% behind making sure that we protect cultural property.
Question put and agreed to.
Clause 5 accordingly ordered to stand part of the Bill.
Clause 6
Penalties
Question proposed, That the clause stand part of the Bill.
Kevin Brennan
The clause refers to the penalties that could be handed out to someone guilty of an offence under section 3, or, as discussed earlier, an offence ancillary to such an offence, or indeed an offence ancillary to an offence that is ancillary to the offence under section 3, although that is not specifically mentioned in this clause.
Kevin Brennan
And so on, ad infinitum—and perhaps reductio ad absurdum. The penalty envisaged in clause 6 includes
“imprisonment for a term not exceeding 30 years.”
That is a lengthy term of imprisonment. We know that we are talking about some potentially serious offences, but it would be helpful to the Committee and to those observing our proceedings if the Minister clarified the severity of offence that would be likely to attract a sentence of that length. Clearly, that would not apply to all offences that might be committed under the Bill, although these are offences that, as we heard earlier, relate to cultural property of importance to all people, so an offence committed under the Bill would be a serious offence against all peoples of the world.
If the Minister clarified the thinking on the term of imprisonment and on the kinds of offence that might attract that length of sentence, I am sure the Committee would be enlightened.
Tracey Crouch
The clause sets the maximum penalty for section 3 offences and the associated ancillary offences. The second protocol obliges parties to make the criminal offences established in their domestic law to meet the obligations of paragraph 1 of article 15 “punishable by appropriate penalties”. A person found guilty of an offence under section 3, or a related ancillary offence, is liable on conviction on indictment to a prison term not exceeding 30 years. The maximum penalty introduced by the clause aligns with related provisions in both the International Criminal Court Act 2001 and its Scottish equivalent, and the Geneva Conventions Act 1957.
At first sight, it may seem surprising that offences of that nature, and ancillary offences, attract the same maximum penalty as war crimes covered by the relevant provisions of the 2001 Act, but that flows naturally from the seriousness with which those offences are considered under international law. It is worth noting and stressing that that is a maximum penalty. In practice, the sentence may be much shorter, or even a fine. The maximum sentence is likely to be reserved for only the most heinous crimes against cultural property. Each sentence must be considered case by case, and the Government believe that it should be left to the courts to determine the appropriate penalty based on the facts of the individual case.
The offence in clause 3 could be committed in a wide range of scenarios, with an equally wide variety of possible ancillary offences. I do not think it would be right for us to attempt to address that variety of scenarios by setting different penalties in the Bill. If an individual was responsible for deliberately destroying one of our national cultural landmarks during an armed conflict, I am sure we would wish to see the severest punishment. Likewise, we would want a similar sentence to be available for an individual who masterminded such destruction, or an army commander who ordered it as part of a campaign in full knowledge that the object in question was protected cultural property. That should also apply to UK nationals taking part in cultural destruction of a similar nature during an armed conflict overseas. Accordingly, the maximum penalty is considered appropriate for ancillary offences, as well as for the principal offence.
The clause reflects the seriousness with which the UK views serious violations of the second protocol. It is consistent with existing UK legislation and allows the UK successfully to meet its obligations under that protocol.
Question put and agreed to.
Clause 6 accordingly ordered to stand part of the Bill.
Clause 7
Consent to prosecutions
Question proposed, That the clause stand part of the Bill.
Stephen Doughty
I will ask a simple question; I am not an expert on these matters when it comes to Scottish law. Why does the clause make no reference to consent for prosecutions with regard to Scotland? It references only the Attorney General in England and Wales and, for Northern Ireland, the consent of the Director of Public Prosecutions for Northern Ireland. Is that particular quirk due to the way the Scottish legal system works or something else?
Tracey Crouch
I am not an expert on Scottish law, but I can answer that question. There is no equivalent provision in relation to Scotland as the position of the Lord Advocate, as master of the instance in relation to all prosecutions in Scotland, means that such a provision is unnecessary.
Question put and agreed to.
Clause 7 accordingly ordered to stand part of the Bill.
Clause 8
The cultural emblem
Question proposed, That the clause stand part of the Bill.
Mr David Burrowes (Enfield, Southgate) (Con)
It is a great pleasure and a privilege to take part in the proceedings of the Committee, not least as I am co-chair of the all-party parliamentary group for the protection of cultural heritage. I will not say too much, not least because I do not have much a voice, but I will say that this a particularly uncontentious part of a relatively uncontentious Bill.
I draw particular attention to the emblem of the blue shield, which is, as we know and as has already been mentioned by the hon. Member for Cardiff West, a symbol used to identify cultural sites protected by the convention and the personnel engaged in protecting such property. I also draw attention to the work of the Blue Shield network, which provides support in the promotion of the ratification of the convention and its protocols, as we are doing today. It is also part of the International Committee of the Blue Shield, which is a voluntary NGO, but one that has already been said to be the equivalent of the International Red Cross and Red Crescent Movement, and it needs to be given proper status and support.
The International Committee of the Blue Shield provides an unrivalled body of expertise, which allows the organisation to collect and share information on threats to cultural property worldwide. This is a hugely significant organisation that encourages the safeguarding and restoration of cultural property and raises national and international awareness of cultural heritage. It also provides an important focus for the promotion of not only the ratification but the implementation of the convention, and its work with the Government and with other countries, in terms of the protocols and the convention, is no doubt ongoing. It is worth noting in the submissions to the Committee the support for the Bill from the International Committee of the Red Cross and the offer to support the Government in the promotion of the blue shield emblem, which it has done so admirably with the red cross. I would be interested to hear from the Government on the progress of that in terms of social media and other forms of media that have developed in the 60 years since the introduction of the convention.
Kevin Brennan
The hon. Gentleman’s contribution and expertise in this area are welcome in Committee. When reading the Bill, one issue of interest is the threshold for a cultural object to pass muster under the convention and the Bill, and therefore presumably be covered by the cultural emblem. In the UK, what sorts of object or building will be covered, or, of just as much interest, might not be covered? If we are to raise awareness among the general public of what the Bill means, it is important that there is some idea of how and where that line is drawn.
Mr Burrowes
The hon. Gentleman is generous to call me an expert; I do not think I am a great expert at all. My interest in the subject arose not least from a background of concern around trafficking and the links to trade of human beings within property and a concern about the human value, which is aligned with the property value when we get the destruction we have seen by Daesh and other organisations in occupied lands.
I am encouraged by the Minister’s response to a question already raised that we will no doubt return to: there will be proper engagement with stakeholders and consideration of experts’ views around how we ensure there is proper focus. In one sense, that needs to be wide, as the definition in the convention is, and the purpose of the Bill is to ratify the convention and the definition in article 1, which is properly wide and recognises such categories, while providing sufficient reassurance to the trade and others around the practical implementation of that not just in the Blue Shield committee but beyond, with the Government engaging actively to ensure that proper guidance on implementation is set out. I will return to the clause before I get called out of order by the Chair.
I also want to refer in particular to the UK part of the network, the UK Committee of the Blue Shield, ably chaired by Professor Peter Stone, who is also the 2016 UNESCO chair in cultural property protection and peace. We are well placed in this country to help take the lead on the blue shield programme and provide that important conduit of expertise that draws in the military, Red Cross and UNESCO as observers for that committee. Along with charities and heritage protection organisations across the UK, we are helping to provide a lead in this area.
It is important to recognise that the UK committee has been on the case for some years. Since 2003, Peter Stone has been urging successive Ministers and Committees to do what we are doing today to ratify the convention and both protocols. I draw attention to his submission, in which he makes a pitch for the UK to take a lead internationally, certainly among the permanent members of the Security Council, in ratifying the second protocol and in
“funding a small, permanent office for the Blue Shield”,
which, despite its huge significance, is a voluntary, unfunded international non-governmental organisation.
To achieve cultural equivalence with the red cross, the blue shield needs money and resources. Will the Minister respond on how we will provide that further support and partnership work with Peter Stone’s Blue Shield committee, and recognise the added momentum given to Blue Shield’s work by this Committee’s process of ratification, not least of the second protocol? The easy answer she can give is to join us in commending the great work of Blue Shield.
Tracey Crouch
I am grateful to my hon. Friend the Member for Enfield, Southgate for his contribution. He is an expert, and he should not understate the work he has done on the issue over a number of years. He should be congratulated on his commitment and dedication to the protection of cultural property. I am very grateful for the advice he has given me and my Department in recent months.
My hon. Friend’s contribution allows me to pay tribute to the UK Committee of the Blue Shield and put on the record my gratitude to Professor Peter Stone for the work he has done in advising on the Bill and beyond. My hon. Friend mentioned Professor Stone’s plans for a Blue Shield centre, which I and my Department will continue to work with him on. I agree with my hon. Friend that it will allow us to take an international lead on the issue.
Clause 8 relates to the cultural emblem. The hon. Member for Cardiff West said that the Bill is a piece of legislation with a picture in it. I humbly suggest that if there were more pictures in Bills, more people outside this place might read them.
Tracey Crouch
If it protects beautiful heritage and culture, one might suggest otherwise.
The cultural emblem takes the form of a blue and white shield and allows cultural property protected under the convention to be marked to facilitate its recognition. In introducing the emblem, we will recognise for the first time in the United Kingdom the only symbol in international law for the protection of cultural property during armed conflict. It will act as a means of identification for this country’s most important cultural property and safeguard it in the event of an armed conflict.
Question put and agreed to.
Clause 8 accordingly ordered to stand part of the Bill.
Clause 9
Offence of unauthorised use
Question proposed, That the clause stand part of the Bill.
Kevin Brennan
I am not sure whether this will meet with your agreement, Ms Buck, but it seems to me that, as we debate clause 9 stand part, the Minister might go a little further and discuss how the clause relates to clauses 10, 11 and 12, which are about the authorised uses. The offence is created by clause 9. If that is convenient to the Committee, it might be a sensible way of discussing those clauses.
Tracey Crouch
Clause 9 introduces a new criminal offence of the unauthorised use of the cultural emblem, or any other design capable of being mistaken for it. That offence will meet our obligations under the convention, which sets out rules for the emblem’s use. It also requires parties to prosecute or impose sanctions on unauthorised use.
This will be the first time that the UK legally recognises this important symbol. Our policy is to afford the cultural emblem equivalent protection to that afforded the Red Cross and other distinctive emblems under section 6 of the Geneva Conventions Act 1957. As with the Red Cross, the breadth of the offence reflects the need to protect the potency of the emblem by forbidding its unauthorised use. An offence under this clause will be punishable by a fine. As with prosecutions under clause 3, prosecution under this clause can take place only with the appropriate consent in England, Wales and Northern Ireland. The position of the Lord Advocate makes a consent provision for Scotland unnecessary.
Clause 10 gives the appropriate national authority the power to give general or specific permission for particular uses of the cultural emblem to be authorised. It also enables the national authority to withdraw permission, for example when it is no longer necessary or appropriate. This will ensure protection for the cultural emblem and allow for urgent authorisation of cultural property, which can display the emblem, as may be required in the event of war or armed conflict. Subsection (2) imposes an additional requirement, as required by the convention, that the distinctive emblem may not be placed on any immovable cultural property unless a copy of the authorisation is displayed.
Clause 11 authorises the use of the cultural emblem for moveable cultural property in the circumstances permitted by the convention and regulations. It authorises the use of the cultural emblem when it is used to identify moveable cultural property and the use of three cultural emblems in a triangle to identify cultural property undergoing protected transportation. Finally, it outlines what is meant by cultural property undergoing protected transportation. That meaning is provided for in the convention. For example, should an armed conflict occur in one part of the United Kingdom, the cultural emblem triangle could be displayed on moveable cultural property during its transportation under special protection to a refuge in an area of the United Kingdom not affected by the armed conflict. That will help to ensure that cultural property is not exposed to damage and destruction during its transportation out of a conflict zone. I hope that clarifies the three clauses—10, 11 and 12 —and that they will stand part of the Bill.
Question put and agreed to.
Clause 9 accordingly ordered to stand part of the Bill.
Clauses 10 to 12 ordered to stand part of the Bill.
Clause 13
Defences
Question proposed, That the clause stand part of the Bill.
Kevin Brennan
Again, it might be useful if the Minister outlined the circumstances in which use of the emblem would be subject to a reasonable defence against a prosecution.
Tracey Crouch
Clause 13 sets out three defences to the offence of unauthorised use of the cultural emblem. This is to ensure that any person who already legally uses the emblem, or a sign that so nearly resembles the emblem that it could be mistaken for it, is not disadvantaged and criminalised as a result of the new clause 9 offence. Under subsection (2) it will be a defence to show that use of the cultural emblem is for a purpose for which it had previously been lawfully used before clause 9 came into force. Under subsection (3) it will be a defence to show that the emblem forms part of a trademark registered before clause 9 came into force, and that the trademark was being used lawfully in relation to the goods and services for which it was registered.
Under subsections (4) and (5) it will be a defence for a person to show that a design used on goods was: first, applied to the goods by their manufacturer or someone trading in those goods before they came into the possession of the accused; and secondly, that the person applying the design was using it lawfully in relation to the same type of goods before the clause came into force. The defence in those subsections is intended to protect purchasers of goods already bearing the emblem, or a design closely resembling it. Subsection (6) makes it clear that where the defendant can provide evidence that a defence exists, the burden to prove the offence still lies with the prosecution.
Question put and agreed to.
Clause 13 accordingly ordered to stand part of the Bill.
Clause 14 ordered to stand part of the Bill.
Clause 15
“Appropriate national authority”
Question proposed, That the clause stand part of the Bill.
Kevin Brennan
I think that it would be useful, in this age of devolution, if the Minister outlined the reasoning behind the way in which the appropriate national authorities have been set out in the Bill.
Tracey Crouch
I am very happy to do so. Clause 15 defines the appropriate national authority for each part of the United Kingdom. This explains the term that is used in clauses 10 and 12. For the purposes of part 3, the appropriate national authorities are: for England, the Secretary of State; for Wales, the Welsh Ministers; for Scotland, the Scottish Ministers; and for Northern Ireland, the Department for Communities. I reassure the Committee that these definitions, as set out in the Bill, were agreed with the devolved Administrations.
Question put and agreed to.
Clause 15 accordingly ordered to stand part of the Bill.
Clause 16
“Unlawfully exported cultural property” etc
Question proposed, That the clause stand part of the Bill.
Tracey Crouch
I thought it would be particularly helpful for the Committee to discuss clause 16, because it sets the scene for the discussion on clause 17, which I know we are due to have because amendments have been tabled. Part 4 of the Bill deals with cultural property that has been unlawfully exported from occupied territory. Clause 16 defines what is meant by “unlawfully exported cultural property” and sets out how it is determined whether territory is occupied.
Unlawfully exported cultural property is defined as cultural property that has been exported from an occupied territory contrary to either the laws of that territory or international law. At the time of the export, the territory concerned must have been occupied by another state. Either the occupying state or the state of which the occupied territory is a part must have been a party to the first or second protocol. That means that the earliest date on which cultural property could have been unlawfully exported for the purposes of the Bill is 7 August 1956, which is when the first protocol came into force. If neither of the states concerned became a party to the first or second protocol until a later date, that will be the date from which cultural property can fall within the definition.
The clause sets out what is meant by “occupied territory”. The test for that is based on article 42 of the regulations concerning the laws and customs of war on land, which were agreed at The Hague on 18 October 1907. The article states:
“Territory is considered occupied when it is actually placed under the authority of the hostile army. The occupation applies only to territory where such authority is established and in a position to assert itself.”
Whether a territory is occupied now, or was occupied at a particular time, is a matter that must be determined on a case-by-case basis. The clause provides that a certificate issued by the Secretary of State shall be conclusive evidence as to whether, at a particular time, territory was occupied. That is standard procedure for determining such matters that concern international relations and are considered to be matters of state.
Kevin Brennan
The Minister may not have this information available, and may want to write to the Committee with it, but do the Government have a list of territories that they currently consider to be occupied under that definition?
Tracey Crouch
I do not have that information to hand now, but I do not think we have an official list, because this is often a controversial point. May I suggest that if we are still on clause 16 when we return this afternoon, we perhaps clarify or confirm that point then?
Kevin Brennan
I am grateful. I understand her not having the information now. It might be useful to clarify, for example, whether the Government consider Crimea to be an occupied territory.
Tracey Crouch
Again, if we are still debating clause 16 this afternoon—or perhaps even when we debate clause 17 —if the hon. Gentleman wants to raise the point then, I may be able to give him more information. However, as he can imagine, the definition of occupied territories is sometimes controversial, and it is often open for discussion.
A certificate may not be issued in all cases. Alternative evidence may be used to prove the status of a particular territory. Before I conclude, I have been reliably informed that, yes, Crimea is considered an occupied territory; that at least covers one of the questions that the hon. Gentleman might have wanted to return to this afternoon, allowing us more time for other matters.
Victoria Borwick
I thank the Minister for that clarification, because we all seek greater clarity about what is in the Bill.
I have previously mentioned the uncertainty inherent in clause 2 and how our art market is keen to avoid uncertainty. Another area of uncertainty is an auctioneer’s or dealer’s ability to identify the occupied territories to which the law applies, particularly if an item may have been here previously; of course there is a lot of trading going on all the time, which is why the points about certainty and dates need to be clarified.
Clause 16(6) states that the Secretary of State’s confirmation that a territory was occupied is conclusive evidence of that status once legal proceedings have begun. If the Secretary of State’s word may be provided after the beginning of proceedings, cannot a list of the occupied territories, together with the relevant dates of occupation, be drawn up for all to see? Alternatively, could the criteria that a Secretary of State would apply when determining whether and when a territory is considered to have been occupied be clarified? Examples have already been given, but I could add East Jerusalem, the west bank, northern Iraq, Libya or southern Sudan and I am sure others could add alternatives. For the avoidance of doubt, dealers will need to know at what points since 1954 a particular territory is covered by the legislation.
Kevin Brennan
The hon. Lady raises a valid point. I accept that this was discussed when the draft Bill was considered in 2008, but that Bill did not come before the House in a final form. It is very reasonable to explore whether the Government will consider publishing a list of the territories that they consider occupied during the relevant period since 1954. It would be extremely useful.
Clearly, it is not always going to be easy to ascertain when an object left a particular territory, although we have already clarified that we are talking about a very small number of very important movable objects that might have been removed from a territory, and that in itself should set off alarm bells with any dealer. If it was an object of such cultural importance that it would be covered by the legislation, people would naturally take extra precautions to ensure that the object had not been removed illegally from a territory during a period of armed conflict and occupation. However, it is perfectly valid to ask why the Government are unable or unwilling to produce a definitive list of territories that have been under occupation during the relevant period. Perhaps the Minister could enlighten the Committee further on the Government’s thinking.
Mr Burrowes
I want to raise an issue brought up on Second Reading and in the other place, about the Bill’s applicability to non-state actors, particularly in relation to Daesh, which has prompted a huge wave of concern about cultural property destruction and added an extra dimension to the process that we are in of ratifying the convention and protocols. I am particularly grateful to the Secretary of State for clarifying the categories in the Bill that are applicable and for clarifying where the UK can prosecute.
The Hague convention already extends to non-state actors, and the offences in article 15 of the second protocol may be committed by non-state actors in non-international armed conflicts. The question is how that will be prosecuted. As Syria is not party to the second protocol, there is no possibility of prosecuting the most serious offences in article 15. However, there is scope to prosecute UK nationals involved in Daesh under clause 3 of the Bill.
Is there evidence of UK nationals being involved in such damage or in stealing cultural property in Syria? If there is, we will be able to prosecute them for those heinous crimes after the enactment of the Bill. Many of us, including the UNESCO chair, consider such acts to be on the same level as a war crime, and they need to be dealt with appropriately and punitively.
Tracey Crouch
I am grateful to colleagues for raising a number of important issues. I will respond as best I can.
First, I remind the Committee that this law is not solely concerned with dealing in cultural property; it is about protecting cultural property at home and abroad. We need to keep reminding ourselves of what we are trying to achieve with this Bill. That said, some important issues have been raised.
Colleagues will appreciate that extremely sensitive foreign relations issues are in play when drawing up a list. It is important to reiterate the point made by my hon. Friend the Member for Kensington that the Government are not aware that any of the other 127 state parties to the convention have produced a list of territories that they consider to be or to have been occupied since the convention came into force in 1956. In practice, very few territories are likely to be deemed to be or to have been occupied within the meaning of the Bill. The amount of cultural property from such territories that dealers are likely to come across is expected to be extremely small. That said, I realise that there are concerns.
Legal advice will be available to those who have concerns. If in doubt, dealers can seek appropriate legal advice from a solicitor or barrister who is familiar with public international law. The Bill does not impose any requirements on those who deal in cultural property beyond the normal due diligence that they should carry out in accordance with industry standards, such as the code of practice for the control of international trading in works of art. In the event of legal proceedings, the burden of proof will be on the prosecution to show that the person knew, or had reason to suspect, that the cultural property had been unlawfully exported from an occupied territory.
We will discuss the wording later, but I remind the Committee that the Government will not be publishing a list of occupied territories. It will be determined on a case-by-case basis. Anyone who has a question or any doubt can seek appropriate legal advice. Like the other 127 state parties to the convention, we have no intention of publishing a list.
Victoria Borwick
I am concerned on behalf of traders that there will inevitably be a great deal of cost. As you and the Secretary of State have been kind enough to say that you do not wish to place additional burdens, I am concerned that you are appearing—
Victoria Borwick
I apologise, Ms Buck. High legal costs might be incurred, but I do not understand that to be the Minister’s intention.
Tracey Crouch
I repeat that I do not think that the clause imposes any more requirements on those who deal in cultural property beyond the normal due diligence that they undertake now in accordance with industry standards, so I am not convinced that there will be additional costs. We need to remind ourselves that the offence is not retrospective; it applies only to cultural property unlawfully exported from occupied territories after the date that the convention and protocol came into force for those countries that are party to it, and cultural property needs to be imported into the UK after the Bill comes into force to be an offence.
To clarify exactly what sort of cultural property we are talking about and the dating of that property, I will briefly repeat messages back to my hon. Friend the Member for Enfield, Southgate about Syria. It is important to take this opportunity to clarify how the Bill applies to the situation in Syria. The Bill’s application to the situation in Syria is limited for two reasons: first, while Syria is party to the convention and the first protocol, it has not ratified the second protocol; secondly, the UK does not recognise Daesh as a state.
With regard to the first point, the current conflict in Syria is defined as a non-international armed conflict—a civil war, in other words—and the offences listed in article 15 of the second protocol may be committed during civil wars. However, the application of clause 3 is complicated as it varies depending on whether the state experiencing civil war is a party to the convention and/or the second protocol. The Bill’s application to Syria is limited to the offence set out in article 15(1)(e) of the second protocol, which is
“theft, pillage or misappropriation of, or acts of vandalism directed against cultural property protected under the Convention.”
Because Syria is party to the convention, its cultural property is protected against that offence. The Bill’s application is limited in some respect because Syria is not yet party to the second protocol, which means that the UK cannot prosecute for any of the other four offences set out in article 15 of the second protocol.
Kevin Brennan
I saw the Secretary of State’s letter, together with an explanatory note, that she provided following Second Reading. It made it clear that the Bill could, in effect, apply in civil wars, although that is not the phrase that she used; I think the Minister has confirmed that with what she just said. I am just trying to understand exactly what the Minister meant in relation to the first and second protocols. Is it that Daesh could not be covered by the Bill because it is not a state party or a recognised state, or is it because the second protocol to the convention has not been ratified by Syria?
Tracey Crouch
It is probably both, actually. First, Daesh is not a recognised state, and secondly, not all parts of article 15 apply because Syria has only signed up to the convention. Article 15(1)(e) applies because Syria has ratified the convention, but articles 15(1)(a), (b), (c) and (d) do not apply because Syria has not signed up to the second protocol.
Kevin Brennan
To be clear, does that mean that the Bill could apply to only one side in a civil war—namely, to a recognised Government who were signatories to the convention—while the other side, despite committing identical actions, was not covered because it was not a recognised state under the convention?
Tracey Crouch
We ae going beyond the specific purpose of this legislation. I can tell the hon. Gentleman that the Bill will apply if there is evidence that a UK national has joined Daesh and damaged or stolen cultural property while in Syria. The UK could seek to prosecute that individual under clause 3 on their return to the UK. As I stated, article 15(1)(e) applies to
“theft, pillage or misappropriation of, or acts of vandalism directed against cultural property protected under the Convention.”
Article 15(1)(e) is broad enough to take into account everything protected under the convention, which Syria has signed, but article 15(1)(a), (b), (c) and (d) all refer to aspects that are in the second protocol, to which Syria is not a signatory. I hope that clarifies the point. I appreciate that this is incredibly complicated, but we are limited to talking about some issues relating to UK nationals in Syria.
On the question raised by my hon. Friend the Member for Enfield, Southgate, we are not aware of any UK nationals who have been involved in cultural destruction in Syria. On the second point in relation to Syria, clause 17 creates the criminal offence of dealing with cultural property that has been unlawfully exported from occupied territory. Territory belonging to one country can only be occupied by another state. The UK does not recognise terrorist groups such as Daesh as states, so Syria cannot be classed as an occupied territory, and the dealing offence is not engaged. There is no loophole in our approach to dealing in Syrian cultural property, as sanctions already exist for the sorts of objects that have been illegally removed from Syria. I can confirm that the second protocol would apply to both sides in a civil war if the state had ratified the second protocol, which Syria has not.
Kevin Brennan
That is very interesting. I am still slightly struggling to understand how the second protocol could apply to both sides in a civil war if one of the sides was not a recognised state, Government or signatory to the protocol, but I will let that lie for now; it might be something that we cogitate on, and there might be a way of discussing that when we come to later amendments and new clauses.
I understand what the Minister was saying about clause 16: that the Government will not produce a list because no one else has produced one. That is not necessarily a good argument for a country that is seeking to be a leader in this field. The Minister quite rightly boasted that we will become the first permanent member of the Security Council of the United Nations to ratify both protocols, although we will be the last to bring in the convention overall, so that is not entirely something to boast about—and that goes for Governments of all kinds. Saying that we should not produce a list because no one else has produced seems to be not an argument, but a simple statement of our position and that of other countries.
The Minister hinted that the reason why the Government were reluctant to produce such a list was because it is sensitive—she used that terminology—to talk about whether a country has been occupied since 7 August 1956, which is the date that she mentioned. We are not producing a list because no one else has, and because it might be sensitive to do so, but she said, without feeling too sensitive about doing so—I welcome that very much—that the UK Government considered Crimea to be occupied. That is what I do not understand. If it is possible to say clearly that Crimea is considered an occupied territory, why is it not possible to say whether the UK Government consider other territories to have been occupied since 1956? That makes no sense whatever, unless we are engaged in some kind of history seminar, which we are not; we are talking about the UK Government’s position on whether territories have been occupied since 1956. The Government are happy to say that Crimea is occupied, but not whether they consider other countries or territories to have been occupied in that period.
Victoria Borwick
I think the point is that if a Security Council resolution regards a territory as being occupied, surely that is on the record.
Kevin Brennan
It may well be on the record, but the hon. Lady herself made the point that clause 16(6) says that territory is considered occupied if, once proceedings have begun, a certificate is issued by the Secretary of State, whatever the UN has said. The Bill says:
“a certificate by the Secretary of State is conclusive evidence as to whether, at a particular time, territory was occupied by a party to the First or Second Protocol or by any other state.”
Can the Minister add further clarity to that? We have not really had a full explanation as to why the Government are reluctant to produce that list. There may be reasons, but I am not sure that we have teased them out yet.
Mr Jonathan Djanogly (Huntingdon) (Con)
This is an interesting discussion, but I wonder whether the reason goes more towards the effectiveness of the convention. If states have not been producing lists, could it be that some countries are bringing prosecutions that other countries would not, because they view what should go on the list differently? If so—this is perhaps one for the Minister—perhaps this should be looked at internationally, so that an agreed list is formed.
Kevin Brennan
The hon. Gentleman is an eminent lawyer and understands these matters much better than I do. I am sure that he is correct to say that that is part of the problem, but I imagine that agreeing on a list internationally will be much more difficult than the UK Government drawing up their own list of territories that they consider to be occupied. After all, we are bringing these provisions into UK law, so it would be during proceedings in the UK when this would be a matter of importance. I do not think that there is any great logic in why the Government have said that they are not prepared to produce a list. We will not vote against the clause, but if the Minister has anything further to add, I am sure it will be helpful.
Tracey Crouch
The only thing that I would like to add is that the hon. Member for Cardiff West is a very experienced and somewhat naughty man for leading me down a garden path; I will now no doubt get a smacked bottom from the Foreign Secretary for declaring, on the record, that comment about Crimea. It is important to stress that this is an incredibly complex area, involving sensitive issues relating to foreign affairs. No other state that is part of the convention has produced a list. I appreciate that the hon. Gentleman does not think that a reliable or worthy response to the issue. We want to make sure that we introduce the Bill and ratify The Hague convention properly, so that we protect cultural property in the United Kingdom and abroad.
We firmly believe that the Bill does not place any further burdens or restrictions on the art market. There is nothing in the Bill that those in the art market do not already do, in terms of due diligence. Where they have concerns, we would expect them to seek appropriate legal advice, as they currently do. There is a whole wealth of people out there who are able to provide that.
Victoria Borwick
I want to take the Minister up on the due diligence point, if I may. Inevitably, there are different levels of due diligence, and different categories. There is no accepted level of due diligence. This goes back to the point made about getting absolute clarity in the Bill, because nobody wants there to be confusion later. We all have the right spirit here; we are just making sure that things are absolutely clear. There are inevitably different levels of due diligence for different categories of objects, with the risk of forfeiture and potentially a prison term.
Tracey Crouch
I hope that those in our art market, with all their expertise and with the market’s worldwide reputation for being one of the best, have the highest standards of due diligence, and that when it comes to these specific cultural objects of great importance to all people, as defined by the convention, they take particular care with due diligence, as set out by their own industry codes and standards of ethics. They are self-regulated, and they provide a gold standard of best practice for the rest of the world, and I hope that they will continue to do so.
I reiterate that we do not think it is necessary to produce a list; we do not think that it would be helpful in a wider sense. A certificate from the Secretary of State would only be used during a dispute on an issue. We believe that this is the right way forward, and I hope that the clause will stand part of the Bill.
Question put and agreed to.
Clause 16 accordingly ordered to stand part of the Bill.
Cultural Property (Armed Conflicts) Bill [ Lords ] (Second sitting)
Tuesday 15th November 2016
(7 years, 11 months ago)
Public Bill CommitteesRead Full debate Cultural Property (Armed Conflicts) Act 2017 View all Cultural Property (Armed Conflicts) Act 2017 Debates Read Hansard Text Amendment Paper: Public Bill Committee Amendments as at 15 November 2016 - (15 Nov 2016)
Kevin Brennan (Cardiff West) (Lab)
I beg to move amendment 7, in clause 17, page 8, line 12, leave out
“or having reason to suspect”.
The Chair
With this it will be convenient to discuss amendment 1, in clause 17, page 8, line 12, leave out “having reason to suspect” and insert “believing”.
Kevin Brennan
It is a great pleasure to serve under your chairmanship, Mr Turner. You missed an exciting sitting this morning, when the Committee Room was fizzing with debate on all sides—I am sure that it will be the same this afternoon. It is appropriate that you should be in the Chair, because I know that, as well as representing the Isle of Wight and its great cultural treasures, as you do so assiduously, you are originally from Coventry. The subject of the Bill was initially born of the experiences of world war two, when the cultural treasures of cities across Europe, such as Coventry and Dresden, were destroyed terribly by bombing. I am sure that the Bill will be close to your heart, and it is therefore appropriate that you should be chairing proceedings this afternoon.
Along with amendment 7, which was tabled by my hon. Friend the Member for Tooting and me, we are discussing amendment 1, which was tabled by the hon. Member for Kensington, who I am sure will want to speak to it in due course. We are all trying to tease out from the Government exactly what they are trying to achieve with this part of the Bill and what the practical effect of clause 17 will be on people who are dealing in cultural items when they have to operate under the Bill’s provisions.
Amendment 7 is another probing amendment, because we want further clarity on the Government’s intention. It proposes removing the phrase
“or having reason to suspect”
from the clause, which is on the offence of dealing in unlawfully exported cultural property. Some concern has been expressed about that particular phrase because of the so-called mens rea—I understand that is what lawyers call it—meaning the intention of someone accused of committing a criminal act of some sort. Would having that phrase in the clause affect honest people who are simply trying to do their job? Will the clause achieve what the Government undoubtedly intend it to achieve, which is to unambiguously target those with criminal intent?
Labour Members are supportive of the Bill, but as it stands the clause creates concerns that there would be a risk that a dealer or auction house might face a criminal prosecution when conducting what they would describe as honest due diligence.
Mr David Burrowes (Enfield, Southgate) (Con)
As I am a lawyer, anyone who mentions mens rea will make my ears prick up and get me excited after lunch. The shadow Minister mentioned the need to consider the practical effect, which is the important issue. Will he give an example of the practical effect that goes to the heart of both his amendment and that tabled by my hon. Friend the Member for Kensington and that would not be dealt with already, not least under the sanctions orders that cover Iraq and Syria, which are already having practical implications?
Kevin Brennan
I am very interested to hear what gets the hon. Gentleman excited after lunch, or indeed at any time of the day. To answer his point, I am sure he is anticipating what the Minister might say in response, but I shall rehearse the issues a little as I go through my remarks. It is important that we get these points on the record and air the concerns of those outside the Committee so that the Minister has an opportunity to respond. As I said, this is a probing amendment. At the end of our debate we will withdraw it, because we have sympathy with the point that the hon. Member for Enfield, Southgate makes. However, I want to ensure that the concerns expressed to us in representations are on the record and have been rehearsed.
Although a conviction might ultimately be avoided, no one wants to take a chance on the possibility of people being prosecuted, with all the reputational damage and cost that could be involved. Concerns have been expressed that the result could be to turn legitimate sales away from the UK, impacting upon the future success of the art market, which is a large industry in this country. It depends, crucially, on persuading sellers throughout the world to use the UK’s services. The British Art Market Federation states that its members
“are committed to conducting due diligence on artworks before they are sold. This may involve written evidence of provenance, consultation where necessary with external bodies, including databases of stolen objects and inquiries of the vendor.”
It goes on to argue:
“It is rare, however, that an artwork, particularly an older one, has an unbroken chain of provenance going back to the time it was created. It is also rare that there is comprehensive documentary evidence to support provenance, particularly the further back in time it goes.”
Often that evidence has been lost or perhaps never existed in the first place, as it may have been considered unnecessary at the time.
The retention of documents or records has assumed greater importance in recent years, as more and more claims have been made for the restitution of works of art that were looted during the second world war. Until relatively recently, owners rarely retained copies of export licences. As I understand it, the practice was that they were surrendered to customs authorities at the time of export. Even the authorities themselves did not retain such records beyond a limited time. I am told that objects that were legitimately exported many years ago, even from the UK, routinely lack such documentary evidence that might prove the provenance.
The argument has been put to the Committee that the absence or paucity of documentary evidence does not necessarily indicate that an object is of illicit origin. Due diligence, in practice, can therefore usually come down to trying to make judgments on the legality of an object and therefore whether or not it can be legally sold. As I am sure the hon. Member for Kensington will remind us, the BAMF is not the only body with a behavioural code. The Antiquities Dealers’ Association also has a code of practice that is meant to ensure that dealers buy and sell in good faith. Against that backdrop, it argues that clause 17, as drafted, could present its members with some difficulties.
It was pointed out on Second Reading that other offences dealing with crimes of dishonesty—for example, offences under the Dealing in Cultural Objects (Offences) Act 2003—opt for the phrase “knowing or believing”. Some argue that that phrase would be superior to the one used in the Bill, as there is a difference between having knowledge and acting in spite of it, and not having sought out that knowledge in the first place. Current principles indicate that under current law the former would be a criminal offence and the latter, although it would be frowned upon, probably would not meet the bar of being a criminal offence.
The BAMF argues that changing the phrasing of mens rea in the Bill to include the phrase “having reason to suspect” muddles the legal principle and could create ambiguity, and therefore the opposite outcome to the one we all want. It suggests that those who have acted criminally could be emboldened to exploit the muddled language to avoid conviction, while legitimate operators would be put off buying and selling by the potential of a criminal conviction. The issue has been raised many times during the passage of the Bill, so this is a probing amendment to understand fully why the Government have not responded and changed the wording.
From memory, the Secretary of State said on Second Reading—I will check the record when I sit down—that she would go away and consult the Minister and others to see whether the Government should take on board the concerns expressed on the Floor of the House and in the other place and then offer an amendment. I would be grateful if the Minister, when she responds, could indicate whether the Secretary of State has fulfilled that commitment and what the outcome of those discussions was.
Victoria Borwick (Kensington) (Con)
It is a pleasure to serve under your chairmanship, Mr Turner. I declare an interest as president of the British Antique Dealers’ Association. I have also been advised by the British Art Market Federation, the Antiquities Dealers’ Association and LAPADA, all of which have made written representation to the Committee.
Amendment 1, which stands in my name, relates to the most important point made in the submissions from the art and antiques trade, including from the British Art Market Federation, the Antiquities Dealers’ Association and LAPADA, and from Professor Janet Ulph. I have spoken before of the need for certainty in law—a point that other colleagues have made—so that well intentioned and honest dealers and auction houses are clear as to what is permitted. That is even more important when there is the possibility of a criminal conviction. The concern is over the level of knowledge of wrongdoing required before a dealer or auctioneer can be judged to have committed a criminal offence—what I understand the lawyers call mens rea—and whether that has been expressed to an appropriate level in the Bill.
Clearly no one objects to the word “knowing” in the relevant subsection. If a dealer knows that cultural property was unlawfully exported from an occupied territory, they are guilty of an offence. The problem lies with the additional criterion for committing an offence when someone has “reason to suspect” that an item was unlawfully exported. Despite carrying out appropriate provenance checks on an item of cultural property, a dealer or auctioneer might, just prior to exhibiting it at an antiques fair or auction, receive an unsubstantiated allegation that it was illegally removed from an occupied territory, or a request for evidence that it was legally exported. The allegation might be totally groundless, but the seller, despite genuinely believing that the item had not been illegally exported, would fear that the allegation could be deemed “a reason to suspect”, and that could lead them to withdraw the item from sale. The time-dependent opportunity to sell it would be lost, and the very act of withdrawal could well damage the artwork’s future saleability.
My right hon. and learned Friend the Member for Harborough (Sir Edward Gamier), a former Solicitor General, made that point succinctly in an article in The Times on 3 November—it has been appended to the submission from the Antiquities Dealers’ Association. He wrote:
“The mere making of an unfounded allegation that an item was unlawfully exported from an occupied territory after 1954 may place in the mind of the potential dealer or auctioneer a reason to suspect that it has been unlawfully exported; and although it may later turn out to be untainted, he will not go near it.”
Mr Jonathan Djanogly (Huntingdon) (Con)
Although I have no interest in any bodies that sell art, I appreciate the importance of art sales to this country. I would therefore like to say a few words. I have read the Second Reading debate, along with subsequent briefings from various parties. This has clearly become a contentious issue for a number of right hon. and hon. Members, and indeed for a significant section of the art market. My hon. Friend the Member for Kensington and the hon. Member for Cardiff West have set out those concerns very effectively, and I do not intend to rerun them. I note the Government’s position that this offence and the change in the criminal intent required will not in practice make a difference to the operation of the art market in the UK. I am sure that the Minister will elaborate on that point.
I appreciate the practical reality of the change in legal approach. Whatever the Minister says today, nothing will be able to stop a prosecuting lawyer advising that this is new law and that it is therefore open to be tested in the courts. Furthermore, because of the nature of the changes, there are those in the auction market and wider art market who would have concerns that the existing, accepted levels of due diligence will be threatened by the legislation, and uncertainty is always the enemy of business. The art sellers’ fear is that, as a result, Britain could lose its international pre-eminence in the art sales arena—a scenario that none of us would want to see.
I have a suggestion. When I was a shadow Minister, I scrutinised the previous Labour Government’s Bribery Act 2010, which mostly had cross-party consensus. The Act also addressed corruption. As with this Bill, we had to persuade large sections of the business community that its practical application would not disrupt their operations. The route devised to address those concerns was for the relevant Department to publish guidance. There was significant and wide consultation on that guidance, which addressed the more day-to-day, process-type decisions and due diligence considerations that could not realistically have been included in the legislation.
For example, if the famous picture to which my hon. Friend the Member for Kensington referred had been removed from a Soviet-occupied country in the 1970s—a country that is no longer occupied, of course—would it come within the Bill’s scope? Or if the same picture had been shown in a widely distributed sale catalogue for a certain period of time, would it be acceptable for an allegation of dodgy provenance to be made on social media half an hour before the sale, so that the auctioneer would stop the sale, possibly affecting the picture’s value and a possible future sale, even if the allegation was subsequently disproved? If so, under what conditions would that be acceptable? Those concerns also apply to clause 2 and what constitutes property that is important to all peoples.
By using guidance that is properly consulted on, acceptable practice norms could be established and generally supported with the buy-in of our art selling and auctioneer communities. That could address many of the practical concerns raised on this clause. I would be grateful to hear the Minister’s views on what I hope she will take as a positive suggestion.
Mr Burrowes
It is a pleasure to take part in the debate on clause 17, which drew a lot of attention from both Government and Opposition Members on Second Reading, as well as in the other place and among the all-party group on the protection of cultural heritage. I welcome the involvement and contributions of the Antiquities Dealers’ Association, the British Art Market Federation and others, which have drawn their expertise to the Committee’s attention in their submissions. I very much respect their concerns, amplified by my hon. Friend the Member for Kensington, about mens rea, which, as I said earlier, gets me interested.
Were one to have a blank canvas—I suppose this is an appropriate forum in which to discuss canvases—there would be an even greater weight to the argument. As a criminal lawyer, when I look across the family of dishonesty-type offences, I will plainly be looking at the state of mind. In the normal course of dishonesty-type cases, one would look to ensure that there is a subjective test that is consistent not only in terms of enabling a prosecution, but with an eye to how the judge would distinguish between or collate the subjective and objective elements in the summing up to the jury. I appreciate that everyone wants to ensure that prosecutions under the Bill are successful.
Having said all that, although I accept that there is genuine concern about the potential effect on the market, I say, respectfully, that it has been somewhat overstated. Given that we do not have a blank canvas, the idea that the implementation of the Bill will cause such repercussions on the market has been overstated. Elements of the canvas are relevant and show things working, albeit in a slightly different form. The Syria sanctions order and the UN’s Iraq sanctions order are relevant and give some texture to enable us to recognise that a precedent has been followed in relation to this particular element of the subjective and objective tests.
One can also look further afield. We can have our own views, but to give a sense of balance, if one looks at the recent written submissions to the Committee, some significant views have been brought to our attention. Mr Michael Meyer is head of international law at the British Red Cross, a respected body of international import when one is dealing with issues of international humanitarian law. In his written evidence, he makes the point that the British Red Cross is a neutral body that is keen to maintain its neutrality—the commonality of that view was shown in both this House and the other place.
In paragraph 5 of his submission, he outlines some concerns that have also been raised in this debate. He then says:
“However, it appears that, in practice, the clause should place no greater burden on dealers than already exists to conduct appropriate due diligence. In other words, the threshold of ‘reason to suspect’ is not so low as to have an adverse impact on the legitimate market, while at the same time acting as a necessary and suitable deterrent for those who may be less scrupulous. The wording is somewhat similar to that used in the existing Iraq and Syria sanctions orders. There is also very similar wording found in section 17 of New Zealand’s Cultural Property (Protection in Armed Conflict) Act 2012.”
Interestingly, the latter Act also dealt with the ratification of The Hague convention.
The written evidence from Peter Stone, the UNESCO chair in cultural property protection and peace, to whom I have referred previously, asks the Committee not to amend the Bill. He draws attention to clause 17 and prays in aid the note submitted by Professor Roger O’Keefe of University College London law school, who was involved in scrutinising the draft Bill before the Culture, Media and Sport Committee. He, too, very much supports the current wording and suggests that appropriate due diligence and legal advice can deal with concerns.
The Parliamentary Under-Secretary of State for Culture, Media and Sport (Tracey Crouch)
As always, it is a pleasure to serve under your chairmanship, Mr Turner. Welcome to the afternoon session. As the hon. Member for Cardiff West pointed out, the morning’s session was full of consensus and we moved quite swiftly through the Bill. It is a pleasure to continue this morning’s work.
Before I get into the detail of clause 17, allow me—for the second time—to answer directly the hon. Gentleman’s question, this time on consultation, which he raised about the Secretary of State and I holding further meetings. I can confirm that the Secretary of State and I have both had further meetings with stakeholders, as have officials. I am grateful for the time that others have afforded us to have further discussion on this clause.
Kevin Brennan
The Minister also said on Second Reading—it is in column 700 of Hansard—that she would meet concerned parliamentarians. Was she able to do so, as part of that process?
Tracey Crouch
I am pleased to confirm that I have had meetings with concerned parliamentarians since Second Reading, and I am sure that I will continue to do so before Report, if necessary.
The debate this afternoon has been interesting. I am grateful to colleagues for raising these issues, because it allows me as Minister to try to reassure them and other stakeholders who are concerned about clause 17.
Clause 17 creates the offence of dealing in cultural property that has been unlawfully exported from occupied territory. An offence is committed if a person deals in unlawfully exported cultural property when they do so knowing or having reason to suspect that it has been unlawfully exported. The amendments tabled to clause 17 seek to modify or remove the “reason to suspect” element. It is therefore important to explain our approach to the mental element of the dealing offence.
First, we did not develop this approach in a vacuum. The wording was developed following discussions with the police, who felt that this threshold was appropriate. Crucially, I understand that the national policing lead for cultural heritage crime remains content with our approach. Secondly, the mental element of the offence created by clause 17 is comparable to similar offences concerning cultural property implemented by the Iraq and Syria sanctions orders, which use “reason to suppose” and “reasonable grounds to suspect”. The offences created by those sanctions orders are the most appropriate comparators, as they deal with cultural objects which have come from situations of conflict. Thirdly, we know that the Bill sets a lower threshold for criminal intention—or mens rea—than other existing legislation, including the Dealing in Cultural Objects (Offences) Act 2003. However, the Government consider this to be appropriate, given that it is designed to protect a very special and limited class of cultural property that is of great importance to all people, as defined by article 1 of the convention.
As part of my discussions with concerned stakeholders in the House, I have taken representation from those with close connections to the art market. When they have been discussing issues around the difference between the mens rea in the 2003 Act and in this Bill, there was a suggestion that perhaps we should review the 2003 Act when the opportunity arises. If there is continued concern about the differences between the mens rea in this Bill and that in the 2003 Act, we will certainly look to increase the mens rea in the 2003 Act, rather than watering down the mens rea in the Bill.
To be clear, we arrived at our approach for three main reasons: first, following consultation with the police; secondly, due to the close analogy with the Syria and Iraq sanctions; and thirdly, because we are looking to protect such a small and special class of objects. We are pleased to note from the written evidence the support we have for that approach, including positive statements from academics, the British Museum and the Council for British Archaeology. I draw Members’ attention to the views set out in the British Museum’s written contribution:
“We feel it is particularly important that there is no watering down of responsibilities or requirements in the Bill. Specifically we feel that in regard to the Clause 17...it is imperative that the wording should remain ‘knowing or having reason to suspect that it has been unlawfully exported’”.
I find the museum’s views particularly compelling as its officials regularly offer their expert advice to the art market as part of the due diligence process.
My hon. Friend the Member for Enfield, Southgate stole my quotation from the British Red Cross, but it is worth repeating that it said that
“it appears that, in practice, the clause should place no greater burden on dealers than already exists to conduct appropriate due diligence. In other words, the threshold of ‘reason to suspect’ is not so low as to have an adverse impact on the legitimate market, while at the same time acting as a necessary and suitable deterrent for those who may be less scrupulous.”
I want to move on to consider the impact of our approach and explain how it will work in the real world. Reason to suspect is primarily an objective test, in that the prosecution need not show that the defendant personally suspected that cultural property was unlawfully exported—only that a reasonable person would have suspected that it was. However, the prosecution must be able to point to something that would or should have caused a reasonable person to suspect. It therefore has to be shown that the defendant was personally in possession of the knowledge that would cause a reasonable person to suspect.
A dealer who took possession of an object merely for the purpose of carrying out due diligence would not be committing an offence, as that would not be classed as dealing. They would commit an offence only if, having been through the due diligence process, they went on to deal with the object after discovering or having had reason to suspect that it was unlawfully exported. The Bill will not require art dealers to change how they operate. The art market is a self-regulated industry and the trade associations already have clear due diligence guidance and checklists in place, which they expect dealers to follow before putting an object forward for sale.
My hon. Friend the Member for Kensington and others raised concerns in the consultation in the run-up to the Bill that a phone call received or accusations published in a blog post shortly ahead of a sale could stop it from proceeding. However, those are already issues for the market, and they will not be solved by watering down our Bill. If new, convincing evidence is presented about the provenance of an object shortly before an auction, we would already expect dealers to pause and consider whether they need to undertake further due diligence. If, however, the claim is a completely false accusation with no evidence to back it up, it may be perfectly legitimate for a dealer to ignore it. Such accusations are unlikely to be considered a reason to suspect that an object has been unlawfully exported. We have listened to the concerns of the art market, but it has not provided any compelling evidence to support the idea that the Bill would create insurmountable problems for the market, or increase the amount of due diligence that it needs to undertake.
The hon. Member for Cardiff West has suggested removing “reason to suspect” altogether, which would mean that an offence would be committed only if it could be proved beyond reasonable doubt that a defendant knew that they were dealing in unlawfully exported cultural objects. That sets the bar far higher than for either handling stolen goods under the Theft Act 1968 or dealing in tainted cultural objects under the 2003 Act. I am concerned that requiring proof of actual knowledge on the part of the dealer, as opposed to reason to suspect, could actually discourage less scrupulous dealers from carrying out due diligence, and enable them to turn a blind eye to things that would cause a legitimate dealer to ask more questions.
I appreciate that the Opposition’s amendment is probing, but I was a little surprised by it, given that on Second Reading the hon. Member for Sheffield, Heeley (Louise Haigh) criticised the threshold of the 2003 Act for being too high and seemed content with the level of mens rea proposed in the Bill. She hoped that on that point
“the Minister will stick to her guns”——[Official Report, 31 October 2016; Vol. 616, c. 736.]
The amendment would make it much harder to prosecute dealers who deal unlawfully in cultural property. That seems to me to be an extraordinary change in position; but fortunately the amendment is merely probing.
My hon. Friend the Member for Kensington has proposed amending “reason to suspect” to “believing”. Her amendment would raise the threshold for criminal liability so that proof was required of the dealer’s belief that the object was unlawfully exported. That would be seen in a number of quarters as a watering down of the Bill. The offence created by clause 17 will not have an adverse impact on legitimate dealers who have continued to operate since the Iraq and Syria sanctions came into force, but it will cause unscrupulous ones to think twice. Dealers should always be concerned to establish that any cultural object that they are asked to deal with has good and lawful provenance. The argument that this new offence will stifle the art market seems to imply that dealers are happy to risk dealing in unlawfully exported objects as long as they cannot be prosecuted. Dealers should not be taking such risks in any event; where there are question marks over provenance, they should simply not deal in those cultural objects. I would like to stress once more that the Bill should not require changes to the due diligence processes that the art market already follows.
I refer to the wise counsel of my hon. Friend the Member for Huntingdon and his experience of the issue with regard to the Bribery Act 2010. I confirm that the Government are committed to updating the guidance available to all stakeholders in this Bill. We stand ready to work co-operatively with the art market to ensure that all dealers understand their roles and responsibilities. That could if necessary include consultation before the guidance is issued, if that is helpful. I hope that reassures hon. Members and that the hon. Member for Cardiff West feels able to withdraw the amendment.
Kevin Brennan
I thank the Minister for her response. I confirm that amendment 7 is a probing amendment. She quite rightly picked up on the summing up that my hon. Friend the Member for Sheffield, Heeley made on Second Reading. This is an important issue and the debate has been useful, and a probing amendment is a useful vehicle for a debate. The Minister just mentioned the hon. Member for Huntingdon, and it is useful to have on the record her commitment on the guidance.
Several extended metaphors have been used during our debate. The hon. Member for Kensington talked about gold-plating. I do not think anything that is gold-plated is covered in the Bill; it might not be of sufficient cultural importance. [Interruption.] I have at last provoked a reaction from my hon. Friend the Member for Rhondda, who insisted that he would take no part in today’s proceedings. He did comment from a sedentary position that it was a rather extended metaphor about the blank canvas. Of course, we want to make sure that nobody gets framed.
One of the many interesting things that the Minister said was that the Government are considering increasing, or strengthening, or decreasing the mens rea, whichever way round it is. I do not know the correct phrase; I am not a lawyer.
Tracey Crouch
I said that we would be happy to consider doing that, if the art market and stakeholders were interested in making sure that the Bill and the 2003 Act were more aligned.
Kevin Brennan
I will not get into a discussion on the difference between being happy to consider something and considering something, much though I would enjoy that. I will rephrase: the Minister confirmed that she would be happy to consider changing the threshold in relation to the 2003 Act.
The Government’s position is quite interesting. There has been only one successful prosecution and conviction under the 2003 Act, in May this year; somebody was convicted after having gone around historical churches across the country and stolen Bibles, statues, friezes and even two 15th century oak panels in Devon. They pleaded guilty to 37 offences of theft under the 2003 Act and received a three-year sentence. However, the Government were keen to say on Second Reading—this is how I understand their position—that that in no way reflects the Act having too high a threshold for prosecution, and that it might in fact be a result of the Act acting as a deterrent. I do not believe that. I think that if people are being prosecuted, it is under the Theft Act 1968 or other Acts relating to these sorts of offences.
The Chair
With this it will be convenient to discuss new clause 3—Cultural property: duty to provide information—
‘(1) Auctioneers and traders within the United Kingdom shall have a duty to provide buyers and potential buyers of items of cultural property (including antiques, cultural artefacts and artworks) with information to enable buyers and potential buyers to decide whether the item has been unlawfully exported within the meaning of section 17 of this Act.
(2) The Secretary of State may make regulations specifying the nature of the information to be provided under subsection (1).
(3) Regulations under this section—
(a) shall be made by statutory instrument, and
(b) may not be made unless a draft has been laid before and approved by resolution of each House of Parliament.’
Kevin Brennan
It is me again, I’m afraid, Mr Turner. Hopefully we will be able to get through our proceedings fairly expeditiously this afternoon. I will make some brief remarks on the clause before I turn to new clause 3.
To return to what we were just discussing, the Bill’s focus on preventing the illegal exportation of cultural property from occupied territories is certainly vital, and we very much welcome that. Daesh, which sometimes calls itself ISIS, has set up a so-called ministry of antiquities. If ever there was a perverse use of that terminology or an example of Orwellian newspeak on stilts, that is it, because that body exists simply to turn cultural property into income streams for that terrorist organisation by exporting and selling stolen precious items abroad. We have discussed the concerns regarding the phrase “reason to suspect” in clause 17(1), so I do not intend to rehearse those points.
New clause 3, which stands in my name and that of my hon. Friend the Member for Tooting, aims to ensure that the art market produces and keeps records necessary to determine whether an item has been illegally exported. Once again, it is a probing amendment, but we want to hear the Government’s response to our suggestion. We have heard that there is not always a good paper trail in the arts market for objects of the kind that we are discussing, so the new clause is an attempt to look at the problem of ineffective accountability from a different angle. It is no use punishing legitimate operators for a lack of knowledge when there is little reliable paperwork. That could divert resources away from stopping criminals carrying out the activities that the Bill intends to deter people from doing. If we ensure that reliable paperwork is produced and kept, perhaps we can hold the market to account more effectively.
I mentioned on Second Reading that cultural property is important in at least two ways. The first is through its monetary value, and the second is through its importance culturally and to the morale of a particular country—or, indeed, the world. We have heard much about the importance of heritage to morale, in terms of cultural, national and personal identity. We have also heard how groups such as Daesh mobilise cultural property for money by illegally exporting artefacts and selling them on the international market. UNESCO found that looting is happening on an industrial scale in the middle east, and that is what we are trying to discuss and seek a way of tackling with the new clause.
I have outlined the challenges that the art market faces in trying to assert provenance. Paperwork stretches back only so far, and that which existed before the 1990s was not always kept by owners or authorities. That has resulted in what some have seen as a culture of non-disclosure in the art market. With our earlier amendment 7, I was keen to show that we do not in any way oppose the art market. Rather, we want to support those who work to make it exemplary, by providing a legal backstop to their codes of practice and due diligence. As I have mentioned, this is a very valuable industry, worth many billions of pounds under some estimates, and London’s art market is the second largest in the world. We want to support those who work to ensure that its reputation remains high, and that it therefore continues to hold a pre-eminent role in the world.
Of course, an object’s entire paper trail cannot be retroactively reconstructed, but we can put in place robust measures to ensure that records are reliable from this point. We should aim for the transparency that we demand in other industries because, as in every industry, there are activities and actions of individuals within it that have to be deterred and prevented. A lot of investigative work was done by both Channel 4’s “Dispatches” and The Guardian into some of those activities. I understand that the Metropolitan police have stated that the market has improved recently, largely due to the due diligence practices that we have discussed. Building on that, it is not unreasonable to expect, as a minimum, that the identity of an item’s owner and buyer should be made known, as referred to in subsection (1) of the new clause.
Subsection (2) would have the Secretary of State bring forward regulations regarding specific requirements for transparency. I think that a similar amendment was proposed in the House of Lords, to which the Government objected because it would have put too much detail in the Bill. That is always an objection that Governments, often reasonably, but at other times unreasonably, bring forward. In this version, we have allowed the Secretary of State the opportunity to bring forward those regulations on what would be specifically required for transparency. That is so that there can be appropriate consultation with the market, and an opportunity for others to make representations on the exact detail of what that transparency would consist of. It is not possible to trace the entire provenance of every item, but if the Secretary of State were to ask, or require, that an effort be made to identify owners since 1970—the date of the UNESCO convention—that would go a long way towards helping to improve the market.
I have outlined that there are self-regulatory codes of practice in place in the art market. I am happy to praise the industry for putting those in place and for the improvements in recent years. However, the Government have acknowledged that that is partly due to the effect the 2003 Act had in incentivising due diligence, so legislation can have an impact on improving due diligence. With this new clause, we are suggesting that we should not be complacent. The Bill is an opportunity to incentivise further transparency and deter further fraudulent behaviour. Does the Minister agree with that? We are approaching the same issue of criminality from a different angle, and our aim is to establish effective enforcement and deterrents. I look forward to hearing the Minister’s response on new clause 3.
Victoria Borwick
I wish to comment on new clause 3 on behalf of the art and antiques trade, because I believe that it is entirely inappropriate. I believe that there is considerable misunderstanding about the information available for millions of works of art, antiques and antiquities owned by citizens and institutions in this country. The submissions from the trade make it clear that the vast majority of cultural objects, whether held privately, in museums, or being bought or sold on a daily basis, are not supported by historical or documentary evidence of previous ownership, or the dates and locations of their previous whereabouts—what the art market calls provenance.
That is inevitable when you consider that works of art have been entering and leaving this country for hundreds of years. Documentary evidence may never have existed, may have been lost with the passage of time, or may never have been considered necessary. Until very recently, owners of objects rarely retained copies of export licences, and the originals would have been surrendered to the authorities. Although it would now be considered good practice to retain such information, it is not possible retrospectively to create a paper trail for the majority of objects where none exists.
The absence of such documentary evidence by no means necessarily indicates that an object is of illicit origin. On a daily basis those in the trade have to make honest judgments for the majority of objects for which no documentary evidence exists. Taking that into account, when a dealer is in possession of information demonstrating that an object was legally exported, then all is well and good. If they have information to suggest that it was illegally exported, they would be breaking the law if they sold it.
As I have mentioned, the vast majority of cultural works of art on sale in this country are, for historical reasons, not accompanied by such information. Although specialists will often be able to identify the date of manufacture and country of origin from the style, condition and craftsmanship exhibited by an item, in the case of an item likely to have been made abroad, the date it left the country of origin and the date it arrived in Britain will often simply not be known.
My final comment about new clause 3 concerns client confidentiality. The Minister in the other place, Baroness Neville-Rolfe, expressed concerns that passports containing details of previous owners would infringe article 8 of the European convention on human rights. The retention of the names and addresses of previous owners would interfere with the right to respect for private and family life.
Kevin Brennan
Does the hon. Lady acknowledge that the detail proposed in the amendment that was tabled in the Lords is not included in this new clause, and that any such detail would be outlined in regulation after discussion with industry?
Victoria Borwick
Although I accept that, it is also an important briefing point today as to why the art and antiquities associations feel so strongly about this. The Government’s opinion is that such a level of interference could not be justified as necessary for the aim of protecting cultural objects. I maintain that the same considerations would apply to the proposals contained in the new clause, and I therefore ask my colleagues to reject it.
Tracey Crouch
I actually agree that it is important that dealers in cultural property provide appropriate information on the provenance of the items they sell, but I am unable to support new clause 3, for the following reasons. First, it would introduce a statutory requirement for the art market to provide information about provenance for the first time. As I have said before, I believe that it is appropriate to allow the art and antiquities trade to regulate itself. The established trade associations possess codes of ethics that they expect their members to abide by, and we expect them to enforce those codes strictly.
Furthermore, we believe that the existing legal framework, along with the new offence we are creating, provides a sufficient incentive for legitimate dealers to ensure that they do their due diligence and pass on relevant information concerning an object’s provenance. The Government are not in the business of imposing disproportionate regulatory burdens on well functioning markets. Indeed, we have a manifesto commitment to cut red tape further. We believe that the current self-regulatory approach to the art market works well and that there is no need to add an additional statutory burden.
Secondly, new clause 3 appears to be an attempt—I am not sure whether this was the Opposition’s intention—to shift responsibility for making decisions about whether a cultural object has lawful provenance to the buyer. It seems strange to put the focus on the buyer in this way. It could result in buyers being far more cautious about purchases, which would genuinely risk slowing down the art market. Our expectation is that dealers should carry out due diligence, seeking advice as appropriate and taking a view on an object’s provenance before offering it for sale. If there is a question mark over provenance, it simply should not be for sale.
Thirdly, we cannot understand the Opposition’s motivation in tabling both new clause 3 and amendment 7, which I appreciate has now been withdrawn. Raising the threshold of the mens rea to such a high level and putting the onus on buyers to make decisions about whether or not an object has lawful provenance would significantly water down clause 17, while at the same time putting additional burdens on both buyer and seller. I must therefore strongly resist new clause 3.
Kevin Brennan
I thank the Minister for her response. She will understand that, in tabling probing amendments, we sometimes have to probe from one direction and sometimes from another in order to find out whether the Bill is sound.
Kevin Brennan
I will not go any further.
It is not entirely illogical if, as the Minister has said, auctioneers and traders should have a duty to determine provenance. They should have a duty to tell the person to whom they are selling the item what its provenance is, and that is what is envisaged in new clause 3; it would require nothing more than passing on information. I take the point that those matters could be covered in industry codes of practice, but the problem with such codes is that it is usually only the good guys who sign up to them, whatever field we are talking about. The purpose of regulation is to cover everybody, not just members of industry bodies who pay their subscriptions and obey codes of practice that they have signed up to. However, the new clause was a probing amendment and I will therefore not seek to press it.
Question put and agreed to.
Clause 17 accordingly ordered to stand part of the Bill.
Clauses 18 to 27 ordered to stand part of the Bill.
Clause 28
Immunity from seizure or forfeiture
Question proposed, That the clause stand part of the Bill.
Kevin Brennan
We now come to part 5, which is on property removed for safekeeping. It would be helpful if the Minister outlined the Government’s approach.
Tracey Crouch
Clause 28 provides immunity from seizure and forfeiture for cultural property that is protected under article 12 of the convention—that is, property being transported to the United Kingdom for safekeeping, or en route through the UK to another destination for that purpose. The protection rightly extends to any vehicle in which such cultural property is being transported. Immunity from seizure and forfeiture is also provided for cultural property for which the UK has agreed to act as a depository under article 18 of the regulations. In that case, the property is protected while it is in the control of the Secretary of State or any other person or institution to whom the Secretary of State has entrusted it for safekeeping. However, if the property leaves the custody of that person or institution—for example, because it is stolen—it is no longer protected and may be seized by the police in order to return it.
The clause provides wide immunity from seizure and forfeiture for the cultural property to which it applies. The clause fulfils an important role in implementing our obligations under the convention and its regulations: it ensures that property entrusted to the UK for protection during a war is guaranteed to be returned. Although existing legislation already provides protection for some cultural property, most notably for state-owned property, it is not sufficiently comprehensive to meet our obligations.
Question put and agreed to.
Clause 28 accordingly ordered to stand part of the Bill.
Clauses 29 to 33 ordered to stand part of the Bill.
Schedules 1 to 4 agreed to.
New Clause 1
Enforcement: costs
‘(1) The Secretary of State shall lay before Parliament each year a report setting out the costs incurred by the following bodies in fulfilling the requirements of this Act—
(a) the cultural property protection unit within the Ministry of Defence,
(b) Border Force,
(c) the Arts and Antiquities Unit of the Metropolitan Police,
(d) UK police authorities, and
(e) any other publicly funded body carrying out functions for the purposes of cultural protection under this Act.
(2) The first report under subsection (1) shall be laid within 12 months of this Act being passed.
(3) Reports laid under this section shall include an account of how bodies specified under subsection (1) communicate and cooperate with each other in protecting cultural property in compliance with this Act.’.—(Kevin Brennan.)
Brought up, and read the First time.
The Chair
With this it will be convenient to discuss the following:
New clause 4—Safeguarding cultural property—
‘At the end of the period of one year following the passing of this Act, the Secretary of State shall lay a report before each House of Parliament on which cultural properties situated within the UK have been listed as protected by this Act, and how the Government has safeguarded them against the foreseeable effect of an armed conflict, in accordance with Article 3 of the Convention.’
New clause 5—Cultural Protection Fund—
‘At the end of the period of one year following the passing of this Act, and every two years thereafter, the Secretary of State shall lay a report before both Houses of Parliament on the work of the Cultural Protection Fund in supporting the implementation of the Hague Convention for the Protection of Cultural Property in the Event of Armed Conflict of 1954 and the Protocols to that Convention of 1954 and 1999.’
Kevin Brennan
New clauses 1, 4 and 5 stand in my name and that of my hon. Friend the Member for Tooting. New clause 1 is designed to facilitate discussion on how much the cultural protection outlined in the Bill will cost the publicly funded bodies involved in its implementation, how the Government propose those costs should be met and how those bodies will be joined up in that effort. For the sake of clarity, I will go through each of the bodies specified in the new clause in turn.
Will the Minister indicate how much funding the cultural property unit within the Ministry of Defence will receive, what its size and resourcing will be and how each of those factors are projected to look in future? I am aware that the Ministry of Defence, like all Government Departments, is operating on a tight budget. I am also interested in the funding that will be available for training. We understand that the MOD will be looking for members of the armed forces who are knowledgeable about archaeology and other historical subjects, as was discussed on Second Reading. I pointed out then—I was backed up by the hon. Member for East Worthing and Shoreham (Tim Loughton)—that, with regard to joined-up Government, talking about having more members of our armed forces who are experts in those fields while simultaneously cutting so-called soft subjects in our schools, such as archaeology, art history and classical civilisation at A-level, seems to me to send out an extremely mixed message.
Nevertheless, will the Minister indicate what funding will be made available to try to compensate for the knowledge gap that will create in future, and to ensure that membership of the so-called monuments squad—I will call them that rather than monuments men—will not be limited to those fortunate enough to have been offered those now-rare subjects in school or as an enrichment to their school activities? The impact assessment seems to suggest zero cost to the Ministry of Defence. We are always interested to know how something can be delivered at zero cost, so perhaps the Minister could clarify that.
Kevin Brennan
The Minister says “Tory Government” from a sedentary position. I hope that she is not saying that they are not paying the people in the monuments squad for their work. We in the Opposition certainly believe in the rate for the job when somebody is working. I am sure that she will clarify that in her response.
The second body mentioned in our new clause is the Border Force, which we all know has been subject to large budget cuts—more than £300 million in the run-up to 2015 by the coalition Government—and simultaneously came under the increasing pressure of public expectation in relation to preventing illegal immigration. As we see with every public service, expectations are high, but it is difficult for those expectations always to be met if funding is continuously cut. That said, I understand from the Government’s assurances in the Lords that any new costs incurred by the Border Force in enforcing the Bill will not be significant, and that its new responsibilities will not differ greatly from its current day-to-day business.
The Government have stated that the Border Force already carries out the functions required by the Bill in relation to the 2003 Iraq and Syria sanctions. Will the Minister assure us that that is indeed the case? Furthermore, while the work derived from the Bill may not differ significantly from the current everyday business, is there likely to be an increase in workload in relation to the Bill? If so, what provisions are the Government making?
It has been stated that, in regard to a code of practice, resources on cultural goods are available on the Border Force intranet site, and I understand that the Border Force will be expected to seize goods when instructed to do so, rather than be expected to discover the goods’ illegally-exported status itself. As I mentioned, many duties under the Bill are already performed by the Border Force. Does the Minister think that the passage of the Bill will require further robust training in the handling of cultural goods?
Baroness Neville-Rolfe stated:
“Enforcement practices relating to combating smuggling are often the same regardless of the type of goods.”—[Official Report, House of Lords, 28 June 2016; Vol. 773, c. 1529.]
While that may be true, there are also unique sensitivities when dealing with often antiquated and fragile items of cultural property, which, as all parties have agreed, are of immeasurable value. This question is particularly relevant in the light of comments made by the former director of the unit within the Metropolitan police, Dick Ellis, who said:
“These pieces are moving through customs, they’re moving through our ports all the time. And yet not a single item is seized in this country… these sorts of objects when they’re looted in Syria, when they’re looted in Iraq, are helping to fund terrorism, why on earth aren’t we doing more to stop them coming on to the market?”
That is not just a question for the Border Force, because, as the new clause specifies, institutions need to communicate and co-operate with each other to protect cultural property. The Government have clarified the fact that the Border Force would not be expected to identify illegal goods, so the matter of how those separate institutions, with their separate but related functions, will be joined up is therefore crucial.
Does the Minister feel that a dedicated unit within the Border Force, with a close communication link to the equivalent unit within the Metropolitan police, is necessary properly to enforce the Bill and, crucially, to provide a robust and credible deterrent with respect to those who would attempt to bring illegally exported cultural property into the UK?
I turn now to the arts and antiquities unit of the Metropolitan police, which is composed—
Victoria Borwick
As a point of record, because it keeps coming up as an error, it is the art and antiques unit. I believe that point has been made before. It is not art and antiquities; it is the art and antiques unit.
Kevin Brennan
I am pleased to have that correction, because my notes say “antiquities” so I shall correct myself as I go along. I turn to the arts and antiques unit of the Metropolitan police, which I understand is composed of three people. As the hon. Lady has visited, perhaps she can tell me whether I am right in that.
Kevin Brennan
The hon. Lady is nodding, so at least I got that right.
For now, suffice it to say that regulating this industry—which, particularly in relation to the auction market, is sometimes lacking in information regarding who owns what, as we have heard already—poses a rather large challenge for this team of three people.
Indeed, Dick Ellis, the aforementioned founder of the unit, has acknowledged that the team is not big enough—again, the hon. Lady is nodding—to solve the problems in the industry. Furthermore, it seems that, apart from an evidence room, this team does not have any special resources or equipment.
Does the Minister foresee this unit’s workload, and of course the subsequent cost, increasing in any way following the passage of the Bill, given the lack of special resources for the long-term storage of cultural property during legal proceedings? Will the Metropolitan police unit receive more resources or will items be kept elsewhere— [Interruption.]
Kevin Brennan
We were discussing new clauses 1, 4 and 5. Before the Division bell rang, I was saying that the Metropolitan police does not have many special resources for the long-term storage of cultural property during legal proceedings and asking the Minister whether any more resources will be provided to the Metropolitan police unit, or whether it is intended that, should items need to be stored, they will be stored somewhere else in a specialist environment, such as the British Museum.
That brings me to museums, galleries and archives, some of which receive public funding. Baroness Neville-Rolfe stated that while she was slightly open-minded on the topic, she thought it generally inappropriate for establishments to display artefacts deposited there for safekeeping. Does the Minister feel that that rules out the possibility of museums, galleries, archives and the like covering the costs of safekeeping, if they want to put items on display, by charging for entry to see them? Again, I am not advocating that, but I wondered if that was a point that the Government had in mind. How should these sorts of institution be funded if they have to perform that task?
Furthermore, the question of joined-up governance returns. How will information pass between the agencies involved in enforcing the Bill? That is especially relevant in relation to the private military contractors and embedded soldiers mentioned previously. Institutions are not as homogeneous as one might think. In essence, the new clause asks how the Government plan to facilitate giving already fairly thinly stretched institutions more to do without any additional resources.
New clause 4 aims to probe the Government on the methods and criteria used to determine which items of cultural property are chosen for protection under the Bill. We have heard in previous debates how the value of cultural property is bound up in both money and morale. Its destruction is therefore used as a weapon of war; it is an attack on people’s pride and identity, and a method of funding further warfare.
There has been cross-party agreement that the importance of cultural property and heritage is a holistic matter. That understanding is crucial to the success of the Bill, but it also poses a challenge when designing criteria. We already have systems of classification for our heritage worldwide, such as designated world heritage sites, and in the UK, such as grade I listed buildings. Can the Minister explain how these criteria in various fields will be joined up, how objects in fields that do not necessarily have an internal ranking system will be incorporated, and which heritage bodies will be consulted in the process?
We said earlier that these cultural objects have to be of great importance and significance, but how one judges that is perhaps ultimately a matter of taste. For example, there are some—I am not necessarily among them—who think that Buckingham Palace is a particularly bad example of botched architecture, and that the way that it was converted to give it its current façade was the 19th-century equivalent of using concrete cladding on a house. However, one would expect a building of such eminence—it also contains significant artworks—to be a cultural object of significant importance, and to be covered by the provisions of the Bill. I mentioned grade I listed buildings. How far down the grades of buildings are the Government willing to offer protection under this legislation? In other words, can they give us some idea of how limited the protection is likely to be under the Bill?
Laying before Parliament a report that outlined a list of properties protected by the Bill would allow for crucial debate and discussion. As I mentioned at the outset, perhaps MPs could bid for the inclusion of an item of cultural property in their constituency that is of great importance to not just them and their constituents, but all peoples of the world. I would say that Llandaff cathedral in my constituency, which was bombed and badly damaged in the second world war, and which has an extremely beautiful and important modern statue by Epstein, is a piece of cultural property that should be of importance to all people. It is difficult to know where the threshold will be in the Bill, so I am interested to know how the Government will liaise with experts from various fields to ensure that adequate measures are taken. Preparing this report will ensure that the public and their elected representatives feel content that their precious heritage is covered. Can the Minister explain how the qualifying artefacts will be determined and what say, if any, the public would have in that process?
New clause 5, which is in my name and that of my hon. Friend the Member for Tooting, seeks to ensure the transparency and accountability of the cultural protection fund. We want to probe how the Government plan to provide for this fund, how it will be resourced and how its different parts will be joined up. We are happy that the Government have committed to giving the fund £30 million over four years, and have set out a timetable for bids and consultation on the fund. Do they have a view on the level of their commitment to the fund following the initial four years? Though the £30 million is welcome as a start, the fund’s aims are ambitious. Are there plans to enhance that level of funding?
The fund will
“support projects involved in cultural heritage protection; training and capacity building; and advocacy and education, primarily focused in the Middle East and north Africa.”—[Official Report, House of Lords, 6 June 2016; Vol. 773, c. 584.]
The proposed report would allow Parliament to monitor whether more funding was required to fulfil those ambitions, as I suspect it might well be.
We certainly welcome the co-operation between the Department for Culture, Media and Sport and the British Council, and agree with the consultation’s conclusion that the British Council’s network and management experience excellently complement the expertise of the heritage industry, and that this collaboration is important to the fund’s success. Can the Minister tell us more about that, and especially about training and resource sharing between those institutions? I understand that the Government have indicated that they are involved with the British Council in developing a long-term strategy. With regard to the long term, the report proposed in the new clause could facilitate debate about the future resource needs of the fund; what countries and technologies should be focused on; and striking a productive balance between providing emergency support for cultural property in areas of armed conflict and supporting the safeguarding of items in peacetime.
There are, of course, many parties that those running the fund will need to liaise with in order to accomplish this, including non-governmental organisations, the military, police, Border Force, museums, archives and galleries—all those bodies that I mentioned previously. I reiterate the proposal made by Lord Collins of Highbury, who argued that the fund’s work, especially on supporting economic and social opportunities through cultural heritage, should be carried out in collaboration with the Department for International Development. Will the Minister indicate whether that will be the case, and outline how the cultural protection fund will relate to the voluntary fund established under the second protocol and run by UNESCO? Again, that is a matter of joined-up government and ensuring good value for money.
As I understand it, the Government have pledged to make sure that the cultural protection fund will be included in their yearly report on this Bill if it is of direct relevance, and that its spending will be scrutinised biannually by the OECD. That commitment is appreciated, but this fund deserves scrutiny in itself, not conditionally depending on its relevance to the Bill. This new clause would provide a mechanism by which the fund’s resourcing and operating could be scrutinised by Parliament, and its impact could thereby be maximised. I look forward to the Minister’s response on new clauses 1, 4 and 5.
Mr Burrowes
I want to comment on two aspects of the new clauses. First, I commend Detective Sergeant Claire Hutcheon, who has led the Metropolitan police’s art and antiques unit so admirably, and who is retiring in January. She has done admirable work and gained from experience over many years. Although the unit is small in number, it certainly has the quality. She has spread her expertise around forces across the country, pulled in support and expertise, and shared good practice so that forces do what they can on illegal trade. She has also built up a good partnership with the trade, and there is good understanding and confidence there that needs to be continued. There is some concern that the new office holder may have to start again at zero. There needs to be proper good practice, which might perhaps benefit from the guidance that we might hear about in relation to this Bill. It would be good to hear from the Minister that there is continued support for that unit and for the resources; it has not been up to full strength for some time—I think it is pretty much up to a full strength of about three—but it certainly punches above its weight.
I also want to draw attention to the excellent cultural protection fund, which is in its early stages and has £30 million. I know that the Minister is competitive, and recognises that if we are in competition with France on the ratification of the protocols, we need to get there first, but there is also an issue of money, because François Hollande has announced $100 million as part of the global endeavour to protect cultural heritage. I ask the Minister whether there is support for the global endeavours. The second protocol provides for a voluntary fund for cultural heritage; I understand that that is distinct from our cultural protection fund. Nevertheless, there is an indication, and I hope an intention, that there will be a contribution to UNESCO. It takes its hits and criticisms but, particularly in this regard, we must recognise UNESCO’s pre-eminence and the support for it. I hope that there will be a mechanism that allows for support, particularly from ill-gotten gains, through the recycling of money into the fund. When these crimes are prosecuted, the proceeds could go into a global pot.
Tracey Crouch
Before I turn to the specific aspects of the new clauses, it might be helpful if I addressed a number of wider issues raised by the hon. Member for Cardiff West. He asked a specific question about the Ministry of Defence; I am sure that he and members of the Committee will respect that the matter is obviously one for the Ministry of Defence, but I will do my best to answer as much as I possibly can on the specifics of the unit to which he referred.
The joint military cultural property protection working group was established in early 2014 to develop the concept of a unit of cultural property protection specialists, in accordance with our obligations under article 7.2 of the convention. The MOD is currently tasking Army command with looking at plans for the creation of the cultural protection unit. Some preliminary work has already been completed, and it is expected that the unit will be able to form up 12 to 18 months after formal approval.
The convention for the protection of cultural property places a number of commitments on the MOD, most of which we already comply with. Article 7.2, however, obliges states to plan or establish specialist cultural property units to secure respect for cultural property and to co-operate with the civilian authorities responsible for safeguarding it. There is flexibility on the size and composition of such units, and other nations’ solutions vary from six to 360 people.
The MOD has tasked the Army with examining the best means of providing this capability, and the Army’s initial thoughts suggest a relatively small unit, at least in peacetime, of 10 to 20 personnel from across all three services. They will be predominantly or even exclusively reservists, with command at lieutenant-colonel level, although expertise will be more important than rank. Although planning is at an early stage, the Army is expected to respond to the Ministry of Defence in the next few months on how such a unit could be established. My hon. Friend the Member for Enfield, Southgate, recently asked the Secretary of State for Defence at Question Time to update the House on that matter, and I am sure that interested Members will continue to press the Ministry of Defence.
The three new clauses proposed by the hon. Member for Cardiff West deal with important matters in which I know members of the Committee have a keen interest. Alas, I cannot support their inclusion in the Bill. New clause 1 deals with the cost of implementing and enforcing the provisions in the Bill. We have already clearly set out our forecast of the costs in the impact assessment. Where there are ongoing costs, for example for the Border Force, the police and the armed forces, it is likely to be extremely difficult to disaggregate the costs associated specifically with the Bill from those incurred in other related cultural protection work.
For law enforcement agencies, it would be extremely difficult—if not impossible—to separate the cost of enforcement related to cultural property from ordinary enforcement costs. Even if it is possible to do so, the costs involved are likely to be disproportionate to the costs that the new clause requires us to identify and report. It is for the Border Force, the Metropolitan police and other police authorities to decide how best to allocate and use their resources, in the light of the priorities and the legislation that they are required to implement and enforce.
Kevin Brennan
When the Minister referred to the impact assessment, I took a glance at it and noted that, under the section outlining the Metropolitan police arts and antiquities unit—
Kevin Brennan
It says “antiquities” in the Government’s own impact assessment, I am afraid.
Kevin Brennan
The hon. Lady cannot intervene on me because I am intervening on the Minister. The number of personnel to be trained from that unit is four. We heard earlier that there were only three people in that unit, so I hope that is a helpful sign that the Government anticipate that the unit will expand.
Tracey Crouch
May I put an audible “tut” on the record at our mistake in the impact assessment? I know that people have concerns about the size of the Metropolitan police art and antiques unit, but the nature of its work—for example, it works collaboratively, including with international partners—means that its size is not a real reflection of its impact. A significant proportion of its work is from international law enforcement agency requests for assistance. I hope that responds in part to the hon. Gentleman’s question about the size of the unit.
With regard to the Border Force and the expertise required in identifying cultural property unlawfully exported from occupied territories, we do not foresee the Border Force playing a major role in discovering such objects unless specific intelligence has been received that objects from an occupied territory may be coming into the country. We think that it will be a rare event for a Border Force officer to be faced with something that they can clearly identify as having been illegally exported.
Kevin Brennan
I have a point relating to prosecution that the Committee will be interested in: I understand from the impact assessment that it is envisaged that there will be only one prosecution every 30 years under the Bill. Will the Minister confirm that my interpretation is correct?
Tracey Crouch
I am sure that if it says that in the impact assessment, that is indeed the correct interpretation, but I am happy to provide further information on that on Report if that helps.
I will go back to the points on policing that the hon. Gentleman raised with regard to new clause 1. He will, of course, be aware that we have created elected police and crime commissioners to give strategic direction and to hold police forces to account for operational policing decisions, including how resources are directed between different units and functions. In London, the Mayor of London has that responsibility. We do not think it is necessary or desirable for the Government to cut across that democratic approach to accountability in policing by requiring the Secretary of State to take a specific interest in the funding of individual police units or functions. Moreover, it does not seem to me to be particularly helpful to isolate the implementation and enforcement of the Bill from the excellent wider work being done by so many bodies to protect cultural property.
That also applies to the provision in subsection (3) of the new clause, relating to communication and co-operation between public bodies. As with the costs, I do not think it is helpful to treat that separately from the regular contacts between public bodies on wider cultural protection work. Public bodies are required to report on their work costs and spending, and hon. Members are always extremely assiduous in holding them to account for their use of public money and the way in which they implement and enforce legislation. I am sure that the Bill will be no exception. A separate statutory obligation on the Government to report to Parliament on the costs associated with the Bill therefore seem unnecessary, which is why we oppose new clause 1.
New clause 4 deals with matters of an administrative nature that are not specifically covered by the Bill. We are already considering the administrative measures that will be needed to implement the convention and its protocols once the Bill is passed into law. We will reflect on issues raised during the passage of the Bill as part of that process. The hon. Gentleman mentioned specific items. We do not think it is appropriate to confirm whether a specific cultural object will be afforded protection.
We want to ensure that the views of stakeholders are heard. Next month we are holding a round table discussion with key stakeholders to discuss the categories of cultural property that will be afforded general protection under the convention, and what additional safeguarding measures might be required. The hon. Gentleman might be interested to know that our provisional thinking is that general protection status would extend to buildings, historical gardens or parks of grade I or category A status; cultural world heritage sites; and nationally important collections in museums, galleries and universities, as well as in the national record offices and our five legal deposit libraries. However, we are still determining our categories, and discussions with key stakeholders are ongoing.
Victoria Borwick
Will the Minister consider inviting members of the trade and those who deal in cultural objects to participate in the consultation, to ensure that we have effective legislation?
Tracey Crouch
I will certainly take that away, discuss it with officials and report back to my hon. Friend.
In practice, a range of safeguarding measures will already be in place for most cultural property under general protection in the UK. Existing listing, designation and accreditation schemes generally require certain measures to be in place to protect cultural property from, for example, fire, flood and other emergencies and natural disasters. Article 5 of the second protocol expands on the meaning of “safeguarding cultural property” by giving some examples of the kind of preparatory measures that should be taken in peacetime. Those include the preparation of inventories, the planning of emergency measures for protection against fire or structural collapse, the preparation for the removal of movable cultural property or the provision for adequate in situ protection of such property, and the designation of competent authorities responsible for the safeguarding of cultural property. The first three measures all represent common-sense precautions and are likely to be covered by existing contingency planning for an emergency or natural disaster.
Once we have decided which cultural property will receive general protection, we will be in a position to decide which are the most appropriate competent authorities for safeguarding that cultural property in the event of armed conflict. Our current thinking is that the most appropriate body to undertake the peacetime safeguarding measures is the existing owner, guardian or trustees of a cultural property.
It is also important to note that article 26 of the convention requires state parties to report at least every four years to the director general of UNESCO on their implementation of the convention. In practice, UNESCO asks state parties to provide information on the measures they have undertaken in relation to relevant peacetime safeguarding provisions as part of the periodic reporting, and those reports are published on the UNESCO website. The UK Government will therefore already be reporting on the safeguarding of cultural property as a matter of good practice, in line with the reporting obligation in article 26. A separate statutory obligation to report to Parliament on matters that are administrative and not part of the Bill appears to be unnecessary.
On new clause 5, I know that many hon. Members are interested in the cultural protection fund and wish to be kept informed about it. However, the cultural protection fund is not part of the Bill, and the new clause therefore introduces a new subject that is beyond the scope of the Bill. It is also unnecessary. The British Council, which is responsible for administering the cultural protection fund, will publish an annual report on the work of the fund. That report will be publicly available. If the fund supports projects with direct relevance to the Bill and to the convention and its protocols, we will work with the British Council to ensure that the annual report includes appropriate mention of them. Our priority is to work with the British Council on the first round of bids, but we cannot make future funding commitments at this stage. I hope the hon. Member for Cardiff West is reassured that information about the cultural protection fund will be made available.
With regard to a point made by my hon. Friend the Member for Enfield, Southgate, parties to the second protocol are not obliged to contribute to the fund for the protection of cultural property in the event of armed conflict, but once the UK has ratified the convention and its protocols, we will begin to consider our role as an active state party. It would not be appropriate—certainly not on the face of the Bill—for the Government to commit to any funding prior to becoming a party to the convention or its protocols. However, I assure him, not just as a consequence of my own competitiveness but because it is morally right to do so, that we will continue to play, or wish to continue to play, a leading role in the the world on this issue. Those are the reasons why I oppose new clauses 1, 3 and 5, but I hope the hon. Member for Cardiff West is reassured by my comments.
Kevin Brennan
It is new clauses 1, 4 and 5. The Minister did have to shuffle through a number of papers so it is understandable that the numbers became confused. We are discussing new clauses 1, 4 and 5.
I thank the Minister for a very thorough response to the new clauses. I take issue with one thing she said—that our new clause 5 is beyond the scope of the Bill. Had it been beyond the scope of the Bill, Mr Turner, you would have ruled it out of order and the Committee would not have been able to discuss it. Because it was completely in order and within scope when we tabled it, we have been able to debate it at considerable length and had the benefit of the Minister’s very thorough and helpful response to new clause 4, notwithstanding her view that it was beyond scope. She did give a very thorough response and I am grateful to her for that. It has been very useful to get all of that on the record and it gives clarity on a number of points.
The impact assessment does indeed make interesting reading, not least the point about the Government’s assumption that a prosecution under the Bill will take place only once in every 30 years. The Minister did say that she might take the opportunity to respond on and confirm that point on Report. If such an opportunity does not arise, I am sure that a letter to members of the Committee to clarify the point would suffice. On that basis, I will not press the new clauses and I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
New Clause 2
Report on topics for updated Protocol
‘Within 12 months of the passing of this Act, the Secretary of State shall publish a report setting out the UK’s priorities for topics to be included in an updated protocol to the 1954 Hague Convention.’.—(Kevin Brennan.)
Brought up, and read the First time.
Kevin Brennan (Cardiff West) (Lab)
I beg to move, That the clause be read a Second time.
Having made remarkable progress during the day, we have reached our final debate on the Bill and amendments to it. New clause 2, which stands in my name and that of my hon. Friend the Member for Tooting, calls on the Government to set out what its priorities will be in the event that a third protocol to the convention becomes the subject of international discussion. Inevitably, this Bill does look back as we are ratifying The Hague convention of 1954, but as the first two protocols show there certainly is an appetite to ensure that the convention remains up to date, relevant and effective.
One could make many suggestions regarding what a third protocol could specify. During our discussions, two specific questions have been raised repeatedly and would benefit from being marked as UK priorities in the report proposed in the new clause. They are, first, the application of the convention to cultural property in digital form, and secondly, the applicability of the convention to conflicts such as the one in Syria. These are both areas where the age of the convention has started to show and which could be updated in a third protocol.
On Second Reading, I raised a question that many across the House have also asked about how the ratification of the convention would apply to conflicts such as those in Syria and Iraq. The Minister kindly circulated a note—actually, I think it was the Secretary of State rather than the Minister—using Syria as a case study and outlining how the convention and its protocols relate to conflicts not of an international character. I appreciate that, as it helped to clarify a few issues. I welcome the assurance that a UK national involved in the destruction of cultural property in a country that has signed the convention would be criminally liable. That is very important, not least in the light of recent developments. To be absolutely clear—I think we rehearsed this somewhat earlier on—I believe the Secretary of State’s note means the convention does apply during a civil war. The Minister also said earlier that it would apply to both parties in a civil war, even when one of them is not a recognised state. Clarity on that is important.
Ideally, we would need a ministerial note or clarification to explain whether or not and to what extent the convention applies to a certain type of conflict. A third protocol would be an opportunity to aim for a more standardised safeguarding strategy for cultural property worldwide where it is involved in any kind of armed conflict. I think this idea has some cross-party support. The hon. Member for Enfield, Southgate asked in Hansard in column 698—I am trying to remember whether it was on Second Reading or whether it was a question—
Kevin Brennan
It was. The hon. Gentleman asked:
“are the Government supportive of looking at future conventions to try to make sure that Daesh comes within the provisions, although the Iraqi and Syrian sanction orders cover the gap?”—[Official Report, 31 October 2016; Vol. 616, c. 698.]
That is a very good question. A third protocol could offer an opportunity to streamline the law. Instead of plugging the gaps with new legislation, there could be a consistent and indubitable catch-all that would assure the necessary protections for the property most valuable to nations and their identities.
The destruction of cultural property in the middle east has been mentioned many times as one of the motivations for the passage of this Bill, yet the Bill does not apply to so many of those situations. In the light of the work carried out involving the cultural protection fund in that same region, it seems that protecting artefacts in Syria and its surroundings is a priority for us all. The Government acknowledge that too. A report would not only provide a platform to express that, but it could kick-start action to bolster protections and provisions where they are currently most needed.
I and my hon. Friends have highlighted the matter of digital content falling within the definition of cultural property. The Government indicated there should be a certain level of consistency with regard to an internationally accepted interpretation of what cultural property means. They said at the same time that amending the Bill to specifically include digital content could jeopardise that consistency. It seems to me that formalising an internationally accepted interpretation of cultural property that includes things such as digital content would be a crucial component of a third protocol, bringing the legislation firmly into the digital age.
The more consistency there is in both the wording and the interpretation of our international laws, the greater the chance of holding those who violate them to account. Our support of current and developing technologies should be unambiguous and undeniable. Given the importance of our national and regional film archives and that of the precious cultural property currently being created, I hope the Government agree that the protection of digital property should be championed by the UK on the international stage.
We cannot as a country unilaterally decide on the priorities and the announcement of any third protocol to the 1954 convention, but a report on the topics the UK would like to focus on allows for a productive and constructive dialogue on key issues, potentially putting such a protocol on the agenda of the international community. It would also provide the UK with an opportunity to demonstrate its desire both for international co-operation and to show leadership in this area, which I think we should be doing.
Internationally, the UK is in a position in which we are choosing to leave the European Union rather than, as some of us would have hoped, to be a leading player. With the sorts of turmoil we see going on in the world, including on the other side of the Atlantic, this would indicate that the UK can and will continue to work productively and co-operatively with other nations. We may be late in ratifying the convention, after 62 years, but we can show that this is not due to a lack of commitment to its ideals and ambitions.
Does the Minister agree that the two topics we have just discussed, and perhaps others, would be among UK priorities for a third protocol? What other topics might she consider? Do the Government have any plans to work towards developing a third protocol?
Tracey Crouch
I thank the hon. Member for Cardiff West for raising the issue of updating the protocols to the convention to reflect the need to protect cultural property from destruction by, for example, terrorist groups such as Daesh. We covered Syria and digital cultural property in some detail earlier, and I am sure that we will return to those issues, so I do not intend to go over those arguments again. We are, however, absolutely united in our condemnation of the terrible damage to cultural heritage that Daesh has wrought at sites such as Palmyra and the destruction and looting of cultural heritage as a tactic of war and terror more generally.
That said, the new clause seems to assume that an updated protocol is inevitable. We are not aware that UNESCO is considering that. It is not included in the organisation’s medium-term strategy, which sets outs its priorities until 2021. We are also unaware of calls from other state parties for the protocols to be reconsidered at this time. Indeed, I understand that the process to reopen discussion on protocols or propose a new one is not as easy as the Opposition might believe. I am told that it would take a minimum of eight years to agree a new text or protocol.
Tracey Crouch
If the hon. Gentleman will hold his horses for a second, given the delay in the UK’s ratification, publishing a list of our future demands within a year of Royal Assent may not be the wisest way to win support for that. Once the UK has ratified the convention and current protocols, we will be closely involved in the related UNESCO discussions, and that will be the best way to influence any future work.
Tracey Crouch
Before the Divisions, we were talking about a third protocol, in the light of the Opposition’s new clause 2. We do not feel that it would be appropriate to include that new clause in the Bill. Rather than focusing on how an additional protocol might better address the specific issue, our priority must be ratifying the convention and acceding to its two protocols. That will be a significant milestone for the UK that has not been achieved by other permanent members of the UN Security Council. It will send the strongest message about the UK’s commitment to protecting the world’s cultural property and signal our condemnation of the recent abhorrent cultural destruction. Although I recognise the good intention behind the new clause, I hope that the hon. Member for Cardiff West will appreciate that it is beyond the scope of the Bill and therefore withdraw it.
Kevin Brennan
It is not beyond the scope of the Bill, as I have pointed out already, but I will not labour the point—although that is my wont. We have discussed the third protocol, which is not the title of the latest book by my hon. Friend the Member for Rhondda, although it would be a very good title for a parliamentary thriller, if that is what he has been composing during our deliberations—that might explain his uncharacteristic reticence.
It is difficult to say on the one hand that we should pat ourselves on the back for being the first in the Security Council to ratify both protocols, and on the other hand that we should not pat ourselves on the back by suggesting a third protocol, because it has taken us 62 years to ratify the convention. There might be a slight circularity to that argument.
The purpose of new clause 2 is to encourage the Government to take the lead in this area, which we should do internationally, and to think about how we can update our international agreements on the protection of cultural property in armed conflicts to ensure that they move with the times and cover the new types of cultural property being developed as a result of the digital revolution and the new types of threat, warfare and armed conflict we face with the rise of entities such as Daesh. Having said that, in the interests of us completing our proceedings, I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
Tracey Crouch
On a point of order, Mr Turner. I am grateful to you for allowing me this opportunity to thank everyone for participating in the Committee. This is the first piece of legislation that I have taken through the House, and I believe that it is your first chairing of a Committee in this House, so it is a first for both of us. Hopefully we have managed to muddle our way through it correctly and in order.
I want to pay tribute to all those who have helped to make the Committee happen. I am grateful that my first piece of legislation is, by and large, full of consensus. Although there are issues that I am sure many will raise on Report and seek further clarification on, it is a tribute to what we are discussing that we have managed to get through the Bill in the way we have. I would like to thank you, Mr Turner, and Ms Buck for chairing the Committee, as well as the Clerks, the Hansard reporters and the Doorkeepers.
I would like to thank my excellent Bill team of officials from the Department for Culture, Media and Sport and other Departments, including the Ministry of Defence and the Foreign Office, all of whom not only have been brilliant advisers to myself as Minister, but have been open and accessible to other Members, including Opposition Members, for discussion.
I would like to thank those who have submitted written evidence and participated in the development of the Bill over a number of years. The hon. Member for Cardiff West pointed out in his opening remarks that the Bill has been a long time coming, since the second protocol in 1999. We should pay tribute to those in the previous Labour Government who started this process. I am pleased that it was this Government—under the former Secretary of State, my right hon. Friend the Member for Maldon (Mr Whittingdale), and my right hon. Friend the Member for Wantage (Mr Vaizey)—who managed to introduce the Bill in Government time during this Session.
Finally, I would like to thank all members of the Committee. I thank the Opposition for their amendments, which allowed us to have a full debate on many aspects of the Bill. Despite gentle probing from many directions, the record will show that we have managed to discuss a great many issues that people both inside and outside this place really do care about.
Kevin Brennan
Further to that point of order, Mr Turner. May I echo everything the Minister has said? She is quite right that it is important to probe Government legislation from every direction, and that is what we have sought to do in the course of our proceedings. Thank you, Mr Turner, for chairing our proceedings and keeping us in order—including on new clause 5, which of course was in order all along. I also thank Ms Buck for chairing our proceedings so ably this morning; perhaps you could pass that on, Mr Turner, on our behalf.
I would like to thank all members of the Committee. I know that for a number of Members it was their first time serving on a Bill Committee. It is not always this consensual when we discuss legislation. Nevertheless, this has been a useful example of the importance of Committee stage in teasing out and putting on the record the Government’s intentions and so on. I would also like to thank the Whips for keeping us in order and enabling us to get through proceedings in an expeditious fashion.
I also thank the Clerks, the Hansard reporters, all those from the sector who have made submissions, the civil servants, the Doorkeepers, the police and everyone else, including my researcher, Haf Davies, who has been very helpful in preparing for today. It may have taken us 62 years, but we are engaged in an extremely important process. We can all take some pride in the fact that finally, after Report and once the Bill gets Royal Assent, we will have ratified The Hague convention, albeit 62 years after it was originally brought about.
Bill to be reported, without amendment.
Health Service Medical Supplies (Costs) Bill (Second sitting)
Tuesday 15th November 2016
(7 years, 11 months ago)
Public Bill CommitteesRead Full debate Health Service Medical Supplies (Costs) Act 2017 View all Health Service Medical Supplies (Costs) Act 2017 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 15 November 2016 - (15 Nov 2016)
The Committee divided: - Ayes: 8 / Noes: 9 - Question accordingly negatived.
The Chair
Today we begin line-by-line consideration of the Health Service Medical Supplies (Costs) Bill. Before we begin, if Members wish to remove their jackets, they may do so. Even though it is winter, it is very warm in here, so I have asked for the windows to be opened at some point. I want people to feel comfortable and relaxed. Will Members and, indeed, members of the public make sure that their mobiles are switched to silent, so that we are not disturbed during our proceedings?
On the table to my left, the selection list of today’s amendments—the order of business—is available for colleagues. It shows how the selected amendments have been grouped together for debate. Grouped amendments are generally on the same or a similar issue, as colleagues know, and the Member who puts his or her name to the lead amendment in a group is called first. Other Members are then free to catch my eye—to do so, please will you rise from your chair by more than one inch? That would be helpful. If called, Members may speak on any of the amendments in the group. A Member may speak more than once in a single debate.
I will work on the assumption that the Minister wishes the Committee to reach a decision on all Government amendments. Please note that decisions on amendments do not necessarily take place in the order in which they are debated; they take place in the order in which they appear on the amendment paper. In other words, debate occurs according to the selection and grouping list, but decisions are taken when we come to the clause that the amendment affects. I hope that that explanation is helpful to Members. I will use my discretion to decide whether to allow a separate stand part debate on individual clauses and schedules following the debate on the relevant amendments.
Clause 1
Voluntary schemes
Julie Cooper (Burnley) (Lab)
I beg to move amendment 44, in clause 1, page 1, line 14, at end insert—
“for the purpose of investing in access to new and innovative medicines and treatments.”
The Chair
With this it will be convenient to discuss amendment 46, in clause 4, page 3, line 22, at end insert—
“(c) the NHS’s duty to promote innovation.”
This amendment would introduce a requirement for the Secretary of State to take account of the NHS’s legal duty to promote innovation, as set out in the Health and Social Care Act 2012.
Julie Cooper
It is a pleasure to serve under your chairmanship, Mr Pritchard.
I will begin by outlining our overall priority for the Bill and, in particular, this clause. Our priority is to ensure that the Bill effectively controls the cost of medicines and medical supplies to the national health service while ensuring the best possible patient access to existing products and to new and innovative treatments. In that spirit, I would like to make some observations in support of amendments 44 and 46.
The clause will amend section 261 of the National Health Service Act 2006 and it is concerned with the powers related to the control of voluntary schemes. The stated aim of the clause is to give the Government new powers to require manufacturers or suppliers to pay the Secretary of State an amount that will be calculated on the basis of sales or estimated sales. The Opposition support the move to curtail excessive profits, thereby ensuring that the NHS achieves maximum value for money. Having said that we welcome saving vital NHS funds, we also wish to ensure that those funds are retained within the portion of the health budget that relates specifically to the supply of medicines and medical supplies. We do not wish to see the savings lost in an NHS deficit black hole.
On Second Reading, the Secretary of State confirmed that £1.24 billion had been returned to the Department of Health through the rebate scheme. That is a considerable amount of money, and the figure will increase when this Bill is enacted. However, we were not reassured by his vague statement that the money returned to the Department would be reinvested in the NHS.
Also on Second Reading, the Secretary of State mentioned the considerable pressures facing the NHS and he suggested that one consequence of the Bill would be to transfer funding from the drugs bill to the frontline. I hope that the Minister present recognises that medication is often the frontline and that ensuring the timely access of appropriate medication often prevents hospitalisation and thus saves the NHS money. It is very much a case of a stitch in time.
In addition, it is a fact that community pharmacists the length and breadth of the country have offered to work with the Government to eradicate waste and to cut costs. As the experts on all medication matters, they are best placed to work with GPs and patients to achieve maximum efficiency. Sadly, the Government have responded by taking steps that are likely to lead to a reduction in the number of community pharmacies. This is a missed opportunity and that is regrettable.
Amendment 44 would provide assurance by ensuring that rebates reclaimed against purchases of medicines were reinvested specifically in improving patient access to medicines. In Scotland, rebates collected by means of the voluntary prescription pricing regulation scheme are already specifically earmarked to fund new medicines. In essence, the Bill, which we support in principle, is to ensure that the NHS can procure medicines and medical supplies cost-effectively. I am sure that the intention is not to reduce funding to the NHS, so we cannot have a situation in which every pound repaid from the suppliers and manufacturers equates to £1 less of Treasury funding allocated to the NHS. We are concerned that, too often, budget constraints limit access to new and innovative medicines and treatments.
Recently, I have devoted a lot of time to supporting the campaign to achieve treatment for children suffering from the potentially life-threatening genetic condition of tuberous sclerosis. It is extremely distressing for parents to be informed that their child has been diagnosed with that incurable condition; it is even more distressing to learn that an effective pharmaceutical drug has been developed and licensed—Everolimus, marketed as Votubia —but is not available from the NHS for children in England. The drug is able to shrink the multitude of benign tumours that characterise that serious condition, thereby saving lives, improving quality of life for those affected and often removing the necessity for potentially damaging surgery.
That is one example, and there are many others. James Barrow from the Cystic Fibrosis Trust, speaking in support of the new medicine fund in Scotland, has said that using any reclaimed moneys in that way provides improved access and much needed transparency. Labour’s amendment to the clause would introduce a duty to reinvest any rebates to improve access to new and innovative medicines and treatments, as I have outlined.
Further to that, amendment 46 refers specifically to the duty of the NHS to promote innovation under the Health and Social Care Act 2012. The UK is a world leader in the field of life sciences, and the British pharmaceutical industry is at the forefront of global research and development. In 2014, 20% of all the world’s research and development into new medicines was carried out in the UK.
We have hitherto enjoyed significant benefits from European Union research funding. Given the outcome of the referendum, that is now at risk, and it is essential to ensure that we maintain our dominance in the sector, not least because the pharmaceutical industry employs close to 75,000 people. The promotion of innovation in the field is important not only for the health of the British people, but for the health needs of people worldwide. It is extremely important to the British economy, so it is vital that we do not take our eye off the ball. We need to put on record our continued commitment to research and to develop new treatments.
We face competition not only in Europe, but from emerging nations such as Brazil and China. We also need to ensure that the NHS does not trail in the take-up of those new drugs. Worryingly, the Office of Health Economics studied 14 high-income countries and found that the UK ranked ninth out of 14 across all the medicines studied. Successive studies have demonstrated relatively low take-up of new medicines in the UK compared with other countries. That is bad for patients and bad for our pharmaceutical industry.
The Bill therefore needs to achieve a balance. We need to ensure the best possible patient access to medication at the fairest price, and we need to encourage the pharmaceutical industry to continue to invest in research and development. Therefore, it is right that the Bill should outline our commitment to promote innovation. We look forward to hearing the Minister’s comments, but we are minded to press amendment 44 to a Division.
The Minister of State, Department of Health (Mr Philip Dunne)
Mr Pritchard, thank you for calling me and, more particularly, for taking time out of your schedule to chair this important sitting.
On amendment 44, I was interested in the comments of the hon. Lady about the motivation behind it, with which I have some sympathy. I hope that what I say will reassure her that her amendment is unnecessary.
The amendment would require income from the pharmaceutical price regulation scheme and the statutory scheme to be ring-fenced to fund and increase access to new and innovative medicines and treatments. As a Government, we are committed to ensuring that patients have faster access to new and innovative medicines and treatments—I mention briefly the accelerated access scheme that we have introduced.
The hon. Lady touched on the compelling and sometimes tragic cases of individual constituents, friends and relatives seeking to get access to innovative drugs, in particular once those drugs have become authorised. Between 1 March 2000 and 30 June 2016, NICE, the National Institute for Health and Care Excellence, made individual recommendations for 646 separate propositions, 81% of which were recommended or optimised, so there is a steady track record of introducing innovative treatments and, in particular, drugs into our health service. That is done, properly, through the independent NICE structure. I am sure we will talk more about that in Committee.
Rob Marris (Wolverhampton South West) (Lab)
On the number of drugs to which the Minister referred, will he give an indication now or later of how many, if any, of those drugs were repurposed? I am thinking, for example, of a drug that has recently had a lot of publicity; it is primarily used for osteoporosis, but there are indications that it may be very helpful with breast cancer. What about such repurposed drugs, as opposed to brand new drugs?
Mr Dunne
I do not have that figure in my head, as the hon. Gentleman might expect. I hope to get inspiration during the sitting and will try to address that question later.
We know that investing in new and innovative medicines and treatments, where they are proven to work and are a clinical priority, has the potential to transform the care of patients and to improve outcomes, which is what we all want. However, it is a fundamental principle of NHS funding that it should be allocated according to clinical priorities based on the judgment of clinical commissioners. That may include new treatments, but it may include scaling up older effective treatments—through repurposing, as indicated by the hon. Gentleman—or investing in more staff.
We understand the intention behind the amendment, but it is for NHS England and clinical commissioning groups to determine clinical priorities and to spend that money on what is clinically most important. It is also important to point out to the hon. Lady that income from the voluntary and statutory schemes can fluctuate from year to year, so allocating such income by means of a ring fence to a specific area, such as new medicines, brings risk because in some years the income received may go down. The perverse consequence of the amendment’s ring-fencing may therefore mean less money being spent in a subsequent year, in the event of the scheme not generating an increase in income. That would disadvantage patients by making treatment dependent on income from medicine pricing schemes, which we do not think should be the determinant of available medicine.
Rob Marris
The Minister was talking about such decisions being clinically led. Will he therefore assure the Committee that the decision to cut spending on public health in England, to put the money into frontline medical services, was a clinical decision?
Mr Dunne
As the hon. Gentleman knows, decisions to allocate spending across the responsibilities of the Health Department were determined as a result of the spending review last year. The decisions within the NHS that I am talking about, on treatments, rather than preventive public health, are determined by clinicians.
Separate to the Bill, Government are taking action to secure the UK’s future as an attractive place for the life sciences sector and to support faster patient access to medical innovations. For example, the recently published accelerated access review sets out ways to increase the speed at which 21st century innovations in medicines, medical technologies and digital products get to NHS patients and their families. Recommendations included bringing together organisations from across the system in an accelerated access partnership and creating a strategic commercial unit within NHS England that can work with industry to develop commercial access arrangements. We are considering those recommendations with partners and will respond in due course.
NHS England and NICE are jointly consulting on a number of proposed changes to NICE standard technology appraisals and highly specialised technology appraisals, including around speeding up the appraisal process. The Department of Health continues to work closely with NHS England and other stakeholders to improve uptake of new medicines. A key element of that is the innovation scorecard, published quarterly. It is designed to help users—clinicians, patients, commissioning groups, Government and other stakeholders—to understand and monitor the uptake of innovations in the NHS and should ultimately be used to promote an equitable spread of clinically effective, cost-effective innovations.
I hope that having heard in particular what I said about the way in which income from these schemes does not rise in a continuum but fluctuates, the hon. Member for Burnley will recognise that the amendment could have the adverse consequence of leading to a reduction in funding available for medicines.
Julie Cooper
Is the Minister aware of problems with the administration of the scheme in Scotland? Is he aware of what the experience has been in Scotland?
Mr Dunne
Fortunately, the Committee has the benefit of the Scottish National party’s spokesperson on health, the hon. Member for Central Ayrshire, who I am sure would be happy to give us her experience. The fact is that we have had some experience in England of fluctuating income from these schemes, which is the primary basis for our position.
Justin Madders (Ellesmere Port and Neston) (Lab)
I am grateful to the Minister for his explanation. On the money that is received from the rebate from PPRS, responses I have had to written questions suggest that that is considered part of the baseline budget. With respect to the debate we have had recently about the £10 billion extra, or the £4.5 billion extra—whichever version we prefer—could he advise whether the rebate is included within that extra money, or is it part of the baseline funding?
Mr Dunne
The Department of Health receives income from a number of different sources. It mostly deals with expenditure but also receives income from activities conducted through the NHS. One source of income is the rebate through these schemes, which forms part of the funding available to the Department. We have committed that funds available out of the scheme will go into the NHS. The hon. Gentleman raised the issue of the £10 billion. I gently remind him that, in 2014-15, the funds available to the NHS from the Department of Health were £98.1 billion, and by 2021 that figure will be £119.9 billion, which in cash terms is a £20 billion increase and in real terms is a £10 billion increase.
Dr Philippa Whitford (Central Ayrshire) (SNP)
As the hon. Member for Burnley said, the system functions quite differently in Scotland. We have a new medicines and rare diseases fund, rather than a cancer drugs fund, which means that the use of funding to access new medicines is not limited to one cohort of patients. Our fund is £90 million, which, given that we are less than 10% of the UK population, means it is proportionately almost three times the size of the cancer drugs fund. As was mentioned, this is very much funded by the PPRS. It is committed to that. The pharmaceutical industry expects the rebates to be used to enable access to new medicines. One problem here is that the rebate goes into base funding, which means it disappears like water in the sand.
We have so many debates in this House about patients who are struggling to access new treatments. Amendment 46 talks about innovation and research, which we support in Scotland. We are quite a research-oriented country. Our research funding to our universities is 30% higher, in proportion to our population. The NHS in Scotland commissions research, particularly on things like informatics and data management around health and social care, which are the big challenges we face in the future.
The Scottish Medicines Consortium, which makes our decisions in the same way as NICE, was reformed in 2013. Since then, we have had a 40% increase in drugs being passed. What we see in England is that even if a drug is passed at the level of NICE, it sometimes does not come into use in the NHS, because the funding is simply not earmarked to make it available.
The Chair
Before we move on, I have a couple of housekeeping points. First, I thank the Doorkeeper for his tenacity and the engineers for getting the windows open. I think that we are all happier for that. Secondly, because we have Health questions today, we will seek to adjourn at about 11.10 am. I will allow the Government Whip to suggest the appropriate minute at which to do that. I now ask the Opposition whether they want to press the amendment.
The Chair
You can comment on it now. I understand that there will not be a vote on amendment 46, but if there is, it will be later. We will be taking amendment 44, but you can comment on amendment 46 now, Minister.
Mr Dunne
Thank you, Mr Pritchard. Amendment 46 was also raised by the hon. Member for Burnley, for which I thank her.
We agree that the promotion of innovation, as the hon. Member for Central Ayrshire said, is an important part of what we like to do in this country. The role that we see for the Government is in sustaining the UK not just industrially, but by generating innovation to make our population healthier. That is vital in securing the best possible, evidence-based care and treatment for patients. I am talking about the rapid progress that is being made and technological advance through innovation. That is why the duty to promote innovation was placed not only on NHS England but on clinical commissioning groups and NICE through the Health and Social Care Act 2012.
Supporting innovation brings in many factors beyond the scope of the Bill, as is set out in the accelerated access review, which I have touched on. Supporting innovation is much more about better horizon scanning, faster licensing and assessment, and cutting-edge clinical practice than it is about pricing. It is precisely because this is such a broad area that it is not appropriate for the NHS duty to be linked to the provisions in the Bill. As drafted, the provisions in the Bill focus on the specific issue of the cost of medicines and medical supplies, but in doing so, they take account of the need to balance access to a product, which may be supported by lower prices, and the need for companies to support the costs of research and development.
To attempt to link these measures to the much wider duty on the NHS would be to distort the objectives of the cost control scheme. The Bill has an important role to play in securing the best possible care for patients, but I would like to assure the Committee that the Government, together with NHS England and others, place a very high priority on supporting innovation.
The Chair
We have the privilege of having two shadow Ministers. I do not know whether either of them wants to respond on amendment 44 or amendment 46, or whether the hon. Lady wants to press amendment 44.
Julie Cooper
I am grateful to the Minister for his comments, but I am still keen to press amendment 44 to a Division. The lack of transparency in what is currently available is unacceptable, and there is a danger that the Bill will be contrary to what I am sure is its real intention and cut funding to front-line medication. The amendment would prevent that.
I take the Minister’s point about fluctuation in funding, but I am sure he will agree that if this can be made to work in Scotland, it can be made to work here. I do not want us to fall behind on that. We are all aware of the massive deficit within the NHS. It is very important that funding recouped from pharmaceutical profits is not lost for the NHS and for the real purpose of providing new medicines, and that people in England do not lose because of the Bill. I thank the Minister for his comments, but I will press the amendment to a Division.
Question put, That the amendment be made.
Julie Cooper
I beg to move amendment 45, in clause 1, page 1, line 14, at end insert—
“(2A) After subsection (1) insert—
‘(1A) In exercising functions in relation to the controls on the costs of health service medicines, the Secretary of State must ensure that any medicine covered by a voluntary or statutory scheme that requires payments calculated by reference to sales of that medicine shall be made available to all NHS patients if recommended by a qualified NHS clinician.’”
The amendment continues in the vein of amendment 44, given our concern to ensure the best access to medicines. We are very much aware of the barriers that exist and are keen that every piece of legislation takes the opportunity to remove those barriers and make medicines more accessible to patients. It is important that the Bill does not inadvertently become a way of restricting that access. Where a clinician deems medicines necessary and desirable, patients should have access to them.
I was worried on Second Reading to hear the Secretary of State’s comment that the prescribing of some medicines is “not strictly necessary”. That questioning of the clinical judgment of the medical profession is not just inappropriate but could be suggestive of a dangerous precedent. We must never reach a stage where politicians decide which medication is appropriate and when. I assume that that was not the Secretary of State’s intention, but we would like to ensure that drugs approved by the National Institute for Health and Care Excellence are made available to patients if so desired by a qualified NHS practitioner.
There is already an agreed fixed limit on NHS spend on branded medicines, with any additional expenditure above that level paid for by the pharmaceutical companies via the clawback by the Department of Health. Currently, NICE assesses new medicines for cost-effectiveness, which provides a further restraint on pricing. There is therefore no reason for the NHS to deny patients any treatment covered by the scheme. We would like the Minister to look favourably on the amendment. We will not press it to a Division, but we are very concerned about the issues I have outlined.
Mr Dunne
Again, I understand the hon. Lady’s intent. I was a little confused by her interpretation of the Secretary of State’s remarks on Second Reading as meaning that politicians are involved in making decisions on prescribing. I assure her that, although I have been in the Department for a short amount of time, there has been no suggestion at any point that any politician should get involved in making decisions about which drugs should be prescribed.
Julie Cooper
I thought it inappropriate that the Secretary of State for Health expressed an opinion on which medications are necessary and which are not. I question his qualification to make that comment.
Mr Dunne
I do not have complete recollection of what the Secretary of State said, but he may have been referring to things such as the over-prescription of antibiotics, which we know is a problem globally. A great deal of work is being undertaken right across the NHS and with other health bodies around the world to reduce the scale of antibiotic prescription.
Dr Whitford
Is it not the case, however, that we seem to be developing this additional rationing system between NICE and patients of the NHS? I am talking about NICE’s recommendations being accepted but not funded. The hepatitis C drugs are basically being rationed to a certain number of patients per month, even though they have been passed by NICE and trying to eliminate the viral load in the community can be more effective in the long term.
Mr Dunne
Inevitably, some decisions have to be taken when introducing new drugs as to the extent to which they are applicable. Those are clinically-led decisions. There is not a completely bottomless funding pot for the prescription of medicine, so those decisions have to be taken by ordinary clinicians within their practices and within the infrastructure of approvals, which is entirely independent and led by NICE in England.
Dr Whitford
With respect to the Minister, that is not what I am hearing from clinicians who work in the field of HIV and hepatitis C. They are being told, “You can have”—for example—“50 patients a month,” and they are having to pick who gets the drugs and who does not.
Mr Dunne
I will not be drawn into the detail on a specific drug, because the hon. Lady may have access to information that I do not, but in relation to hepatitis C, as she has raised it, there has been a discussion between the trust and NICE. As I understand it, the trust is continuing to work with NHS England collaboratively to discuss the issue of access to the new hepatitis C drugs. We will always have some discussions about applicability when a new treatment is introduced, to see whether it is appropriate for all conditions; it may be that only some benefit from the drug. I think that that is as far as I can go on this issue.
To return to the Government’s view of the amendment, we are concerned that it would in effect circumvent the critical system of checks and balances around clinicians’ prescribing freedoms. That would present a danger to patients and the sustainability of the NHS. It is also not the purpose of the Bill to address matters other than the cost of medicines and medical supplies.
Treatments that do not demonstrate efficacy, safety and value for money should not be routinely available on the NHS. The National Institute for Health and Care Excellence, an internationally respected organisation that provides evidence-based guidance to the NHS, ensures that the treatments recommended for patients deliver value for money and improved patient outcomes. NICE’s recommendations are developed free from political interference and help NHS organisations to design services that are in line with the best available evidence and that meet the needs of their local populations.
Rob Marris
The Minister read out what I understood to be the role of NICE. May I focus for a moment on the words “value for money”? My understanding is that if NICE in England says that a particular medicine—perhaps a new medicine or a repurposed medicine—is value for money, then because that cost-benefit analysis has taken place, the drug should be freely available to clinicians to prescribe in medically appropriate cases. However, we are hearing quite a lot of stories, particularly about the prophylactic HIV drug or hepatitis C drugs, of when that is not the case. In other words, NICE says that a drug is value for money, but clinicians are blocked from prescribing it, even when they think it would be medically efficacious for their patient. Why is that?
Mr Dunne
From time to time, local circumstances may mean that clinicians do not have access to the drugs. They may be newly innovated, and given the scale of the NHS in this country, not all clinicians will get the information they need to provide new drugs as rapidly as some patients may like. It can take time to introduce a new drug, as the hon. Gentleman will understand. I recognise that it is the role of clinicians to prescribe in the best interests of their patients, and I know that local or national commissioning policies or technology assessments by NICE will mean that in some cases patients are unable to access the treatment that their clinician has recommended, but it is important to recognise that local and national scrutiny and the independent assessments of NICE are essential to promote evidence-based prescribing, protect patients and secure value for money. Undermining that system of checks and balances, as I am afraid the amendment tabled by the hon. Member for Burnley would, could endanger patients and result in significant variation in prescribing practices. I ask her to withdraw the amendment, since she has indicated that she does not intend to press it to a vote.
Julie Cooper
I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Question proposed, That the clause stand part of the Bill.
Mr Dunne
Clause 1 will amend the powers relating to voluntary schemes in section 261 of the National Health Service Act 2006. The voluntary scheme referred to in that section is the pharmaceutical price regulation scheme. Although the scheme itself is voluntary, there are statutory powers that can be used in relation to its operation. Other than with respect to the entry and exit mechanisms, the Government do not currently use those powers for the 2014 PPRS, but we wish to retain the option of making regulations or directions with respect to those powers in future. The Government do not intend the amendments to the 2006 Act to affect the operation of the current 2014 voluntary scheme.
The amendments to the 2006 Act will put it beyond doubt that the Secretary of State’s existing powers can apply for the purposes of operating a voluntary scheme that includes only a payment system. They are part of our policy to align the powers relating to voluntary and statutory schemes, which we will come on to when we consider later clauses of the Bill. They will also ensure that when a company leaves the voluntary scheme, it is still able to make payments covering the period in which it was a member. That will clarify the requirements and ensure that there will be no loophole that companies can exploit to avoid making payments that are due after they have left the scheme.
It may also be helpful if I clarify a point that arose on Second Reading. In response to a question from my hon. Friend the Member for South West Wiltshire (Dr Murrison), the Secretary of State inadvertently indicated that the Bill would prevent companies that are part of the current voluntary pharmaceutical price regulation scheme from parallel importing of medicines. I would like to clarify that statement, because it did not completely accurately reflect our intent. Parallel imports made in accordance with the EU single market rules are a legitimate part of the medicines market, and the Government have no intention of taking action to prevent such trade. The Bill does not exclude the possibility of parallel import prices being controlled; they could be covered through regulation at a later date if the evidence warranted action. I hope that helps the Committee in its consideration. I commend the clause to the Committee.
The Chair
I thank the Minister for correcting the record.
Question put and agreed to.
Clause 1 accordingly ordered to stand part of the Bill.
Clause 2
Power to control prices
Question proposed, That the clause stand part of the Bill.
Mr Dunne
Clause 2 will amend the power to control prices in section 262 of the National Health Service Act 2006. That section already allows the Secretary of State to limit the price of any health service medicines except when the manufacturer or supplier is in the voluntary scheme, the PPRS. Section 266 of the 2006 Act allows the prices of health service medicines to be controlled by way of regulation or directions. Clause 2’s amendments to the 2006 Act will enable us to address unreasonably high-priced unbranded generic medicines. Most manufacturers of unbranded generic medicines are members of the PPRS for their branded medicines, and we therefore cannot currently limit the prices of their unbranded generic medicines if they charge excessive prices. We rely on competition in the market to keep the prices of those medicines down. It generally works well and, in combination with high levels of generic prescribing, has led to significant savings for the NHS.
I am grateful for the contributions made on Second Reading by almost everyone who spoke. The intent behind the clause was widely recognised across the House as appropriate and desirable. Members were aware from their own experience, and particularly from a Times article in the summer, that in some instances where there has been no competition to keep prices down, a small number of companies have raised their prices to what look like unreasonable and unjustifiable levels.
There are some clear examples of price increases. The most egregious was one product whose price increased by 12,000% between 2008 and 2016. If the price had stayed the same, the NHS would have spent £58 million less on that medicine last year alone. Another medicine increased in price by 3,600% between 2011 and 2016; the NHS would have spent £2.1 million less on that single medicine had the price stayed the same.
Justin Madders
I am grateful for the Minister’s explanation. As he said, we support the broad thrust of the aims behind the clause. Has he engaged in any research or discussions with the developers to understand the reason for those rapid price rises?
Mr Dunne
We have had discussions with the trade association for the generic manufacturers. The trade association, which gave evidence to the Committee on a day when I was, unfortunately, not able to attend, made it clear that the generic medicine producers industry as a whole thinks it appropriate that we take this action. We are grateful for that support. Discussions are under way through other bodies. In particular, the Competition and Markets Authority has indicated that it is in discussions with some companies, one of which voluntarily issued a press release last month to tell the market that the Competition and Markets Authority is investigating it.
Justin Madders
What I was trying to elicit was whether anything had been put forward to explain any specific price increases. We are concerned that the clause will have the unintended consequence of limiting supply.
Mr Dunne
We are anxious to ensure that we do not inadvertently introduce a regime that might cause difficulty when there might be a valid reason for increasing a drug’s price significantly. That was the justification in the past for not addressing the issue, because abuses were seen to be pretty isolated. However, in the past two or three years, the prices of more drugs have risen seemingly unjustifiably. That is the justification for introducing these measures.
I recognise that there may be occasions when a manufacturer incurs some additional costs: for instance, if a production run or line has finished and the manufacturer must start a new line or restart an old one, that would lead to a justifiable price increase. The clause allows us to take action where we suspect a price has risen excessively. The rest of the Bill provides opportunities for the Department to gain information about the cost of supplies, which allows us to get a better handle on when we think an increase has been unjustifiable, and identify that more rapidly. [Interruption.] Does the hon. Member for Wolverhampton South West want to intervene, or is he just poised in an energetic way?
Mr Dunne
Then I will continue.
Certain companies appear to have made it their business model to buy the marketing authorisations for medicines without any patents outstanding. They then de-brand the medicines and abuse the existing freedom of pricing for unbranded generic medicines. Although the practice is not widespread, it must be addressed, which is the reason for the clause.
Currently, our only recourse is to refer such cases to the Competition and Markets Authority, as I mentioned. When the CMA investigates, we must wait for the outcome, and in the meantime the NHS continues to have to pay high prices. The Department consulted on the issue as part of the consultation on the statutory scheme that was launched in December 2015. The Department has been working closely with the Competition and Markets Authority and has referred cases to it. The CMA is about to issue a decision in a case on a high-priced unbranded generic medicine. As I have just said, it has also recently opened another investigation.
The powers under section 262 of the 2006 Act to limit prices of health service medicines can be exercised through directions or regulations. The Government’s intent is to work with directions, which will enable us to limit the price of a specific medicine from a specific manufacturer. The Government are obliged to consult the industry representative body when we want to direct the price of a medicine. In the case of high-priced generics it would be the representative body of the unbranded industry—currently the British Generic Manufacturers Association, which appeared before the Committee last week.
The Government would of course also engage with the company involved before issuing a direction that limited the price of a medicine. As I have indicated, there may be good reasons for a price increase, and it is important that the Government understand the reason behind a price increase before issuing a direction. As I said, the new information powers will help us with that.
My officials have initiated talks with the unbranded generic medicines industry representative body and the CMA to explore how in practice we would determine what should be considered a reasonable price. Any decision by the CMA in the cases that I highlighted earlier could help set a useful precedent. I can reassure the Committee that companies charging unreasonably high prices for unbranded generic medicines is not a common practice. The Government do not intend to use the power where competition in the market for unbranded generic medicines is working. However, the Government need the right legislative tool to be able to address unreasonably high prices of unbranded generic medicines. The clause will give us that tool, and I ask the Committee to agree to it.
Dr Whitford
Basically, we welcome the measures in clause 2 to try to close the specific loophole whereby companies that are part of the PPRS voluntary scheme and that also produce generic medicines are able to increase the prices of generic medicines. However, the Minister talked about the British Generic Manufacturers Association—largely companies that focus on generic medicines—which would be more to do with clause 3. My understanding is that the change will close the specific loophole relating to large pharmaceutical companies that also produce generic medicines, rather than companies that focus only on generic medicines, which we will come on to in clause 3. We welcome the closing of that loophole, but those two things are quite different and we should therefore not conflate them. It is not the competition authority that would tackle them. That is much more related to purely generic companies.
Mr Dunne
We will obviously come on to clause 3 shortly. The primary intent behind clause 3 is to modernise the statutory scheme, rather than to address the difference between one type of company that produces only generics and another that produces generics and branded medicines. I am not sure that I agree with the hon. Lady’s distinction.
Dr Whitford
My point is just that what the Minister has described applies more to clause 3, on companies that produce purely generic medicines, so the attempt would be to strengthen the statutory scheme that they might be part of. It is the production of generics by the group of companies under the PPRS scheme, the big pharmaceutical companies, that is getting under the wire. That is covered by clause 2(2). The Minister was talking about the Competition and Markets Authority and the British Generic Manufacturers Association, and I think clause 3 is more relevant to that. Clause 2 is more of a surgical change, which we absolutely support.
Mr Dunne
I am grateful for your guidance, Mr Pritchard —I will respond now. The current statutory scheme does not capture generics, so amendments to the statutory scheme to allow generics to be brought into it are appropriate. If I am giving the Committee information that covers two clauses, rather than just one, I hope that is helpful.
The Chair
Very good added value from the Minister, I am sure.
Question put and agreed to.
Clause 2 accordingly ordered to stand part of the Bill.
Clause 3
Statutory schemes
Julie Cooper
I beg to move amendment 43, in clause 3, page 2, line 27, at end insert—
‘(2A) An amount calculated under subsection (2) may only be calculated using the same methodology as an amount payable by any member of a scheme made under Section 261 of the National Health Service Act 2006 (voluntary schemes for controlling the cost of health service medicines) is calculated.”
We support clause 3 in principle and the amendment aims to clarify that. Under the current system, following the National Health Service Act 2006, two schemes operate to control prices of medicines: the statutory scheme and the PPRS voluntary scheme. It is important to align those two schemes, because since 2014 there has been a significant movement of companies deciding to shift from the PPRS scheme to the statutory scheme to reduce the level of rebate payable. That has reduced savings to the NHS, so it requires urgent revision.
We agree with the principles of the Bill on ensuring that both schemes achieve the same level of savings and that the system is not open to abuse. We are concerned, however, that the Bill is not specific about how payments would be calculated under the statutory scheme. We agree with the Secretary of State that the purpose of the Bill is to clarify and modernise provisions to control the cost of health service medicines.
The amendment seeks to clarify beyond doubt that the Bill is in line with the stated aim of achieving equivalence between the two price-control schemes, by ensuring that under the statutory scheme members' rebates are calculated using the same methodology as for PPRS members. We commend the amendment, but will not push it to a Division. I am interested to hear the Minister’s comments.
Dr Whitford
One issue arises because the statutory scheme was based on prices in December 2013. The further on in time we are, the less proportional the return. Whether it is the same or a similar mechanism, we should avoid having a price rebate to the NHS stuck in time, which might be five years ago, and does not reflect the actual costs of the drugs.
Mr Dunne
The voluntary schemes are introduced and refreshed every five years. The current scheme was negotiated in 2014, so we are two years into that. One reason for having a time limit on the scheme, from the Government and NHS perspective, is that companies like to find ways during the course of time to adjust their commercial behaviour for their benefit. Having the opportunity to renegotiate the voluntary scheme every few years enables us to try to avoid the circumstances referred to by the hon. Lady.
Dr Whitford
If I could clarify, the voluntary scheme runs for five years but what I was talking about, with regard to clause 3, is the statutory scheme and the price rebate related to a requirement for a percentage reduction from the price in December 2013. That is how the rebate in the statutory scheme is defined. The further one gets away from that date point, the less one gains. It is the statutory scheme I am talking about rather than the voluntary one.
Mr Dunne
My understanding is that under the statutory scheme, the percentage applies based on sales achieved in the previous year. Therefore, the percentage reduction that we seek for the statutory scheme can be adjusted year by year. That is the intent of what we seek to do. I will seek further inspiration to ensure that I have exactly addressed the point that the hon. Lady makes.
Amendment 43 would have the effect of linking the payment mechanisms of the statutory and voluntary schemes. I understand why that might appear a desirable objective, so I understand the intention behind the amendment. We think there is merit in aligning the two schemes in some respects. However, to require them to be the same is inappropriate, because it removes some flexibility that the Government have, and from which the NHS benefits, in being able to negotiate the voluntary scheme on a periodic basis. The voluntary scheme has other aspects beyond pure price. Aligning the two in what will become a statutory scheme would restrict the scope for the two schemes to operate in a complementary manner.
The voluntary scheme is a matter for negotiation with industry on a periodic basis. As such, there is scope to include a range of measures. Those measures may change with each iteration of the scheme, to reflect the priorities of each side at the time of renegotiation. To illustrate that, the current voluntary scheme includes a range of provisions developed through negotiation with industry that sit alongside the payment mechanism. That includes price modulation, which enables companies to put prices up and down as long as the overall effect across their portfolio is neutral. That may have benefits for them, not only for their sales to the NHS but in the pricing references used by selling to the NHS in jurisdictions in other countries. That is of potential commercial value to companies, which may be willing to accept a higher payment percentage as a result—in other words, a higher discount to the NHS.
There are also provisions on the uptake of new medicines by the NHS, such as making NICE-approved medicines available within 90 days of a NICE decision. We are keen to encourage that. By contrast, the statutory scheme is intended to be a more straightforward approach. As such, the payment percentage applied may be slightly different from that applied to any voluntary scheme, in order to achieve a broadly similar level of savings once all elements of the schemes are taken into account.
As we heard in oral evidence last week, the freedom to negotiate the voluntary scheme is greatly valued by both industry and Government. We intend that any future voluntary scheme should be established through such negotiation, but linking the payment mechanisms would inevitably restrict that flexibility and freedom for both sides. In addition, while the Government welcome the collaborative approach of a voluntary scheme, we cannot guarantee that Government will always want two schemes in future. The amendment would constrain the Government’s discretion to run a single scheme if they and the House thought it best to do so. For those reasons, I urge the hon. Member for Burnley to withdraw her amendment.
Julie Cooper
I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Question proposed, That the clause stand part of the Bill.
Mr Dunne
The clause amends the provisions relating to statutory schemes in section 263 of the National Health Service Act 2006, which describes the purposes for which the Secretary of State can make statutory schemes. The amendments make it clear that a statutory scheme may require companies to make payments to the Government, based on their health service sales. For those companies not in the voluntary scheme, the Government operate a statutory scheme. That is currently based on a cut to the list price of products, rather than a payment mechanism on company sales, as in the voluntary scheme. The cut to the list price has delivered fewer savings to date than the payment mechanism under the voluntary scheme.
Dr Whitford
That was the point I was trying to make earlier. One is a percentage return on sales and profits, and the other is a cut in price. The further we are from the time set, which was December 2013, the less value we have from that in proportion to current prices.
Mr Dunne
I am grateful to the hon. Lady for making that clear to the Committee. The different approaches to price control between the voluntary and statutory schemes have led to some companies making commercial decisions to divest products from the voluntary scheme and sell them through the statutory scheme, thereby reducing the effectiveness of the voluntary scheme and savings to the NHS. The introduction of a payment mechanism in the statutory scheme would save the health services across the UK an estimated £90 million a year, as set out in the impact assessment.
In response to the Government’s consultation on introducing a payment mechanism in the statutory scheme, the pharmaceutical industry queried whether the Government had the powers to introduce a statutory payment system. The clause clarifies the existing powers to make it clear that the Government have the power to introduce a payment mechanism in the statutory scheme. The ability to make the statutory scheme by way of regulations rather than setting out the detail in primary legislation provides us with the flexibility to respond to changes in the wider economy, the medicines market and patient needs. We have provided illustrative regulations to support scrutiny of this delegated power.
The clause makes a further amendment to section 263 of the National Health Service Act 2006. Currently, the power to make a statutory scheme cannot be applied to members of a voluntary scheme, which means that if the Government introduced a statutory scheme for unbranded generic medicines—although we have no current plans to do so—we would be unable to apply the scheme to manufacturers of unbranded generic medicines that have a mixed portfolio of branded and unbranded generic medicines, and are members of the voluntary scheme. The clause therefore amends the Act in such a way that the power to make a statutory scheme cannot be applied to products covered by the voluntary scheme rather than member companies of the voluntary schemes.
The Government’s view is that, for the most part, competition works well to keep down the price of unbranded generic medicines. Should that situation change, this amendment would enable the Government to use their clause 2 powers to take action beyond individual products or companies. I hope that is clear to the Committee. If so, I ask the Committee to agree that clause 3 should stand part of the Bill.
Rob Marris
What a pleasure to appear before you for the first time, Mr Pritchard. As you know, my mother is one of your constituents and was quite a frequent correspondent. She is now in quite frail health so I suspect that you have not heard from her recently, but I thank you for your courtesy in your replies to her over the years. It is a particular pleasure to appear opposite a fellow west midlands MP, the Minister, who represents Ludlow, the constituency in which my mother used to live. She is still in the same house, but the constituency boundaries have changed.
Rob Marris
Indeed. I very much welcome clause 3 because it is to do with extending the statutory scheme. The helpful library briefing cites the Department of Health consultation from December 2015, which points out:
“In 2014 the statutory scheme covered around 6% of branded medicines sales in the UK”,
in contrast to the voluntary scheme, which covered about 75%. Those are the relative sizes of the schemes.
The Minister said—forgive me that this is not an exact quote, but I do not write that fast—that one of the effects of the clause 3 changes will be to broaden the statutory scheme to cover companies that have a mixed portfolio of branded and unbranded drugs, and are members of the voluntary scheme. As he pointed out, the clause clarifies the power of the Secretary of State to make the statutory scheme—something that was debated or contested by some companies.
In particular, I welcome the clause philosophically or ideologically because it amends section 263 of the National Health Service Act 2006—a Labour Act for which I voted proudly. Section 263(1) of that Act provides the Secretary of State with the power to make a statutory scheme for the purposes of “limiting the prices” or, as in section 263(1)(b) “limiting the profits”. This is something of a damascene conversion for this Government.
I hope, Mr Pritchard, that you will give me a bit of latitude, as I am about to read a quotation from this morning’s edition of The Times. An article entitled “Energy companies face caps on ‘rip-off’ tariffs” says:
“Measures designed to cap the household energy bills of millions of British families on ‘rip-off’ standard variable tariffs are being considered by ministers.”
I think we heard about that in my party’s manifesto at the general election; there has been a damascene conversion by the Government. That article also says:
“Greg Clark, the business and energy secretary, said: ‘I have made clear to the big firms that they must treat customers properly or be made to do so.’”
Andrew Selous (South West Bedfordshire) (Con)
Many Conservative Members may see the Bill as limiting the ability of drug companies to rip off the Government in a wholly unacceptable way, rather than as introducing price controls in the manner to which the hon. Gentleman refers.
Rob Marris
With respect to the hon. Gentleman, that is precisely what price controls do: they stop rip-offs. If one has price controls for other reasons, that is a separate debate. The price controls discussed in the Bill and in the 2006 Act are, as I understand it, precisely to stop rip offs. It appears that the Secretary of State for Business, Energy and Industrial Strategy is now looking at the same thing, as the newspaper quote suggested. It may be an incorrect quote—I give that caveat—but it is a direct quote from the Secretary of State to say that the Government are looking at these things. That does not necessarily mean that they will do them, but it is an ideological watershed for a Conservative Government to look quite rightly at legislating to stop rip-off Britain with regard to prices, but also with regard to limiting profits.
That is what a statutory scheme has the power to do under section 263(1) of the 2006 Act. As I understand it—the Minister can correct me if I am wrong—clause 3, which is at the heart of this provision, does not say, “There has been a debate about whether we can have a statutory scheme or not”. For the sake of certainty, we are saying in clause 3 that the Government will have the power to make a statutory scheme, but I do not hear the Minister going on to say, “But that statutory scheme will have nothing to do with limiting profits.”
In the absence of the Minister’s saying that, he appears ideologically to encompass the concept that I embrace, which is that, in certain circumstances in capitalism, it is incumbent and right for a Government to intervene in the market to limit not only prices—rip-off Britain and so on—but profits. On certain occasions, the Government should have that power, and I think a pharmaceutical supplier to the NHS is one such example. There is a very narrow range of things I could see this happening in, but in pharmaceuticals it is possible.
I congratulate the Government on coming over to a socialist perspective, not only on pharmaceuticals but apparently, if The Times report is right, coming our way on energy companies. Long may that continue. Perhaps we can look at rail fares next. Will the Minister have a word with his fellow Ministers on that?
The Chair
If the Minister is in Churchillian mode—I do not take a view on that; I am completely neutral as Chair—that is something I have always wanted to see. In fact, we have two Churchills in the debate, as Members will recognise. That is probably a first, which is great.
Mr Dunne
Thank you very much indeed, Mr Pritchard. I hope I am not going to disappoint you, given that build-up.
As ever, I am delighted to see the hon. Member for Wolverhampton South West, who is almost my parliamentary neighbour and with whom I served on countless Finance Bill Committees when he was previously in this place. He always entertained the Committee with his interventions, some of which were occasionally on the subject of the Bill, rather like on this occasion. He has craved your indulgence, Mr Pritchard, and I am glad that you allowed him to point out what I am going to take a stage further, if you will indulge me a little.
The Conservative party is the party of the working man in Britain in 2016. As the hon. Gentleman may have heard, because he is a keen student of these things and because the Conservative party conference was held in Birmingham this year, which is not too far from his constituency, the Home Secretary made it clear that she regards the Conservative party as the party of the consumer in 2016. I will take that one step further.
Mr Dunne
No, I mean the Home Secretary.
We believe that competition is the best way to drive prices of medicines down for the NHS, and generally speaking that works well. In the case of the specific unbranded generics where there is a single supplier, we have seen that there is an opportunity for market abuse, and I agree with my hon. Friend the Member for South West Bedfordshire that the clauses are designed to use the device of price controls to avoid excess profit abuse by individuals in British companies, which we have seen.
I gently remind the hon. Member for Wolverhampton South West that successive Governments since 1957, including the Government whom he proudly supported for many years, had price controls in place for the cost of medicines.
Dr Whitford
The Minister was obviously not happy with the amendment on aligning the two schemes, but he talks about a mechanism of price control under clause 4. Will he give us even the broad principle of what he thinks the price control mechanism in the statutory scheme will be?
Dr Whitford
To clarify, therefore will the situation continue to be that the statutory scheme is based on a price reduction as opposed to a percentage above a mark being returned to the NHS, as in the voluntary scheme? Will it be a similar mechanism to what we have today?
Mr Dunne
I believe that that is the case, but if I have misunderstood the hon. Lady’s question I shall clarify that later in the sitting, if I may. Our intention is to consult on the matter, so the precise mechanism has not yet been finalised; hence there is some uncertainty.
Rob Marris
On the detail, while the Minister is pondering, we talked about the date of December 2013 for the 15% price reduction—the questioning of the hon. Member for Central Ayrshire particularly related to that—but I understand that medicines launched after that date are not in the statutory scheme.
At some point—perhaps later in the sitting—will the Minister clarify whether the Government intend that medicines launched after December 2013 could be in the statutory scheme? Might it be altered in that way to encompass that possibility?
Mr Dunne
Companies are free to join the voluntary scheme. If they choose not to, but they want to sell unbranded generics into the NHS, they will be caught within the statutory scheme. The statutory scheme is the default scheme under which unbranded generics are sold into the NHS. It will pick up new unbranded generics as they come forward, unless their manufacturers are in the voluntary scheme and choose to have them dealt with through it.
Question put and agreed to.
Clause 3 accordingly ordered to stand part of the Bill.
Clause 4
Enforcement
Question proposed, That the clause stand part of the Bill.
Mr Dunne
The clause amends sections 265 and 266 of the 2006 Act in relation to enforcement. It ensures that the existing enforcement provisions in the Act apply to the contravention of any of the new powers in clauses 1, 2, 3 and 5. The maximum penalties are a single penalty of £100,000 or £10,000 per day for the duration of the contravention. The Secretary of State has the power under the 2006 Act to increase or further increase, by order, those maximum penalties.
The clause also ensures that provision can be made in regulations for companies to appeal any enforcement decisions under the new information powers in clause 6. That simply extends the possibility of appealing any enforcement decision under the information powers. Furthermore, clause 4 clarifies the fact that payments or penalties can be recovered as a civil debt through the courts.
In light of the Secretary of State’s flexibility to amend the penalty amounts in future, I hope the Committee will recognise that the proposed penalties are appropriate, but in the event they are deemed not to be appropriate, there is sufficient flexibility in the clause to allow the Government of the day to amend the penalties to whatever they deem appropriate.
On that basis, I ask the Committee to agree that the clause stand part of the Bill.
Rob Marris
Will the Minister—if not now, later—give other examples of where a Secretary of State has such apparently wide-ranging powers to set a penalty? In any judicial system there is often discretion among the judiciary as to the penalty imposed on a wrongdoer, but this is not a judicial system. It is a quasi-judicial system, at best. The Government seem to be taking broad powers, and it may be that Governments, including Governments under which I served, have done so in the past, but I cannot think of any examples.
I hope the Minister can provide clarity, because the Secretary of State will be able to exercise the new powers not only by making regulations—such regulations, of course, would come before the House—but by giving directions, which is a much more elastic and broader term. A little clarity on that would be helpful.
Mr Dunne
I can help the hon. Gentleman directly with a specific example. The Secretary of State already has those powers under the 2006 Act, which the hon. Gentleman’s Government enacted.
Question put and agreed to.
Clause 4 accordingly ordered to stand part of the Bill.
Clause 5
Control of maximum price of other medical supplies
Dr Whitford
I beg to move amendment 47, in clause 5, page 3, line 39, at end insert—
‘(7) Before making regulations under Clause 5 the Secretary of State must conduct a consultation on the potential effect of this clause on the maintenance of quality of those medical supplies, and seek representations from manufactures, suppliers and distributors of medical supplies as part of the consultation.”.
This is a probing amendment on an issue of concern. The Secretary of State has obviously had powers since 2006, and perhaps earlier, to seek to control the price of medical supplies. That power has not really been utilised, and neither have the informatics of that. When controlling the price of drugs, the quality of those drugs is controlled by the Medicines and Healthcare Products Regulatory Agency so that pushing down the price does not result in loss of quality.
My concern is that, beyond a kitemark or a CE mark, we do not have anything in the United Kingdom that controls quality, particularly of consumables such as swabs and gloves. As a surgeon for 30-odd years, I can tell the Committee that the range in quality of things such as surgical gloves can be immense. A surgeon might use two or three pairs of gloves during an operation. If there is a leak in those gloves that is not visible, it might be only when the surgeon washes their hands afterwards that they see they have blood on their finger, which means that staff are exposed to blood contamination. Poor-quality swabs might result in thread or fluff coming off inside a patient, which can contribute to sepsis. There is no quality controller specific to medical supplies, so if we just drive down the price, we may drive down the quality.
We use a lot of central procurement in Scotland, and NHS National Procurement has helped us to control our prices for everything from consumables through to major machine purchases, which is already saving money for the NHS in Scotland. If there were a reduction in quality, our concern is that it would be UK-wide. It would be something that producers were doing, which would in turn undermine what the devolved Government were trying to do. Procurement remains devolved, but if the quality started to drop overall, that would affect all the devolved health services, as well as NHS England.
The amendment calls for consultation and for consideration of some form of quality regulation or control that would mean those items having to be way above the very basic CE level, at a point considered high enough quality for NHS use.
Justin Madders
I support the hon. Lady’s amendment. She spoke with great personal experience, which we all appreciate, about the importance of maintaining the quality and reliability of products in the NHS. Over the weekend, there were reports of the vast sums paid out by the NHS in clinical negligence costs. I am sure we all agree that that money would be better spent on patient care. Of course, many of those claims are down to human error, or to events that were in some other way avoidable. However, one obvious example of an area where we need to be reassured that the Bill will not have unintended consequences is infection control. About 300,000 people a year—about one in every 16 patients—get an infection while being cared for in the NHS. That causes additional suffering, inconvenience and, sometimes, serious illness or death. It also has a wider impact on the NHS, because patients with hospital-acquired infections spend two and a half times longer in hospital than uninfected patients, on average: they are usually admitted for approximately 11 days.
As well as the devastating impact on the patients affected, there is a significant financial impact on the NHS. I have referred to the costs incurred from clinical negligence claims. The most recent reliable estimate of costs from infections, which appeared in the Plowman report, put the figure at £1 billion a year. According to Professor Briggs’s report “Getting It Right First Time”, if someone gets an infection from an orthopaedic operation, it costs the NHS an extra £100,000 to put it right. We need to be confident that the Bill poses no risk of any reduction in quality, but we would have been more confident about that if there had been a proper consultation on that element in the first place.
Mr Dunne
Rather unusually, I start by thanking the hon. Lady for proposing the amendment. She has raised an issue for which we have considerable sympathy. She touched on the way in which medical products are procured in Scotland. I can confirm that we are looking to introduce more centralised purchasing across the NHS under the efficiency proposals made by Lord Carter in the other place. One of the areas of focus was the variability, in purchasing terms, of standard commodity items. She mentioned surgical gloves—I will not go into detail on those with her, because she has obviously used them considerably more than I can conceive of and is therefore very experienced when it comes to the variability not just in price but in quality of such commodity products. We are looking to introduce closer central purchasing—I think 12 items are currently being trialled or introduced in parts of NHS England.
We recognise that, as currently drafted, the Bill does not explicitly state in relation to section 260 that the Government are obliged to consult industry. I am aware that the 2006 Act, in relation to controlling the cost of medicines, does explicitly state that there is an obligation on the Government to consult. The hon. Lady’s amendment is appropriate in its intent. I invite her to withdraw it at this stage, but I undertake to work with her. My officials will consider how to amend the amendment to give it the effect that she seeks, but in a way that works in the context of the Bill. There are technical drafting issues with the amendment that mean that it would give us some unintended difficulties. That is the Government’s position on the amendment; I hope she is happy with that.
The hon. Lady referred to the effect of any pricing controls for medical supplies on the maintenance of those products’ quality. I can assure the Committee that the Government will take into account all relevant factors, including any concerns raised by industry about the quality of medical supplies, when making and consulting on price controls if they were to apply to medical supplies. The Government would not be in favour of putting any of those many factors in the Bill, because it may unnecessarily constrain the conduct of future Governments or the NHS.
Dr Whitford
If there is a move to more central procurement, will the Minister consider some form of quality control regulation or power at that point, so that central procurement is not just driven to accept the lowest price and there is some safety mechanism, in the same way we have the MHRA for drugs?
Mr Dunne
We will consult with industry on the impact of the Bill on medical supplies. Although I am not going to give the hon. Lady an absolute assurance that we can introduce a threshold for quality, which is quite hard to prescribe given the immense variety of supplies we are talking about, there is a clear intent that, if we are centralising procurement of equipment, that equipment has to meet a quality threshold in order to be acceptable to the clinician. I understand the point she makes. The intent is not to buy substandard equipment to treat patients, but to remove variability in pricing for the same equipment depending on different purchasers, which is inappropriate and means effectively the taxpayer is the funder of all these different entities.
Rob Marris
I urge the Minister to have a greater familiarity with the quality of surgical gloves, which are great for delivering leaflets. They give a bit of weather protection. You don’t have to lick your finger to get the next leaflet, you don’t get letterbox knuckle, and—best of all—the dog gets latex, not flesh.
Mr Dunne
Again the hon. Gentleman strays, but not too far beyond his brief, because surgical gloves have been raised now by three members of the Committee. I am grateful for that tip. With the onset of winter weather, that could be quite useful for those of us who will be going to Sleaford and North Hykeham over the next few weeks to leaflet. I will take it upon myself to bring a box of surgical gloves when I visit.
With your indulgence, Mr Pritchard, I will take this opportunity to pick up the points made by the hon. Member for Central Ayrshire about the way the statutory scheme is intended to operate. To be crystal clear, clause 2 relates to unbranded generics and allows us to make regulations and directions to specific companies, while clause 3 relates currently only to branded medicines but could, if we wanted it to, also relate to unbranded medicines in future. The statutory scheme will be used where a company is not a member of the voluntary scheme, as I indicated to the hon. Member for Wolverhampton South West. The statutory scheme is intended to operate through setting a percentage of sales to be paid to the Government. Details of the scheme’s operation will be set out in regulations. A draft of the illustrative regulations is available to the Committee.
I will revert to the hon. Lady’s amendment 47. The Government do not currently control prices of medical supplies. As was referred to earlier, the MHRA is responsible for the safety, efficacy and quality of medical supplies. That provides some check of quality in relation to not only medicines but medical supplies.
Rob Marris
The Minister has lost me there. It is probably my ignorance, but I thought he just said that the Government do not currently control the cost of medical supplies. If that is what he said, is that because they do not use the power they already have under section 260(1) of a 10-year-old Act?
Mr Dunne
Yes, I think that is the correct answer. We do have those powers under the 2006 Act, but they have not been used, partly because generally speaking medical supplies is a competitive market. We have not seen the kind of abusive price behaviour that we are trying to address elsewhere in the Bill.
Dr Whitford
I would like to clarify the reason for introducing this, if there has not been a problem in the market, as we have seen with the price hikes in generics, and it is much harder to do. Why are the Government extending a power they have had for 10 years but never used?
Mr Dunne
In essence, we are trying to bring the regimes for medical supplies and drugs into the same environment, so that we are able in future to use the powers, which we are introducing for the first time for drugs, for medical supplies on the same basis, so that we do not have to treat one thing under one Act and the other under another. I hope that is clear.
Justin Madders
I am sorry to push this point, but are there any examples? We obviously have clear examples, for example, in the pharmaceutical sector. Is there anything in the supplies sector that would be equivalent?
Mr Dunne
I am not aware of any particular examples of medical supplies that we are concerned about at this point. However, I am sure that, if there are people outside watching who have good examples, they will let the Committee know before we conclude our deliberations.
Reverting to the hon. Lady’s amendment 47, we understand the intent behind it. We are not fully convinced that the current drafting would have precisely the effect that she is hoping. I invite her to work with me and my officials between now and Report. The Government will be happy to consider how we could best introduce the requirement to consult in relation to section 260. On that basis, I invite her to withdraw the amendment.
Dr Whitford
I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Question proposed, That the clause stand part of the Bill.
Mr Dunne
Clause 5 amends section 260 of the 2006 Act, which enables the Secretary of State to control the maximum prices of medical supplies other than health service medicines. As we have just discussed, the Government have powers to control prices of medical supplies and we are not currently using those powers. It is important that we continue to have those powers, should we decide it is necessary to control prices of medical supplies in the event of market abuse.
With an increasing spend on healthcare products, the Government need the tools to be able to control prices, if there is any indication that medical suppliers do not provide value for money to the NHS and the taxpayer. The measures would ensure that the same enforcement and territorial extent provisions apply to controlling the cost of medical supplies and health service medicines.
Existing enforcement provisions in relation to medical supplies are draconian compared with those for medicines. Currently, a contravention or a failure to comply is in fact a criminal offence in relation to medical supplies, whereas it is not in relation to medicines. We are aligning the enforcement provisions to those for medicines and making them much more proportionate. That is done through clause 7, through consequential amendments. On that basis, I ask the Committee to agree that clause 5 stand part of the Bill.
Rob Marris
May I again congratulate the Government? This appears to be the only piece of criminal legislation I have ever heard of that apparently has a 100% deterrence rate. That is, the Government have the power to penalise a course of action and, as far as the Government are aware, no company is pursuing such a course of action, meaning that Government do not have to exercise their powers, criminal or otherwise. What a great piece of legislation passed by the Labour Government in 2006.
Question put and agreed to.
Clause 5 accordingly ordered to stand part of the Bill.
Ordered, That further consideration be now adjourned. —(Mark Spencer.)
Health Service Medical Supplies (Costs) Bill (Third sitting)
Tuesday 15th November 2016
(7 years, 11 months ago)
Public Bill CommitteesRead Full debate Health Service Medical Supplies (Costs) Act 2017 View all Health Service Medical Supplies (Costs) Act 2017 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 15 November 2016 - (15 Nov 2016)
The Committee divided: - Ayes: 5 / Noes: 9 - Question accordingly negatived.
The Minister of State, Department of Health (Mr Philip Dunne)
I beg to move amendment 1, in clause 6, page 4, line 4, at end insert—
“( ) References in this section to a UK producer are to a person who—
(a) manufacturers, distributes or supplies any UK health service products, and
(b) is not an excepted person.”
This amendment is linked to amendments 2 to 16 and 19 to 35. It provides a definition of the term “UK producer” to be used in sections 264A to 265 of the National Health Service Act 2006.
The Chair
With this it will be convenient to discuss the following:
Government amendments 2 to 19.
Amendment 48, in clause 6, page 5, line 41, at end insert—
“(1A) Information provided by virtue of section 264A must be disclosed by the Secretary of State to any person listed in subsection (1) at that person’s request.”
Government amendments 20 to 36 and 38.
Mr Dunne
I apologise to the Committee for introducing quite so many amendments at this stage of our deliberations. As I explained in our pre-meeting before we went into line-by-line scrutiny, the amendments were tabled entirely to reflect the request from the devolved Administrations, with which we entirely agree, on how they want to apply this power in their territories. As a result of things beyond the control of the Committee, including elections in the devolved Administrations this spring, the European Union referendum and the summer recess, all of which interfered with the normal process of discussion between the Department and the devolved Administrations, we were not able to get instructions from them before the introduction of the Bill, which is why the amendments have only now been tabled.
I recognise that this is a large number of amendments, but they are all driving at the same objective. Some of the information requirements in the Bill that apply to England only could also apply to the territories of the devolved Administrations. The Government amendments therefore reflect the instructions of the devolved Administrations in that area. We have had constructive discussions with each Administration, and we have agreed that the UK Government will collect information from wholesalers and manufacturers for the whole of the UK. It would not make sense for each nation to collect its own information from wholesalers and manufacturers, because that would lead to duplication of effort to no apparent purpose. We have also agreed that each nation will collect information from its own pharmacies and GPs, to the extent that that is requested.
Amendments 1 to 36 and 38 therefore enable the Secretary of State to collect information from UK producers for devolved purposes, with the exception of pharmacies and GPs in the devolved territories. The amendments will enable the Secretary of State to share the information with the devolved Administrations and other bodies in the devolved Administrations, and enable them all to use the information for devolved purposes: reimbursement of pharmacies and GPs; and to assess value for money in relation to the supplies. I hope that the Committee will therefore accept those Government amendments.
While I am on my feet, I take the opportunity to clarify again the comments I made towards the end of our previous sitting, to ensure that they are properly on the record. They related to the distinctions between clauses 2 and 3. The Bill, as everyone in Committee knows, is concerned with the cost of health service medicines. We negotiated a voluntary scheme with industry that controls the cost of branded health service medicines. Any company that has branded medicines in its portfolio and chooses not to be a member of the voluntary scheme will automatically become a member of the statutory scheme.
The existing statutory scheme, which also applies only to branded health service medicines, is based on a price-cut mechanism. The Bill makes it clear that the Secretary of State may make regulations for a statutory scheme that is based on a payment mechanism, whereby a percentage of sales income is paid to the Government. Illustrative regulations, to which I referred this morning, and which include the payment mechanism alongside a price-freeze mechanism, have been provided to Committee members. Even though the Bill would not prevent us from applying the statutory scheme to unbranded generic medicines, that is not the Government’s current intent.
I have some comments to make on Opposition amendment 48. Perhaps you would like me to do that after the amendment has been spoken to, Mr Pritchard.
Dr Philippa Whitford (Central Ayrshire) (SNP)
I want to raise a small, perhaps technical, issue on amendment 11, which it seems would insert the rules and definitions with respect to excepted persons for Scotland, Northern Ireland and Wales under a new subsection defining health service products for England. It seems out of place, and there is no definition of English excepted persons.
The amendment would insert new subsection (8A) into new section 264A, which clause 6 inserts into the National Health Service Act 2006. It seems out of place because the provision would deal with English health service products, then the definition of the excepted persons in the devolved nations, and then Scottish, Irish and Welsh health service products. It may just be a technical issue, but I wanted to raise it.
The Chair
I am sure that the hon. Lady knows, but if she wants to speak to amendment 48 now, she can do so.
Martyn Day (Linlithgow and East Falkirk) (SNP)
It is a pleasure to serve under your chairmanship today, Mr Pritchard. I am somewhat reassured by many of the Minister’s comments, and I thank him for his explanations. Much of this stuff is technical, and I hope he sees amendment 48 in a similar light. I think it would improve and strengthen the measure.
The clause does not currently set out a mechanism for the disclosure of information to devolved Administrations or bodies. For example, how will the information be disclosed, and by what means? Will it be only the Secretary of State who can disclose? In short, will the devolved Administrations be able to get the information when they want and need it, so that it ties in with the figures and statistics they are seeing and they can see patterns? It is about flexibility.
The amendment is fairly straightforward and we think it would help to strengthen and improve the Bill. I hope that the Minister agrees. We would like him to clarify whether the Government intend to leave disclosure to the discretion of the Secretary of State, on an ad hoc basis. Otherwise, what would the terms of disclosure be?
Rob Marris (Wolverhampton South West) (Lab)
To tease out the amendment a little more, proposed new section 264B(1)(h) relates to the provision of information to
“any person who provides services to any person falling within any of paragraphs (a) to (g)”.
Is the hon. Gentleman concerned that under his amendment there might be disclosure to other private providers; or is that covered because only paragraphs (a) to (g) are specified?
Martyn Day
I thank the hon. Gentleman for his intervention, and I hope that I can clarify my clarification. It is about timing—when the information is disclosed, not to whom it is disclosed. The Bill covers that and we are quite comfortable with that.
I was saying that we think our amendment would strengthen the clause. I am reminded that on Second Reading the Secretary of State referred to fact that there would be amendments—we are grateful to see many of them today—
“to reflect the agreement between the Government and the devolved Administrations, so that information from wholesalers and manufacturers can be collected by the Government for the whole of the UK and shared with the devolved Administrations.”——[Official Report, 24 October 2016; Vol. 626, c. 80.]
We think our amendment would enable him to get his wish and provide a mechanism in the Bill.
We feel strongly about the matter and want to push it to a vote if we do not receive the necessary assurances from the Minister. I hope that he can provide them.
Justin Madders (Ellesmere Port and Neston) (Lab)
I want to comment generally on the Minister’s amendments. I agree that it would have been helpful if they had been published earlier, but reasons why that was not possible have been given, and the Committee will be pleased to hear that I do not intend to go through each of them. I take the Minister’s assurances that there has been extensive dialogue with the devolved Administrations. I intend to direct my remarks not so much at those Administrations that have been taking responsibility for their health service for some time, but at those areas in England where they have embarked upon ambitious devolution arrangements that encompass health—Manchester is the most obvious and probably most advanced example. It is not at all clear to me how, if at all, the Bill will impact on them.
The Greater Manchester area has now been given a delegated budget of £6 billion per annum. I am sure that people there have made various representations about how that is short of the figure that they need, and a significant proportion of the annual budget will certainly be spent on pharmaceutical costs. Would it not be reasonable for the relevant proportion of the rebate to be returned to Manchester and such areas in the same manner as the initial funding is devolved down to them? Simon Wootton, who was the chief operating officer at the North Manchester clinical commissioning group, said that we have not had the PPRS money back into the local NHS in North Manchester.
I am not aware of any specific agreements as part of the devolution settlement for Greater Manchester, and nothing is in the Bill, so I would be grateful if the Minister, when he responds, set out whether there have been any discussions with local representatives in Manchester on the issue, and whether his intention is to ensure that, in common with other devolved Administrations, appropriate arrangements are put in place for the relevant proportion of the rebate to be paid directly to them.
Mr Dunne
First, in relation to amendment 11 and what the hon. Member for Central Ayrshire said, I think she made a perfectly reasonable point. As a lay reader of parliamentary drafting, if I may say so, it would be easy to be perplexed by the sequencing that she highlighted and brought to the attention of the Committee. I am advised, however, that the purpose of the amendment is to ensure that the UK Government collect information from English pharmacies and GP practices, but not from pharmacies in the areas of the devolved Administrations. Therefore, the reference to “Excepted person” includes pharmacies and GP practices in the devolved Administrations, but specifically does not include those in England, because their information is already collected by the UK Government. The terminology relates to where the GPs and pharmacies are and who is doing the collecting. I hope that helps.
Dr Whitford
I understand that, but I could not find reference to that in the National Health Service Act 2006, and I thought that the aim was to bring everything together in this Bill, so it seemed odd that there was no mention of English excepted persons. That is fine—that information is already being collected—but the Bill still separates the definition of English health service products from the definition of the health service products of the devolved nations. It seems an odd place to insert the amendment; it seems it is being attached to the definition of English health service products.
I totally accept that I am a complete novice, so there may be something I am not understanding, but to me, reading it logically, it does not seem to make total sense, and I thought that the aim of the Bill was to bring all the powers into one place. It seemed odd for there to be no definition of English excepted persons, even from an old Act, because what is happening here is that different things are being brought from the 2006 Act and from the Scotland Act 1978 into one place.
Mr Dunne
I thank the hon. Lady for that clarification. I hope that inspiration will arrive before I sit down.
To address the specific point made by the hon. Member for Ellesmere Port and Neston on devolution to Manchester, it is an interesting idea, which reflects some of the challenges arising from the increasing use of devolution of powers across our country. I can see why he might seek to secure a carve-out of income for Manchester. I would say, “Nice try”, but at present the funding arrangements for Manchester and other devolved areas in England are agreed via NHS England. That applies to the totality of funding available for health provision within the Manchester area, so the allocation already includes income derived from the voluntary scheme, and it will not be ring-fenced as a subset of the funds, because there chaos would lie.
Justin Madders
I appreciate that the Minister is not going to embark on a new area of debate and dialogue with Greater Manchester on this point, but will he advise whether future allocations intend to deal with the increased income from the rebate that is anticipated as a result of the Bill?
Mr Dunne
Each year, when NHS England agrees its commissioning budgets and tariffs with providers, an allocation is made. That is based on the overall sum received by NHS England. Increases in revenues that derive from the Bill will help to swell that pot relatively modestly, although every penny counts, and that will therefore be taken into account when determining allocations to all CCGs, including those in Manchester.
I will give the Government’s response in relation to amendment 48; I do not have many comments to make. I sincerely hope that, before I reach the end of these remarks, I will be able to address the further point, on English exclusion, made by the hon. Member for Central Ayrshire.
Proposed new section 264B in clause 6 enables the Secretary of State to disclose the information collected to a range of bodies, which includes Government bodies such as NHS England, special health authorities, NHS Digital, other Departments and the devolved Administrations. It also enables the Secretary of State to prescribe representative bodies, or other persons in prescribed regulations, to whom he can disclose information in the future. For example, that might include certain information going to trade associations or other bodies that it might be appropriate to provide information to in future, with respect to the operations of the Bill.
The effect of the amendment tabled by the hon. Members for Central Ayrshire and for Linlithgow and East Falkirk would be that any of those bodies could in future access any information that the Government have collected. We do not believe that it would be right for representative bodies to be able to access information that the Secretary of State collects, primarily for purposes of commercial confidentiality. There are examples in other legislation in which we have taken specific steps to protect commercially sensitive information. I am not suggesting that one company would directly get access to information on another company’s profitability, but third-party advisers, for example, might get access to that information.
We do not want to provide opportunities for risking breaches of commercial confidentiality, because that would undermine confidence in the information gathering for all the companies, which includes major multinational companies. We think that the amendment might open us up to criticism from the major suppliers that there was greater risk of that intervention, which we would not want to see.
Dr Whitford
If the Minister looks at our amendment, which is incredibly short, he will see that all it says is “at that person’s request.” We do not want to widen the list in any way at all; we are not looking to add to the list. All we are saying is that, if it is accepted that a devolved Government should be able to access this information, it should be at the request of that devolved Government. It should not be, “We will tell you every April how you’re doing.” If a devolved country sees a pattern emerging, it should be able to say, “Can we request our data?” The issue is that data are to be collected centrally but not belong to the devolved nations to which they pertain. We are not trying to add anyone; we are just trying to give the devolved countries the power to request.
Mr Dunne
I completely understand that that is the intent of the hon. Lady’s amendment, and I think I have another way of addressing it, which I am now going to come on to. We think it entirely appropriate that at some point the devolved Administration might wish to change their information requirements. They might wish to add requests for information that they are not initially getting, which is a reasonable request.
We think that the right way to address that, rather than putting something in the Bill that might inadvertently allow other representative bodies access to information—I am sure the hon. Lady agrees that that might not be appropriate—is for a memorandum of understanding to be agreed between the Department of Health and each of the devolved Administrations that would allow requests for information to be submitted and dealt with in a manner agreeable to both parties. In the consultation process that will follow, we intend to enter into a memorandum of understanding that will include the procedures for requesting and sharing information.
I assure the Committee that the Government intend to continue to work constructively with the devolved Administrations to ensure that they have access to the relevant information collected in a format convenient to both sides, so that we do not end up with special data sets that are hard for an Administration to create because the data are not readily available from the information provided. Aside from that, we would honour the reasonable requests of any devolved Administration to be able to get access to the data, which I acknowledge the Administration may not own if the information has been gathered by the Department of Health.
On that basis, I hope that the hon. Lady and the hon. Member for Linlithgow and East Falkirk will not press their amendment.
The Chair
If the SNP Front-Bench spokespersons want to press the amendment to a vote, that will happen later, but it would be helpful to the flow of the proceedings if they confirmed now whether they intended to do so.
The Chair
I am grateful to the hon. Gentleman.
Amendment 1 agreed to.
Amendments made: 2, in clause 6, page 4, line 5, leave out from “any” to “to” in line 6 and insert “UK producer”.
This amendment is linked to amendments 1, 3 to 16 and 19 to 35. It allows regulations to require the provision of information by a person who manufactures, distributes or supplies Welsh health service products, Scottish health service products or Northern Ireland health service products.
Amendment 3, in clause 6, page 4, line 19, at end insert—
“(d) the determination of the payments to be made to any persons who provide primary medical services under Part 4 of the National Health Service (Wales) Act 2006;
(e) the determination of the remuneration to be paid to any persons who provide pharmaceutical services under Part 7 of that Act;
(f) the consideration by the Welsh Ministers of whether—
(i) adequate supplies of Welsh health service products are available, and
(ii) the terms on which those products are available represent value for money;
(g) the determination of the payments to be made to any persons who provide primary medical services under section 2C(1) of the National Health Service (Scotland) Act 1978 (“the 1978 Act”);
(h) the determination of the remuneration to be paid to any persons who provide pharmaceutical care services under section 2CA(1) of the 1978 Act;
(i) the consideration by the Scottish Ministers of whether—
(i) adequate supplies of Scottish health service products are available, and
(ii) the terms on which those products are available represent value for money;
(j) the determination of the remuneration to be paid to any persons who provide primary medical services or pharmaceutical services under Part 2 or 6 of the Health and Personal Social Services (Northern Ireland) Order 1972 (S.I. 1972/1265 (N.I. 14));
(k) the consideration by a Northern Ireland department of whether—
(i) adequate supplies of Northern Ireland health service products are available, and
(ii) the terms on which those products are available represent value for money;
(l) the exercise by the Secretary of State of any powers under sections 260 to 264 and 265;
(m) the operation of a voluntary scheme.”.
This amendment is linked to amendments 1, 2, 4 to 16 and 19 to 35. It sets out the purposes for which a person may be required to record and provide information to the Secretary of State by virtue of regulations under section 264A(1) of the National Health Service Act 2006.
Amendment 4, in clause 6, page 4, leave out lines 20 to 29.
This amendment is linked to amendments 1 to 3, 5 to 16 and 19 to 35. It removes subsections (3) and (4) of section 264A of the National Health Service Act 2006 because the provision made by those subsections now appears in amendment 3.
Amendment 5, in clause 6, page 4, line 30, leave out
“an English producer or other”
and insert “a”.
This amendment is linked to amendments 1 to 4, 6 to 16 and 19 to 35. It is a consequential amendment. A reference to an English producer is no longer needed as an English producer will fall within the definition of “UK producer” inserted by amendment 1.
Amendment 6, in clause 6, page 4, line 33, leave out from “for” to end of line 35 and insert “UK health service products”.
This amendment is linked to amendments 1 to 5, 7 to 16 and 19 to 35. It is a consequential amendment. A reference to English health service products is no longer needed as those products will fall within the definition of “UK health service products” inserted by amendment 14.
Amendment 7, in clause 6, page 4, line 38, leave out “the” and insert “UK health service”.
This amendment is linked to amendments 1 to 6, 8 to 16 and 19 to 35. It is a consequential amendment.
Amendment 8, in clause 6, page 4, line 41, leave out “the” and insert “UK health service”.
This amendment is linked to amendments 1 to 7, 9 to 16 and 19 to 35. It is a consequential amendment.
Amendment 9, in clause 6, page 4, line 43, leave out second “the” and insert “UK health service”.
This amendment is linked to amendments 1 to 8, 10 to 16 and 19 to 35. It is a consequential amendment.
Amendment 10, in clause 6, page 5, line 1, leave out from “whether” to “health” in line 2 and insert
“they are UK health service products and, if so, which of the following they are—
(i) English health service products;
(ii) Welsh health service products;
(iii) Scottish health service products;
(iv) Northern Ireland”.
This amendment is linked to amendments 1 to 9, 11 to 16 and 19 to 35. It is a consequential amendment. It enables regulations to require a UK producer to provide information about products for verifying whether they are Welsh, Scottish or Northern Ireland health service products.
Amendment 11, in clause 6, page 5, line 14, at end insert—
“(8A) “Excepted person” means any of the following—
(a) a person who provides primary medical services under Part 4 of the National Health Service (Wales) Act 2006;
(b) a person who provides pharmaceutical services under Part 7 of that Act;
(c) a person who provides primary medical services under section 2C(1) of the 1978 Act;
(d) a person who provides pharmaceutical care services under section 2CA(1) of the 1978 Act;
(e) a person who provides primary medical services or pharmaceutical services under Part 2 or 6 of the Health and Personal Social Services (Northern Ireland) Order 1972 (S.I. 1972/1265 (N.I. 14)).”.
This amendment is linked to amendments 1 to 10, 12 to 16 and 19 to 35. It lists the persons who are excepted from being a “UK producer” for the purposes of the definition inserted by amendment 1.
Amendment 12, in clause 6, page 5, line 15, at end insert—
“( ) “Northern Ireland health service products” means any medicinal products used to any extent for the purposes of health care provided by virtue of the Health and Social Care (Reform) Act (Northern Ireland) 2009 and any other medical supplies, or other related products, required for the purposes of health care provided by virtue of that Act.”.
This amendment is linked to amendments 1 to 11, 13 to 16 and 19 to 35. It provides a definition of “Northern Ireland health service products” for the purposes of section 264A of the National Health Service Act 2006.
Amendment 13, in clause 6, page 5, line 15, at end insert—
“( ) “Scottish health service products” means any medicinal products used to any extent for the purposes of the health service within the meaning of the 1978 Act and any other medical supplies, or other related products, required for the purposes of that health service.”.
This amendment is linked to amendments 1 to 12, 14 to 16 and 19 to 35. It provides a definition of “Scottish health service products” for the purposes of section 264A of the National Health Service Act 2006.
Amendment 14, in clause 6, page 5, leave out lines 16 to 26 and insert—
“( ) “UK health service products” means any English health service products, Welsh health service products, Scottish health service products or Northern Ireland health service products.”.
This amendment is linked to amendments 1 to 13, 15, 16 and 19 to 35. It provides a definition of “UK health service products” for the purposes of section 264A of the National Health Service Act 2006.
Amendment 15, in clause 6, page 5, line 26, at end insert—
“( ) “Welsh health service products” means any medicinal products used to any extent for the purposes of the health service continued under section 1(1) of the National Health Service (Wales) Act 2006 and any other medical supplies, or other related products, required for the purposes of that health service.”
This amendment is linked to amendments 1 to 14, 16 and 19 to 35. It provides a definition of “Welsh health service products” for the purposes of section 264A of the National Health Service Act 2006.
Amendment 16, in clause 6, page 5, line 26, at end insert—
“( ) Until the coming into force of the repeal of section 27 of the 1978 Act by schedule 3 to the Smoking, Health and Social Care (Scotland) Act 2005 the references in subsections (2)(h) and (8A)(d) to pharmaceutical care services under section 2CA(1) of the 1978 Act are to be read as references to pharmaceutical services under section 27(1) of that Act.”.
This amendment is linked to amendments 1 to 15 and 19 to 35. It makes transitional provision in relation to references to pharmaceutical care services under section 2CA(1) of the National Health Service (Scotland) Act 1978.
Amendment 17, in clause 6, page 5, line 35, at end insert—
“(fa) the Common Services Agency for the Scottish Health Service constituted under section 10 of the 1978 Act;”.
This amendment adds the Common Services Agency for the Scottish Health Service to the persons listed in section 264B(1) of the National Health Service Act 2006. This means that information provided by virtue of section 264A of that Act may be disclosed to that Agency.
Amendment 18, in clause 6, page 5, line 36, at end insert—
“(ga) the Regional Business Services Organisation established under section 14 of the Health and Social Care (Reform) Act (Northern Ireland) 2009;”.
This amendment adds the Regional Business Services Organisation to the persons listed in section 264B(1) of the National Health Service Act 2006. This means that information provided by virtue of section 264A of that Act may be disclosed to that Organisation.
Amendment 19, in clause 6, page 5, line 40, leave out “English producers or other”.
This amendment is linked to amendments 1 to 16 and 20 to 35. It is a consequential amendment. A reference to English producers is no longer needed as an English producer will fall within the definition of “UK producer” inserted by amendment 1.
Amendment 20, in clause 6, page 5, line 46, at end insert “(subject to subsection (4))”.
This amendment is linked to amendments 1 to 16, 19 and 21 to 35. It flags the provision made by amendment 29.
Amendment 21, in clause 6, page 6, line 4, leave out “or (4)” and insert
“(a) to (c), (l) or (m)”.
This amendment is linked to amendments 1 to 16, 19, 20 and 22 to 35. It is consequential on amendments 3 and 4.
Amendment 22, in clause 6, page 6, line 8, leave out “or (4)” and insert
“(a) to (c), (l) or (m)”.
This amendment is linked to amendments 1 to 16, 19 to 21 and 23 to 35. It is consequential on amendments 3 and 4.
Amendment 23, in clause 6, page 6, line 11, leave out “to (g)”.
This amendment is linked to amendments 1 to 16, 19 to 22 and 24 to 35. It is consequential on amendments 25 and 26.
Amendment 24, in clause 6, page 6, line 12, leave out
“either of the matters specified in section 264A(4)”
and insert
“any of the matters specified in section 264A(2)(d) to (f), (l) or (m)”.
This amendment is linked to amendments 1 to 16, 19 to 23 and 25 to 35. It is consequential on amendments 3 and 4.
Amendment 25, in clause 6, page 6, line 13, at end insert—
“(ca) in relation to a person falling within subsection (1)(f) or (fa), the purpose is that of exercising functions connected with any of the matters specified in section 264A(2)(g) to (i), (l) or (m);”.
This amendment is linked to amendments 1 to 17, 19 to 24 and 26 to 35. It is consequential on amendments 3, 4 and 17.
Amendment 26, in clause 6, page 6, line 13, at end insert—
“(cb) in relation to a person falling within subsection (1)(g) or (ga), the purpose is that of exercising functions connected with any of the matters specified in section 264A(2)(j) to (m);”.
This amendment is linked to amendments 1 to 16, 18 to 25 and 27 to 35. It is consequential on amendments 3, 4 and 18.
Amendment 27, in clause 6, page 6, line 17, leave out “(c)” and insert “(cb)”.
This amendment is linked to amendments 1 to 16, 19 to 26 and 28 to 35. It is mainly consequential on amendments 25 and 26.
Amendment 28, in clause 6, page 6, line 20, leave out “or (4)”.
This amendment is linked to amendments 1 to 16, 19 to 27 and 29 to 35. It is consequential on amendments 3 and 4.
Amendment 29, in clause 6, page 6, line 20, at end insert—
“(4) The Welsh Ministers may disclose any confidential or commercially sensitive information disclosed to them under subsection (1) to any of the following persons—
(a) a Local Health Board or other person appointed under section 88(3)(b) of the National Health Service (Wales) Act 2006 to exercise the functions of a determining authority under Part 7 of that Act;
(b) a National Health Service trust established under section 18 of the National Health Service (Wales) Act 2006;
(c) any person who provides services to the Welsh Ministers or to any person falling within paragraph (a) or (b).
(5) A person to whom any confidential or commercially sensitive information is disclosed under subsection (4) may not—
(a) use the information for any purpose other than the purpose of exercising functions connected with any of the matters specified in section 264A(2)(d) to (f), (l) or (m), or
(b) disclose the information to another person.”.
This amendment is linked to amendments 1 to 16, 19 to 28 and 30 to 35. It allows the Welsh Ministers to disclose information to other persons including Local Health Boards, National Health Service trusts and persons providing services to those persons.
Amendment 30, in clause 6, page 6, line 24, leave out “English producers or other”.—(Mr Dunne.)
This amendment is linked to amendments 1 to 16, 19 to 29 and 31 to 35. It is a consequential amendment. A reference to English producers is no longer needed as an English producer will fall within the definition of “UK producer” inserted by amendment 1.
Question proposed, That the clause, as amended, stand part of the Bill.
Mr Dunne
Before I go into the clause as a whole, I would like to respond in further detail to the hon. Member for Central Ayrshire about excepted persons. Clause 6 will add a new section to the National Health Service Act 2006. It brings together information collection practices, both statutory and voluntary. The Secretary of State collects information from a sample group in England from time to time, but not from GPs and pharmacies in the devolved Administrations. Therefore, the definition of “excepted persons” covers those persons whom the Secretary of State does not intend to collect information from directly, because he would be relying on the devolved Administrations to do so. The terminology used in proposed new section 264B is new; it is not based on the 2006 Act, which the hon. Lady has read so diligently. I thank her for bringing the matter to the Committee’s attention and I hope that that explanation meets her concern.
Dr Whitford
To clarify, is there a rational reason for the positioning of the section as between English health service products and the other health service products? I am sorry if, as a novice, I am creating extra work.
Mr Dunne
I think that is to do with parliamentary drafting on which I stand to become an expert; I look forward to seeing whether there is a clear explanation for that, which I can give to the hon. Lady as we debate the clause.
The clause enables the Secretary of State to make regulations that require any person who manufactures, distributes or supplies health service products, which includes health service medicines, medical supplies and other related products, to keep, record and provide on request information on prices and costs.
The clause brings together and consolidates existing information requirements related to controlling the costs of health service medicines, as well as medical supplies, in one place in the Act, as we discussed this morning. It also allows the information to be used for the purposes set out in the clause.
The clause also expands and strengthens our information collection. It enables the Government to make regulations to put current voluntary information provision arrangements on a statutory footing. For example, we collect information from manufacturers and wholesalers of unbranded generic medicines and specials to inform reimbursement arrangements for community pharmacies. The Bill will enable us to make regulations to get information on more products and from more companies. That is necessary to ensure that reimbursement prices for pharmacies reflect market prices of the whole market, rather than just of those companies that currently supply data to us. As in any industry, there are new market entrants and participants leave the market; this is a dynamic market and we need the flexibility to bring in new products from new companies.
The clause will also enable the Government to collect information to assure us that adequate supplies of health service products are available, and that the terms on which they are available represent value for money. If we were to have concerns about the supply chain or parts of it, or about specific products, we could obtain information from companies in the supply chain to assure us that the products, or the supply chain, provided value for money to the NHS and the taxpayer. Although the Government are generally not the purchaser of health service products, they do pay for them and therefore transparency and value for money of the supply chain are important. For example, if we were to consider limiting the price of a high-priced generic, the power to obtain information would be crucial to determine whether excess profits were being made. We could obtain information from a manufacturer, which would help us to determine whether the price it was charging the NHS was unreasonably high. That information would also inform our decision on what the right price should be.
The purposes for which the Government can collect information are limited and involve three areas: cost and pricing schemes, reimbursement of pharmacies and GPs, and assessing value for money. The clause provides the Secretary of State with the power to request any information for the purposes set out in the Bill. It also provides an indicative list of the type of information that the Secretary of State may request. Most of the types of information listed are already collected by the Government under statutory or voluntary arrangements.
The clause will also enable the Government to share information with a range of bodies, including Ministers in the devolved Administrations, the NHS, other Departments and persons providing services to those prescribed bodies.
Rob Marris
In the Minister’s helpful letter to the hon. Member for Vale of Clwyd, sent yesterday, he said:
“At this moment the Government does not foresee any routine collections for those involved in the manufacture, distribution or supply of medical supplies”.
I just understood the Minister to say—he will correct me if I misunderstood—that in certain non-routine circumstances in relation to medical supplies, the Government may wish to have information. I understand that, but I must say to him that that might create a problem for those medical suppliers that are not routinely supplying information, but feel that they still have to keep all the information as outlined in the clause just in case a little way down the road the Government decide that the circumstances are exceptional. Will he clarify that?
Mr Dunne
I am grateful to the hon. Gentleman for raising some of the practical requirements of collecting and retaining data. Particularly in relation to medical supplies, where we have this power already but have not exercised it, I can understand a potential anxiety that we may be changing the basis on which companies are requested to retain information. We will be consulting industry on the regulations, and a draft is available in the pack. Our intent is not to add to the burden, particularly on small companies, of retaining extra data that may never be called upon.
We will use the consultation to try to be as pragmatic as possible but, in the event of information becoming apparent to us within a reasonable period, we may wish to be able to go back and look at the data. The natural place to start the data gathering is the information that companies are obliged to retain for other Government purposes, such as HMRC requirements to retain information for six years. That will be our starting point in identifying the duration, the type of information and the manner of retention. We are not, in the first instance, looking to add an additional burden.
During the consultation, we may decide that there is some information that is routinely kept by companies that supply the NHS that it would be desirable for them to continue retaining for the same period but, as I stand here today, I do not have examples. I am sure an ingenious mind could come up with a devilishly clever example of information that would be useful, but I hope the hon. Gentleman will not be tempted by me to do so.
Maggie Throup (Erewash) (Con)
The Minister says that he will continue to consult industry bodies, and there are some obvious bodies that I am sure he will have around the table. Can he reassure us that it will not just be the large bodies and that he will invite some of the smaller trade organisations to the consultation, too?
Mr Dunne
Yes. I am grateful to my hon. Friend for that intervention. We intend to consult the trade associations that we have already been consulting. As I said to the hon. Member for Wolverhampton South West, we do not intend to add unduly burdensome information requirements. One issue that we have agreed to consider in the consultation is the suggested size of business that should be capable of providing information. We have an SME definition in the regulations that is not precisely the same as other SME definitions elsewhere across Government, and we need to consider that carefully in the consultation so that we are not unduly burdening small companies.
Having said that, there are examples of pharmaceutical providers that may be large companies in other countries but are supplying through a UK subsidiary or a non-UK EU subsidiary that maintains a very small number of employees in this country, that therefore may fall within the more widely used SME definition but that nevertheless is a relatively large supplier of pharmaceutical products to the UK. There is a balance to be struck in ensuring that the universe of companies that we ask to retain data is big enough to capture reasonably large suppliers, even if technically those suppliers may fall within an SME definition.
The Chair
Order. The TV cameras are broadcasting this debate live, and I am sure the public want to see more of the Minister than our colleagues. It would be good if he faced inwards.
Mr Dunne
Mr Pritchard, your alertness to the media never leaves the forefront of your mind. I am grateful to you for drawing to my attention the fact that others are potentially listening to our proceedings.
It will be a public consultation, so companies that feel they have an interest will have every opportunity to participate. We have already engaged with a wide range of industry bodies in both medical supplies and medicines to draft the regulations.
Fortunately, inspiration has arrived to address the persistent comment from the hon. Member for Central Ayrshire about drafting. I hope that what I am about to say will satisfy her. She referred to amendment 11, which we have agreed. The Bill currently refers to purposes that are England-only and those that are reserved. The amendments refer to purposes that are England-only, Welsh-only, Scottish-only, Northern Irish-only and reserved. It is therefore necessary to make a distinction between products supplied to the health services in each of the different nations. If that leads to some disorder in how the measure has been written, I can but apologise to the hon. Lady. She has done a good service to the Committee in pointing that out, but that is as far as I am able to go on the matter today.
Clause 6 enables the Government to share information with representative bodies providing services, in addition to the bodies I have referred to. It restricts the use of information that is confidential or commercially sensitive to the defined purposes in the Bill. That is deliberate. It is important to provide commercial suppliers to the NHS with some confidence that any information they supply which may be commercially sensitive—of course, margin information is commercially sensitive—will not be capable of being disseminated beyond the prescribed bodies. The clause also enables the Government to prescribe in regulations representative bodies with which they may share information. In the illustrative regulations, we have prescribed a number of those bodies. There is also the possibility to prescribe other persons in regulations in due course, should suitable bodies emerge.
The illustrative regulations that the Government have provided to help the Committee scrutinise the clause demonstrate our intentions in this area. The regulations distinguish between routine collection and non-routine collection of information. Routine collections mostly include information that we are already collecting under voluntary arrangements. On a non-routine basis, we would collect information to satisfy ourselves that the supply chain provides value for money. We do that at present through sampling collections from time to time, particularly among the smaller providers and pharmacies. We will consult with stakeholders to determine whether the obligation to keep and record information will be any more burdensome than the existing obligation to keep these data for tax purposes, as I have said.
Committee members will see that we have made provision for SMEs in the illustrative regulations, which I touched on in response to my hon. Friend the Member for Erewash. For the purposes of the illustrative information regulations, SMEs can, where appropriate, provide the Government with the information requested by providing us with invoices. That is how we currently collect information from pharmacies, which we believe places a proportionate and modest burden on them.
The clause covers medical supplies and other related products, streamlines existing provisions for medical supplies and aligns them with those for medicines. Medical supplies and other related products are wide-ranging, and there are tens of thousands of items. In regulations, the Government will prescribe for which medical supplies information is required to be kept, recorded and provided on request.
The illustrative regulations set out the type of products that may be affected. The Government will consult publicly on that. The Government have tabled amendments to the clause to reflect the instructions of the devolved Administrations in this area. The Department already collects a considerable amount of information from across the supply chain. The clause streamlines existing statutory requirements, puts existing voluntary arrangements on a statutory footing and strengthens the collections. It also enables the Department to use the information collected for multiple but defined purposes. If hon. Members are satisfied with my explanation, I ask the Committee to accept that clause 6 stand part of the Bill.
Question put and agreed to.
Clause 6, as amended, accordingly ordered to stand part of the Bill.
Clause 7
Consequential amendments
Amendments made: 31, in clause 7, page 6, line 32, at end insert—
“(A1) Omit the following provisions of the National Health Service (Scotland) Act 1978—
(a) section 49 (control of maximum prices for medical supplies other than health service medicines), and
(b) Schedule 10 (additional provisions as to control of maximum prices for medical supplies other than health service medicines).”
This amendment is linked to amendments 1 to 16, 19 to 30, 32 to 35 and 38. The provision made by section 49 of, and Schedule 10 to, the National Health Service (Scotland) Act 1978 is superseded by the provision made in the amendments.
Amendment 32, in clause 7, page 7, line 7, leave out “English producers and other”.
This amendment is linked to amendments 1 to 16, 19 to 31 and 33 to 35. It is a consequential amendment. A reference to English producers is no longer needed as an English producer will fall within the definition of “UK producer” inserted by amendment 1.
Amendment 33, in clause 7, page 7, line 11, leave out “an English producer or other” and insert “a”.
This amendment is linked to amendments 1 to 16, 19 to 32 and 34 and 35. It is a consequential amendment. A reference to an English producer is no longer needed as an English producer will fall within the definition of “UK producer” inserted by amendment 1.
Amendment 34, in clause 7, page 7, line 17, leave out “English producers or other”.
This amendment is linked to amendments 1 to 16, 19 to 33 and 35. It is a consequential amendment. A reference to English producers is no longer needed as an English producer will fall within the definition of “UK producer” inserted by amendment 1.
Amendment 35, in clause 7, page 7, line 20, leave out ““English producer” and “other UK producer” are” and insert ““UK producer” is”.—(Mr Dunne.)
This amendment is linked to amendments 1 to 16 and 19 to 34. It is a consequential amendment. A reference to an English producer is no longer needed as an English producer will fall within the definition of “UK producer” inserted by amendment 1.
Question proposed, That the clause, as amended, stand part of the Bill.
Rob Marris
I hope the Minister does have a bit more to add. Clause 7 is very much the twin, or the other side of the coin, of clause 6. Clause 6 introduces big changes to the information supply regime, which we have just discussed. Clause 7 is getting rid of bits of the hitherto existing supply regime—not all of it, but bits. I want to probe him a little bit on that.
On page 7 of the Bill, clause 7(16) states:
“In Schedule 22 (provisions in relation to section 260) omit paragraphs 2 to 11.”
Schedule 22, paragraphs 2 to 11, of the National Health Service Act 2006 is about enforcement. I am probing the Minister, given our discussion this morning when I said, in relation to some parts of the Bill and this area of human endeavour, that it was the only area I am aware of where a criminal penalty regime appeared to have been 100% successful and there had been no such prosecutions—intimating, although not proving, that that wrongdoing had been dissuaded by the legislation. We then come to clause 7, and the enforcement regulations and regime are altered. I want to be reassured by the Minister that the alterations do not weaken the enforcement regime. I am applying the Marris test to it; I cannot read absolutely every word of the 2006 Act, which I was involved in 10 years ago and runs to 258 pages—I will not do that—but what is being removed is a whole lot longer than what is being substituted in. That may be a welcome shortening, clarification and simplification of the law, or it may be a weakening of enforcement. I hope that the Minister can elucidate to the Committee, in broad terms, whether it is the former or the latter.
Mr Dunne
I am astonished that the hon. Gentleman does not have complete recall of everything that was involved in the 2006 Act, given the assiduous way in which he approaches legislative scrutiny. Accepting that uncharacteristic lapse in his memory, I should perhaps have said that the subsections in clause 7 merely bring forward the relevant consequential amendments, following on from the earlier clauses, to the National Health Service Act.
This morning, we discussed the one material change in enforcement that we are introducing through the Bill: reducing the criminal penalty currently available under the 2006 Act for bad practice uncovered in the supply of medical supplies, so that it is in line with the enforcement regime for medicines. To that extent, if the threat of criminal sanction were—as hinted at by the hon. Gentleman—the primary reason for the lack of convictions of a criminal nature for the supply of medical supplies, he might have a legitimate concern that we are watering down an enforcement regime that had worked so effectively that there had been no prosecutions. I would gently say to him that, as far as I am aware, not only have there been no convictions, but there have been few if any—I hesitate to say none, because I might not be able to prove that—prosecutions under those sections in the 2006 Act against suppliers of medical supplies. That is as much because it has not been brought to the attention of the Department that there is abusive pricing behaviour happening in the medical supplies marketplace. For that reason, there have been no prosecutions and, therefore, no convictions. That is why we think it appropriate to remove the criminal sanction, so we may bring it into conformity with enforcement actions for medicines.
To put it in ideological terms, this is part of reducing the burden on business, because the power has proved to be one that is unnecessary for the Government to have—the power to introduce a criminal enforcement regime has not been used since its introduction by the hon. Gentleman in 2006.
Rob Marris
I understand what the Minister is saying. I am not in any way suggesting that the overwhelming majority of medical suppliers are on the straight and narrow only because they know what the penalties would be for going off the straight and narrow. However, he needs to be a little careful about the direction of his argument, because—I think he would agree, but he can say if he does not—if crime in the United Kingdom fell to zero, I would not suggest getting rid of all police officers. I would say, “They are doing a fantastic job and it’s great that we have all these law-abiding citizens. Let’s just encourage them to carry on being law-abiding by making it clear that there are enforcement mechanisms and penalties for not being so.” That is the philosophical, if not ideological, approach.
Mr Dunne
Well, we do not believe so. What we do believe is that it is more important for us to have a consistent approach to enforcement when it comes to any future breaches or alleged breaches in respect of supply to the NHS. Frankly, it will be easier for the NHS to manage and easier for the industry supplying us to operate if they are all operating within the same enforcement regime. Therefore, I commend the clause to the Committee.
Question put and agreed to.
Clause 7, as amended, accordingly ordered to stand part of the Bill.
Clause 8
Extent
Amendments made: 36, in clause 8, page 7, line 29, at beginning insert “Subject as follows,”.
This amendment is linked to amendments 37 and 38.
Amendment 37, in clause 8, page 7, line 29, at end insert—
“( ) Section (Provision of information to Welsh Ministers) extends to England and Wales only.”
This amendment is linked to amendments 36 and NC1. Its effect is that the provision made by NC1 will extend to England and Wales only.
Amendment 38, in clause 8, page 7, line 29, at end insert—
“( ) Section 7(A1) extends to Scotland only.”—(Mr Dunne.)
This amendment is linked to amendments 31 and 36. Its effect is that the provision made by amendment 31 will extend to Scotland only.
Question proposed, That the clause, as amended, stand part of the Bill.
Mr Dunne
This clause is the shortest in the Bill and it confirms the extent of the Bill as covering England and Wales, Scotland and Northern Ireland. I am sure we can all reach common accord in supporting the clause.
Question put and agreed to.
Clause 8, as amended, accordingly ordered to stand part of the Bill.
Clause 9
Commencement
Amendments made: 39, in clause 9, page 7, line 32, at end insert—
“( ) Section (Provision of information to Welsh Ministers) comes into force on such day as the Welsh Ministers may by order appoint.”.
This amendment is linked to amendments 40 to 42 and NC1. It makes provision for the Welsh Ministers to bring clause (Provision of information to Welsh Ministers) into force.
Amendment 40, in clause 9, page 7, line 35, at beginning insert “An order or”.
This amendment is linked to amendments 39, 41, 42 and NC1.
Amendment 41, in clause 9, page 7, line 38, at beginning insert “An order or”.
This amendment is linked to amendments 39, 40, 42 and NC1.
Amendment 42, in clause 9, page 7, line 38, after “section” insert “is or”.—(Mr Dunne.)
This amendment is linked to amendments 39 to 41 and NC1.
Question proposed, That the clause, as amended, stand part of the Bill.
Mr Dunne
Briefly, clause 9 deals with the commencement of the Bill and ensures that clauses 1 to 8 come into force as determined by regulations. As I have indicated, there will be a public consultation on the regulations. It is the Government’s intent that that consultation take place over the winter and it will conclude to enable the Bill to receive Royal Assent, following its passage through the House of Lords, by the end of the current Parliament.
Rob Marris
That is half of what I wanted to know—the Bill will have Royal Assent by then. Will the Minister say when it might come into force, pursuant to clause 9(2)?
Mr Dunne
The Department’s intent is for it to come into force as soon as is practicable. The timetable for their lordships’ House in determining legislation is way above my pay grade and, I would suggest, the hon. Gentleman’s. We are therefore in the hands of the parliamentary authorities, but it is certainly our hope and expectation that, with effect from 1 April, the regulations— [Interruption.] I am seeking inspiration from the Department.
Mr Dunne
I have had some extremely expert inspiration. In the event that their lordships choose to amend the Bill during its passage, it would be inappropriate to consult on the regulations finally until the Bill emerged from the other place. The consultation will therefore start as soon as we have Royal Assent, and the implementation of the proposals is therefore expected in the autumn.
Question put and agreed to.
Clause 9, as amended, accordingly ordered to stand part of the Bill.
Clause 10 ordered to stand part of the Bill.
New Clause 1
Provision of information to Welsh Ministers
“After section 201 of the National Health Service (Wales) Act 2006 insert—
“Provision of information about medical supplies etc
201A Provision of information by persons providing primary medical services or pharmaceutical services
(1) Regulations may make provision requiring any Part 4 provider or Part 7 provider to—
(a) record and keep information, or information of a description, specified in the regulations, and
(b) provide that information to the Welsh Ministers.
(2) Information, or a description of information, may not be specified in the regulations by virtue of subsection (1) unless the Welsh Ministers consider that the information may be required for the purpose of enabling or facilitating any of the following—
(a) the determination of the payments to be made to any Part 4 providers;
(b) the determination of the remuneration to be paid to any Part 7 providers;
(c) the consideration by the Welsh Ministers of whether—
(i) adequate supplies of health service products are available, and
(ii) the terms on which those products are available represent value for money.
(3) The information which the Welsh Ministers may require from a Part 4 provider or Part 7 provider by virtue of this section includes the following—
(a) the price charged or paid by the provider for health service products;
(b) the price paid by the provider for delivery or other services in connection with health service products;
(c) the discounts or rebates or other payments given or received by the provider in connection with the supply of health service products;
(d) the revenue or profits accrued to the provider in connection with the supply of health service products;
(e) such information about medicinal products, other medical supplies or other related products as is necessary to verify whether or not they are health service products.
(4) Regulations under this section may require information to be provided in such form and manner, and at such time or within such period, as may be prescribed.
(5) Regulations under this section may provide for a person who contravenes any provision of the regulations to be liable to pay a penalty to the Welsh Ministers.
(6) If regulations under this section make provision by virtue of subsection (5) they must include provision conferring on Part 4 providers and Part 7 providers a right of appeal against a decision of the Welsh Ministers to impose a penalty.
(7) The provision of information by virtue of this section does not breach—
(a) any obligation of confidence owed by the person providing it, or
(b) any other restriction on the provision of information (however imposed).
(8) In this section—
“health service products” means any medicinal products used to any extent for the purposes of the health service continued under section 1(1) and any other medical supplies, or other related products, required for the purposes of that health service;
“medical supplies” includes surgical, dental and optical materials and equipment;
“medicinal product” has the meaning given by section 130 of the Medicines Act 1968;
“Part 4 provider” means a person who provides primary medical services under Part 4;
“Part 7 provider” means a person who provides pharmaceutical services under Part 7.
201B Disclosure of information
(1) Information provided by virtue of section 201A may be disclosed by the Welsh Ministers to any prescribed person or person of a prescribed description.
(2) A person to whom any confidential or commercially sensitive information is disclosed under subsection (1) may not—
(a) use the information for a purpose other than a purpose specified in section 201A(2), or
(b) disclose the information to another person.
201C Sections 201A and 201B: supplementary
(1) Before making regulations under section 201A or 201B the Welsh Ministers must consult any body which appears to the Welsh Ministers appropriate to represent Part 4 providers or Part 7 providers.
(2) Nothing in section 201A or 201B requires information to be provided, or authorises information to be disclosed or used, in contravention of the Data Protection Act 1998.
(3) Nothing in section 201A or 201B affects any duties, obligations or powers to require or authorise information to be provided, disclosed or used which exist apart from that section.””.—(Mr Dunne.)
This new clause is linked to amendments 36, 37 and 39 to 42. Inserted after clause 6, the new clause allows Welsh Ministers to require the provision of information by providers of primary medical or pharmaceutical services under Part 4 or 7 of the National Health Service (Wales) Act 2006.
Brought up, read the First and Second time, and added to the Bill.
New Clause 2
Reporting requirements of the Secretary of State
“(1) Within 12 months of this Act coming into force, the Secretary of State must prepare and publish a report on the use of the Secretary of State’s powers under this Act and must lay a copy of the report before Parliament.
(2) The report under subsection (1) shall include an assessment of the impact of the use of the Secretary of State’s powers on—
(a) the availability and cost of medicines and other medical supplies to the health service and the terms upon which they are made available;
(b) research and development;
(c) the NHS’s duty to promote innovation.
(3) Subsequent to the publication of the report in subsection (1), as soon as is reasonably practicable after the end of each financial year the Secretary of State must prepare and publish a report on the use of the Secretary of State’s powers under this Act during the preceding financial year and the impact of the use of those powers on the matters under subsection (2), and must lay a copy of the report before Parliament.”.—(Justin Madders.)
This new clause would place a duty upon the Secretary of State to place a report before Parliament on an annual basis on the impact of the Act on the pricing and availability of medicines and other medical supplies, research and development and the NHS’s legal duty to promote innovation.
Brought up, and read the First time.
Justin Madders
I beg to move, That the clause be read a Second time.
As is explained in the explanatory note, the new clause would put a duty on the Secretary of State to place before Parliament an annual report on the impact of the Act and, in particular, on the pricing and availability of medicines and other medical supplies, research and development, and the NHS’s legal duty to promote innovation. I think we all agree that there are examples of unreasonable behaviour, but there may be occasions when there is a difference of opinion as to what amounts to unreasonable pricing practices, not least between the producers and the NHS.
We would be more assured if the consultation on the regulations had been completed by this stage. We are obviously not going to be in a position to know what that consultation has to say for some considerable time, so we believe the implementation of such a requirement would allow Parliament to scrutinise the impact of the legislation.
There has been some unease in the sector about the impact of the legislation and there is a certain amount of uncertainty, particularly around the future of the European Medicines Agency and the medium-term implications of Brexit not only for that agency, but for the research and development sector and the pharmaceutical industry as a whole.
We are one of the foremost countries in the world for drugs development, and our share of sales of the top 100 prescription medicines is 14%. The UK pharma industry employs 73,000 people, with very high-quality jobs in academia and science, but we cannot be complacent about the state of UK pharma, particularly as investment decisions are often made by parent companies in other parts of the world. That concern is compounded by the small volume of sales in the UK compared with other countries. We face increasing competition from emerging economies for R and D investment, with rapid growth in areas such as Brazil and China. That is not a new problem.
A report for the Secretary of State for Health by Professor Sir Mike Richards in 2010 on the extent and causes of international variations in drug usage explored levels of medicines uptake for 14 categories of drug in 14 high-income countries during 2008-09. The study showed that the UK ranked eighth out of the 14 countries. A follow-up study by the Office of Health Economics updated the quantitative analyses and ranked the UK ninth across all the medicines studied.
Apart from disadvantaging patients, the relatively low take-up of new medicines may put at threat R and D investment in the UK. We need some assurance on that and an ability to monitor and engage with the Government on it. We know many other countries are queuing up to take the European Medicines Agency off our hands, and there are real concerns about the knock-on impact of that.
The impact assessment for the Bill says there will be a reduction in revenue for the pharma sector, unsurprisingly. It also says:
“Reduced pharmaceutical company revenues are also expected to lead to a reduction in investment in research and development… and consequent losses of spill-over benefits for the UK economy, valued at £1.0m pa.”
While we agree that it is vital that those who abuse the system to drive obscene profits for themselves are dealt with, we do not wish to find the UK becoming a less attractive place for research and investment because other countries have made themselves more attractive.
We ask that the report become an annual feature of the Secretary of State’s duties to ensure that we can judge the effectiveness of the Bill. The converse point is that if we continue to see price increases, we want to be assured that the regulations are effective in driving best value for the NHS.
Dr Whitford
I rise to echo some of the points raised. We have discussed a lot of issues around the decision to leave the EU, including the loss of the EMA. As well as possibly losing international and multinational pharmaceutical companies—particularly those from the London area, which have based themselves here because of the EMA—it is clear that drugs may end up going through a licensing process for the UK later than is currently the case. They are likely to go through the American market and then the EU market, which will still have 450 million people, and we are likely to slide down to be more like Canada and some other countries. This is a very unstable time for research, because of the loss of Horizon 2020 and the EMA, and for our pharmaceutical industry, which is a major player in the UK. It is incumbent upon Government to ensure that the Bill has no unintended consequences that exacerbate that.
Mr Dunne
I thank the hon. Member for Ellesmere Port and Neston for raising the issue of reporting requirements, which is very important. I will come on to explain what is currently proposed through regulation. The hon. Gentleman and the hon. Member for Central Ayrshire mentioned the risks to investment in this country for our critical life sciences and pharma industries, which is a legitimate concern that the Government share. Irrespective of the manner in which Brexit takes place, it is important that we maintain the UK as a vibrant centre for such investment. We are aware of concerns from industry about the wider landscape, including Brexit, but the Bill is about getting value for money for the NHS and the taxpayer. It is just one element of the action that the Government are taking in the field of medicine and life sciences. Key industry stakeholders have indicated their support for many of the provisions in the Bill, as we heard in last week’s oral evidence session, and for the broad principles of aligning the voluntary and statutory schemes and taking action against those companies that have made unjustified price hikes.
Separate from the Bill, the Government are taking action to secure the UK’s future as an attractive place for the life sciences sector. We are clear in our commitment to life sciences, and to building a long-term partnership with industry. As an example, I draw Members’ attention to the accelerated access review, which made recommendations on reforms to accelerate access to innovative medicines and medical technologies for NHS patients. The Government and our partners are considering those recommendations, and we will respond in due course. We want to make the UK the best place in the world to design, develop and deploy life sciences products. We do not believe that the Bill will have any material impact on that effort, other than the minor impact noted in the impact assessment, which was referred to by the hon. Gentleman.
I point Committee members to the illustrative regulations for both the statutory scheme and the information provisions. First, the final regulation—regulation 32 on page 16 of the draft regulations—refers to the publishing of an annual report on the impact of the regulations. I think that is what the new clause is calling for, but it is already intended in the regulations. Secondly, the final regulation of the information provisions—regulation 14 on page 8—refers to the publication of a review of the information requirements we are proposing.
I accept that reporting is an important principle, but we believe that setting out the requirement to do so in primary legislation is too restrictive. It is expected that, over time, both the statutory scheme and the information requirements will be amended through their respective regulations to reflect changing circumstances. It is essential that the review and reporting arrangements can be similarly flexible so that they remain appropriate to the schemes in operation. Were the new clause introduced as the hon. Gentleman proposes, there would be a lot of prescription in primary legislation. Given the pressures on legislative time, we do not believe that that is the right way to do it.
I reassure Opposition Members that our illustrative regulations require an annual review to set out the scheme’s objectives, and to assess the extent to which our objectives have been achieved and whether they remain appropriate. Those requirements will be tested through the consultation on the regulations. We will of course take account of the views expressed. Much of the information provided to the Secretary of State will be commercially confidential. I am sure that suppliers have every confidence that the Government will maintain that confidentiality in anything they publish, but I want to take this opportunity to reinforce that principle.
Rob Marris
If the draft regulations are to pass into legislation as currently drafted, I congratulate the Government on the annual review in draft regulation 32 and its Doppelgänger in draft regulation 14. They are excellent, because they actually talk about assessing the effectiveness, or otherwise, of a particular piece of legislation. That is often sorely lacking in this place, so I offer my congratulations.
Mr Dunne
Rare praise indeed from the hon. Gentleman. That is definitely going to go down in the annals of the Wolverhampton Echo, which I am sure will attribute an appropriate front page to that praise for the Government from the Member of Parliament.
To revert to where I had got to, I am sure hon. Members appreciate that there is clearly a limit to the level of detail we are able to publish, and I am sure that hon. Members appreciate that. Any information that we publish will be at a consolidated level, protecting suppliers’ confidentiality, which I have touched on several times, but will allow the Secretary of State to be clear on the basis of the conclusions to his review. We will, of course, be able to use supporting information to evidence our conclusions.
Turning for a moment to the detail of the proposed new clause, while the requirements set out in it reflect the duties placed on the Secretary of State in the Bill, I must be clear that the content of such a report should not be restricted. It must be able to address key issues arising during the course of the year, in the case of the annual report, and during the seven-year duration of the information regulations, in the event that such implications might have an impact on the operation of the schemes. Flexibility is at the heart of our proposals to address the issue through regulations. It would not be appropriate for such a report to address matters relating to the NHS duty to promote innovation. That is the one point of more substantive difference that we have with the drafting proposed by the hon. Member for Ellesmere Port and Neston.
We have already discussed the Government’s position on innovation. We are very clear that we are for it, as is the hon. Gentleman. However, we do not think it is appropriate to link measures in the Bill to that issue, which is a wholly different and much more wide-ranging issue than the narrower one of pricing and the cost of the medicines and medical supplies.
Julie Cooper (Burnley) (Lab)
Does the Minister agree that there is a direct connection between control of the price of medicines and innovation, and that, if we do not achieve the correct balance, pharmaceutical companies will lack the motivation to invest in the extensive research and development that we all want to see?
Mr Dunne
I do not actually agree that there is a direct link. There is no question but that, in order to stimulate continued investment in R and D, it is appropriate for the industry to see a stable marketplace in a country as significant and important as the UK, and throughout the nations of the UK, for medicines and medical supplies. We are a large market. We spend more than £15 billion a year on pharmaceutical products, and we are also acknowledged by those companies to be a reference market for many other countries that do not have such a large or well-organised supply chain as we do. I accept that, in principle, it might be rather different if this were an emergent market.
Individual drugs are emerging through R and D programmes, but I do not think that is the same as the measures we are introducing, which are primarily designed to limit excessive abuses of pricing position, in which a company may be a monopoly supplier, in the case of the unbranded generics. For the branded products, we have a long-established procedure for recognising the recovery of R and D costs through the pricing mechanisms, and while we may not like paying for some of those branded products at the rate that we have to, we recognise that it is a competitive marketplace and, because of the cost of innovation—the cost of conducting clinical trials and so on—it is necessary to stimulate that innovation to ensure that those companies make a reasonable profit.
Promoting innovation is a high priority, not only for the Government and the NHS but for many other stakeholders in the industry. In our view, it would not be possible to quantify the contribution of the schemes in the Bill to that endeavour, for the reasons I have discussed. Trying to assess the impact on innovation is a much wider endeavour that does not just rely on price. For those reasons, I urge members of the Committee to reject the new clause.
Justin Madders
I hear the Minister, but I have to say that I respectfully disagree with some of what he said. I think there is a direct connection between the effects of the Bill and the impact on research and innovation. That is what the impact assessment clearly states. I feel that having draft regulations that have not yet been consulted on is not an adequate substitute for the assurances that we are seeking.
Mr Dunne
I am grateful to the hon. Gentleman for letting me intervene. We are not saying ourselves that there is no such direct relationship between innovation and the cost of drugs; we are taking evidence from a report on “Key Factors in Attracting Internationally Mobile Investments by the Research-Based Pharmaceutical Industry”, which was undertaken by NERA Economic Consulting, and from a publication specifically on the voluntary scheme by the Office of Fair Trading. Both those documents date from 2007, when the hon. Gentleman’s party was in office. The impact assessment, as he pointed out, refers to an impact of £1 million, which needs to be set against the benefit of close to £90 million that the high-value generic clauses impact. We therefore think, relatively speaking, that it is not significant.
Justin Madders
We will have to see whether those figures and estimates become reality, in particular in the light of the fact that the industry has not yet seen the regulations proposed. The approach is a wider one, based not only on the impact on research and development but on the continued duty of the NHS to promote innovation and the way in which the powers will affect the availability and cost of medicines and medical supplies. I will press this to a vote.
Question put, That the clause be read a Second time.
Dr Whitford
I beg to move, That the clause be read a Second time.
The point of the new clause is to explore a particular problem with what the Minister referred to earlier as “specials”. They are unlicensed preparations, often topical medicines, often used for severe skin conditions such as hard-to-control psoriasis. The British Association of Dermatologists reports that patients in England, Wales and Northern Ireland are struggling to get them prescribed, because the costs have spiralled out of control.
In Scotland, until last September, three quotes had to be obtained and one of them had to be from an NHS manufacturer. That has been streamlined, and a single quote, provided it is from an NHS manufacturer, is now acceptable. The British Association of Dermatologists looked at the 12 top specials that its members prescribe and estimated that if an NHS manufacturer had been used, instead of £845,000, the cost would have been £162,000. The association also reported that several private manufacturers are keeping two price lists—one for Scotland and one for England—and some of the dermatology items in England are eight times the price in Scotland.
That is literally holding people to ransom, and the result, because CCGs are hard pressed for cash, is that they are not comfortable funding specials and GPs are not allowed to prescribe them. Anyone who has ever had a dermatological condition of any kind, or knows someone who has, knows how unpleasant and utterly dominating of one’s life it can be. It is awful that patients, in particular in England, are not able to access such medicines. The new clause is looking at whether specials will be covered and whether enough attention is to be paid to them. The number of patients is small—hence the top 12 still come to less than £1 million—but for those patients this is a major issue.
Mr Dunne
Again, I am grateful to the hon. Lady for drawing the Committee’s attention to the issue. I confirm, for the benefit of the Committee, what the specials are—she has characterised them well.
From our perspective, unlicensed medicines or specials can be manufactured or imported to meet a patient’s individual needs when no licensed product is available. By their nature, specials are bespoke, and costs need to be balanced against the availability of treatment for an individual. I am aware of concerns that some specials, especially those not listed in the drug tariff, are not being prescribed because of their cost—the hon. Lady highlighted those for dermatological treatment. It must be recognised, however, that with specials, because of their bespoke nature, there are few if any economies of scale and they can be expensive to manufacture.
Under section 262 of the 2006 Act, the Government have the power to limit the price of any health service medicine, as long as the manufacturer is not in the voluntary scheme. Manufacturers or importers of specials are generally not in the voluntary scheme. Specials are health service medicines and we can therefore limit their prices. At the moment, the Government do not use their power to control the prices of specials. The hon. Lady gave an example, without naming the product, of a significant price differential between Scotland and England; if she is willing to write me a note after the Committee, I am interested in exploring why we have chosen not to take advantage of the power that we already have in that case, because on the face of it, it would appear to be an example of where the power perhaps ought to be used.
Dr Whitford
While there are not major economies of scale, if national health manufacturers are used, it is possible at least on a regional basis to pool some together. As things are at the moment, a pharmacy can simply approach its sister or mother company and ask for a price, which creates a vested interest in making the price high. I think that things can be done, which seem to be working in Scotland, so they are worth trying.
The Chair
Order. We have a Division in the House, so I will suspend the sitting. If there is one vote, may I ask Members not to take longer than 15 minutes to return and, for every subsequent vote, no more than 10 minutes? The Committee will sit after 15 minutes.
Mr Dunne
As we broke—literally, I was saved by the bell—I was describing how setting prices as suggested by the new clause could have unintended consequences. We are concerned that it may lead to manufacturers stopping the production of some specials if they are no longer profitable and patients facing adverse consequences.
By setting reimbursement prices in the drug tariff in primary care, the Government encourage pharmacy contractors to source specials as cheaply as possibly, which in turn creates competition in the market and, as a result, reimbursement prices decrease. For those specials not listed in the drug tariff, pharmacy contractors have no incentive to lower the list price. Currently, less than 1% of the total expenditure on medicines in primary care is on specials. Nevertheless, I believe those products, like all other products destined for the health service, should provide value for money to the NHS and the taxpayer. The information power in the Bill will help the Government to determine whether the products provide value for money and the illustrative regulations include an obligation to review those provisions.
The new clause would require the Secretary of State to commission a review of the adequacy of existing powers to control prices of specials, including the enactment and enforcement of those powers. The Government keep their power to control prices under review all the time; it was a review of those powers that led to the Bill in the first place. The Government believe that we have sufficient powers to limit the prices of specials if need be. The hon. Member for Central Ayrshire appears to have evidence of specials being priced to Scotland materially more advantageously than to England. If she would be willing to make that information available to us, we would be delighted to consider it.
Dr Whitford
I wonder whether the Government have given any consideration to having NHS manufacturers provide these products or to including some of the topical specials in the drug tariff, so that the price is kept down. Otherwise, despite the Bill, these drugs will be left outside its provisions. They are going to be too expensive and patients will suffer from that.
Mr Dunne
For the reasons that I have said, we have the power to look at the pricing of the specials already and we have not had evidence that the pricing has been abusive. We already have that power. We will keep prices and specific drugs under review. The best way to take that forward is to leave the powers as they are and not to proceed with the new clause, but to invite hon. Members to highlight specific examples that they are aware of.
Rob Marris
The Minister says that the Government have the power. He may well be right, but for us lay people these are quite complex issues. The power to which he adverted is section 262 of the 2006 Act, which, as far as I can see, is not amended by clause 7 of the Bill. As I understand it, section 262 continues unamended. Section 262(2) says:
“The powers conferred by this section are not exercisable at any time in relation to a manufacturer or supplier to whom at that time a voluntary scheme applies.”
This may well be my ignorance when it comes to topical medicines, specials and so on. Perhaps all specials are produced by manufacturers or suppliers that are not in the voluntary scheme. I can see the possibility. If the Minister can confirm that, I will see that section 262 does not apply.
Mr Dunne
The hon. Gentleman has again surprised me by apparently not being as attentive as usual to the comments that I made earlier. I said while introducing the new clause that manufacturers or importers of specials are generally not in the voluntary scheme. There may be some exceptions, but by and large, they are not. Therefore, we are in a position to limit the price of specials, but as a rule we have not adopted that power.
Rob Marris
That is helpful of the Minister, but it still confuses me a bit, and I hope that he can help to elucidate. He said that manufacturers and suppliers are not generally in the scheme; that is the adverb that he used a moment ago. That suggests to me that some of them might be, and would therefore not be subject to the section 262 price controls, which he prays in aid when he says, as I understood him to say to the hon. Member for Central Ayrshire, “Nice try, but no cigar. We’re not going to accept this.” One reason that he gave—not the only reason—was that we already have the power. The adverb “generally” suggests to me that in relation to some companies, we do not.
Mr Dunne
But this applies to all companies in the voluntary scheme. There is no particular difference between a special and a non-special. If a company is supplying products in the voluntary scheme, it is in the voluntary scheme. Therefore, it is at the negotiating table when it comes to considering the circumstances in which it supplies those products. If the company is in the scheme, that includes the specials.
Rob Marris
I thank the Minister; that is helpful. He is on top of his brief, as ever, and needed no inspiration to tell me that. It is helpful. The power does exist. I would like to ask the hon. Member for Central Ayrshire, because she has considerable expertise in the field. My expertise, such as it is, is as a lawyer. I see in her new clause the words
“ unlicensed medicinal products for human use”.
She may be able to tell me, because it is her new clause and she may have been looking at this issue. Where in the 2006 Act, or indeed in the Bill, although I think not, can we find what that phrase means? It may well be understood by medics—the topicals, the specials and so on—but it may not be understood by judges, for example. Can she help me on that when she winds up this debate? Otherwise, it seems to me as a layperson that the phrase
“ unlicensed medicinal products for human use”
could cover homeopathic so-called remedies. I do not think that the Secretary of State should be reviewing the pricing of homeopathic remedies.
To make my position clear, I think that homeopathy is bad science and a load of nonsense except for the placebo effect, but I use it as an example of unlicensed products that claim to be medicinal. I suspect that the hon. Member for Central Ayrshire would agree with my broad characterisation of homeopathic so-called medicines, apart from the placebo effect. What does that phrase in her new clause mean, and is it defined anywhere in law, or is it so obvious to medics that they and everybody in the pharmaceuticals business know what it means?
Dr Whitford
The phrase is the standard definition of specials. I cannot remember off the top of my head where exactly it comes from, but it is the recognised definition. It would not usually mean things such as homeopathic medicines. It is often things that are quite old and that have been around a long time that are not worth licensing, because they are not new and nobody will make any money out of them. We have a lot of products like that, but they are recognised within the practice of medicine. They are particularly common within dermatology, because of different topicals and the need to make different strengths of topical depending on the condition being treated.
I wanted to try to draw attention to this matter. The Minister has said that the Government have had the power all of this time and not used it. In part it is about bringing powers into line and creating consistency. I call on him to use those powers. Even though only a relatively small percentage of drugs are affected, the impact on patients from not being able to access them is significant. I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
New Clause 4
Review of extending provisions to repurposed off-patent drugs
‘(1) Within six months of the passing of this Act, the Secretary of State shall commission a review on whether the provisions of this Act shall extend to the regulation of the prices of repurposed off-patent drugs and shall lay the report of the review before the House of Commons.’—(Dr Whitford.)
Brought up, and read the First time.
Dr Whitford
I beg to move, That the clause be read a Second time.
The new clause seeks to explore one of the other anomalies that was challenged through a private Member’s Bill last November but unfortunately was talked out by the Minister at that time: repurposed off-patent drugs. Those are drugs designed for a particular use that, often during their use for that condition, contribute in relation to another condition.
Today, we have had considerable talk about the need to support pharmaceutical industries and encourage research and development, but the finding of a new purpose for a drug rarely comes from the pharmaceutical industry; it is usually done at a clinical or academic level through noticing patterns in clinical practice and following those up with trials. It is therefore not really something for which the pharmaceutical industry should receive a major award financially, although naturally if more of a company’s drugs sell and it is still producing them, it will see a benefit, which is totally fair enough.
One of the concerns is that, for a medic under the General Medical Council, there is a hierarchy of what we can prescribe, and at the top of that is licensed drugs for the purpose of the licence. Below that come repurposed drugs, which are therefore not licensed for that purpose. It is specifically stated that “they do the same” is not a sufficient excuse for using an off-patent generic drug.
With some of the drugs we have, new purposes are being discovered. Some statins can reduce brain atrophy in progressive multiple sclerosis. We have, as was referred to earlier, the use of bisphosphonates to prevent metastatic breast cancer and the use of tamoxifen to try to prevent breast cancer. That Bill was partly about trying to promote the use of those drugs, because they are off-patent and cheap, but one of the concerns among the medical profession is about a drug company buying a drug, tweaking it ever so slightly and then suddenly re-releasing it as a drug for multiple sclerosis at 10 grand a day instead of sixpence. What I do not see in this Bill is a recognition of the ability of people to come back and license a drug and totally change the price or to manufacture that drug simply as a generic with a massive price.
There was a case with the drug Lyrica, which is also known as pregabalin. The commonest use of that is for neuropathic pain: people who have had nerve damage from surgery or trauma and have difficult-to-control pain. The drug was originally designed for epilepsy, and Pfizer, which makes it, managed to get a court order saying that the patent on its use for neuropathic pain would continue to 2017 and that it would sue general practitioners who prescribed it as generic. That case has run for quite a long time, and I am proud to say that GPs basically ignored that order and have used the generic, but the advice of NHS England, which still sits on the website, says that GPs must prescribe Lyrica as Lyrica, which is obviously much more expensive. Therefore, over the last year GPs have had to be sitting out there exposed, open to the threat of litigation.
That is a real concern with repurposed drugs. That profit has been earned not by pharma’s research but by the research of other people usually in the public sphere: academics and in the NHS. Again, the new clause is to raise an issue that is not covered in the Bill and to see whether it has been considered at all by the Government.
Mr Dunne
I am grateful to the hon. Lady for raising this issue by tabling her new clause, because it gives us an opportunity to discuss an issue of considerable interest across the House. I am delighted to be able to inform the Committee that we do not believe we need to review whether the Bill’s provisions should be extended to repurposed off-patent drugs, because they will apply to those drugs whether they are licensed branded medicines or generic medicines. The new clause is therefore not necessary, because those drugs are already included.
Any licensed branded medicines that are developed may be included in either the voluntary or statutory scheme and be subject to all the provisions of those schemes. Unbranded generic medicines are subject to competition in the market, which keeps prices competitive and secures value for money. As we know, and have already debated today, there are examples of unscrupulous companies making unjustified price hikes for unbranded generic medicines when there is no competition in the market. As we have said, both today and on Second Reading, the Bill provides the Secretary of State with powers to intervene in such cases, in addition to the powers that the Competition and Markets Authority can exercise.
Having once again explained the specifics of how repurposed medicines will be affected by the Bill’s provisions, it might be helpful if I outline for the Committee some of the progress that has recently been made in supporting repurposing. For the reasons the hon. Lady identified, repurposing has benefits for patients in allowing drugs to be introduced as quickly as possible to provide alternative treatments to those originally intended by their manufacturers, where there is robust clinical evidence for new uses of existing medicines. Since November last year, a range of organisations have come together to work collaboratively to examine the issues at play in drug repurposing and to develop positive ways of handling those issues to ensure that patients benefit from robust research outcomes.
Officials in the Department have been working on the issue with the Association of Medical Research Charities and many of its members, as well as with NHS England, NICE, the publishers of the “British National Formulary” and the Medicines and Healthcare Products Regulatory Agency. All are committed to taking non-legislative measures to make sure that there is a clear and accessible pathway to ensuring that robust evidence showing new uses for existing drugs can be brought more systematically into clinical practice to benefit patients. That working group has made significant progress, and I would like to thank the organisations that have come together in a true spirit of co-operation to achieve rapid progress.
The General Medical Council has provided better advice for doctors about prescribing drugs outside their licensed indications, when that is clinically indicated. The “British National Formulary” has introduced new processes to ensure that information about repurposed drugs is captured more systematically and is therefore much more readily available for the clinical prescribers whom the hon. Lady referred to as the people at the forefront of this innovation. The Committee has heard from Dr Keith Ridge about the role that regional medicines optimisation committees will be asked to take in supporting prescribers to take up and use new evidence, particularly about unlicensed medicine use. Significant work has also been done on the development of a pathway that maps the routes from research result into clinical practice, which will help researchers and clinicians ensure safe and timely implementation.
NICE has published more than 50 evidence summaries for unlicensed and off-label uses of medicines. Although I said I did not want to go into detail, there are a couple of examples that the hon. Lady will be familiar with but other members of the Committee might be less so. NICE has made recommendations and guidelines on the use of tamoxifen to prevent familial breast cancer, and on the use of antidepressants—selective serotonin reuptake inhibitors—to treat irritable bowel syndrome.
I hope that with that explanation, hon. Members will agree not only that repurposed medicines are included within the Bill’s provisions, but that robust action is being taken by the Department and across the medical establishment to support repurposing for the benefit of patients. I ask the hon. Lady to withdraw her new clause.
Dr Whitford
I welcome the Minister’s explanation of what has been happening behind the scenes since the Off-patent Drugs Bill last year. The Bill Committee, of which I was a member, had a lot of discussion about the need to have a system for recognising the drugs, giving doctors and other prescribers the reassurance they needed to use them, and using the “British National Formulary” as a tool. We have heard nothing for a long time, so I really welcome the update that the issue is being taken forward. Prescribers are not all doctors now, and it is important that everyone who prescribes has the reassurance of knowing that they can safely prescribe and not be open either to making an error or to litigation. I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
New Clause 5
Extending price control to other medical supplies
‘In section 260(5) of the National Health Service Act 2006, after first “includes” insert “, but is not limited to, investigative,”’—(Rob Marris.)
This new clause is to ensure that the Bill’s provisions on price control apply to other capital equipment such as MRI scanners by including such items within the definition of “medical supplies”.
Brought up, and read the First time.
Rob Marris
I beg to move, That the clause be read a Second time.
I am glad that the Committee has generously left me sufficient time to deal with the new clause, which involves a tweak in the wording of the Bill. Clause 6 inserts section 264A into the 2006 Act, and section 264A(9) states:
“‘Medical supplies’ is to be read in accordance with section 260(5)”
of that Act. There is a synopsis of the subsection in paragraph 66 on page 14 of the explanatory notes, which hon. Members may have in front of them.
Page 162 of the 2006 Act states, in section 260(5):
“In this section and Schedule 22—
‘medical supplies’ includes surgical, dental and optical materials and equipment…and ‘equipment’ includes any machinery, apparatus or appliance whether fixed or not, and any vehicle.”
That definition is fairly clear but not sufficiently wide, hence my new clause, which would clarify it. Regarding medical supplies, there are, to my mind, three adjectives there qualifying two nouns, the three adjectives being “surgical”, “dental” and “optical”, and the two nouns being “materials” and “equipment”. There is considerable NHS expenditure on equipment—and materials, but particularly on equipment—that is not, as I understand it, surgical, dental or optical. A particularly expensive form of such equipment, as I outline in the explanatory note, which is helpfully on the amendment paper, is MRI scanners. They vary, obviously, but in round terms they cost about £2 million a throw and the NHS, understandably, has an awful lot of them—they are a magnificent diagnostic tool. There may well be other pieces of equipment that are perhaps not quite as expensive but which would not come under the rubric of surgical, dental or optical.
It seems, therefore, that there is a gap in the 2006 Act, and the new clause, which I am sure the Government will accept, is intended to plug that gap by indicating that those three adjectives are descriptive of the two nouns, but other adjectives could also be applied. For example, “investigative” is included in the new clause. The new clause would therefore simply ensure that there is no misunderstanding of the intent of section 260(5) of the 2006 Act. It is a helpful clarification to the Government.
Mr Dunne
I am sure that you share, Mr Pritchard, my pleasure that the Committee has had the benefit of the hon. Gentleman’s forensic scrutiny and his particular facility for not only the English language but its parliamentary use. If we had not had a new clause tabled by him we would have all gone away deeply disappointed. I am grateful to him for taking such trouble to table the new clause and to explain its intent.
I can assure the hon. Gentleman and the Committee that MRI scanners, by way of example, and all other investigative medical supplies are covered by the current definition of “medical supplies” in the 2006 Act. When looking at the definitions in the first draft of the Bill, I had a concern that we were describing products too widely. My concern was not that we would exclude specialist medical equipment but that we might include other materials used in the construction of buildings used by the health service—for example, bricks—as an object for price control, which clearly is not the intent. We looked carefully at the definitions, which is why I can say with some confidence that the hon. Gentleman’s new clause is unnecessary.
I will explain that more specifically. Section 260 of the 2006 Act makes it clear that “medical supplies” should be read in the context of medical supplies required for the purposes of the health service. That excludes all medical supplies not destined for the health service. MRI scanners clearly are destined for and used in the health service. Secondly, section 260 provides examples of products that would be included by the term “medical supplies” and does not limit it to those products.
The Government consider that the current definition of “medical supplies” already includes the examples given by the hon. Gentleman and other investigative products and that there is no need to make the proposed amendment. We are concerned that by including further examples and trying to provide a definition that meets the hon. Gentleman’s intent, we might inadvertently find ourselves excluding other things that are in fact included within the more general description of medical supplies. The current definition is sufficiently broad to cover all medical supplies required for the purpose of the health service. Notwithstanding the hon. Gentleman’s enthusiasm, I encourage him to withdraw the new clause.
Rob Marris
I beg to ask leave to withdraw the clause.
Clause, by leave, withdrawn.
Question proposed, That the Chair do report the Bill, as amended, to the House.
Mr Dunne
We are now at the conclusion of our deliberations. Thank you very much indeed, Mr Pritchard, for using your new-found experience in chairing Bill Committees to such good effect. You have conducted our affairs in a characteristically skilful way, and I am grateful to you, the Clerks and the Doorkeepers for managing the Divisions. I am grateful to the Front-Bench spokesmen from both the official Opposition and the SNP, as well as to all Back Benchers who have contributed to our deliberations. We have given this short Bill adequate and appropriate scrutiny, and I hope it will proceed to consideration on Report, where it will get continued consensual support across the House, which is, frankly, a joy to participate in.
Justin Madders
I echo the Minister’s words of thanks, including to you, Mr Pritchard, for the sensitive way you have handled our discussions. We have made good time today, while enabling everyone to contribute who wished to. I am grateful to the Minister for his clarification on a number of points. There are issues we will have to continue to discuss, but in the main he has been able to put our mind at rest on a number of issues. I also thank the SNP Members for their contributions, as well as all Back Benchers.
The Chair
I thank the Clerks, officials, Doorkeepers, the Minister of State, shadow Ministers and all colleagues.
Question put and agreed to.
Bill, as amended, accordingly to be reported.
Criminal Finances Bill (First sitting)
Tuesday 15th November 2016
(7 years, 11 months ago)
Public Bill CommitteesRead Full debate Criminal Finances Act 2017 View all Criminal Finances Act 2017 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 15 November 2016 - (15 Nov 2016)
The Chair
We are now sitting in public and the proceedings are being broadcast. Before we begin, I have a few preliminary announcements to make. First, can everyone switch off their electronic devices or move them to silent, if that is possible? As you all know, the rules of the House are clear that no teas or coffees are allowed during sittings. We will first consider the programme motion on the amendment paper. We will then consider a motion to allow us to deliberate in private about our questions before the oral evidence sessions and a motion to enable the reporting of written evidence for publication. In view of the time available, I hope we can take those matters formally, without debate.
Ordered,
That—
(1) the Committee shall (in addition to its first meeting at 9.25 am on Tuesday 15 November) meet—
(a) at 2.30 pm on Tuesday 15 November;
(b) at 11.30 am and 2.00 pm on Thursday 17 November;
(c) at 9.25 am and 2.00 pm on Tuesday 22 November;
(d) at 11.30 am and 2.00 pm on Thursday 24 November;
(2) the Committee shall hear oral evidence in accordance with the following Table:
Date | Time | Witness |
|---|---|---|
Tuesday 15 November | Until no later than 10.20 am | National Crime Agency; National Police Chiefs Council; Metropolitan Police |
Tuesday 15 November | Until no later than 11.00 am | HM Revenue and Customs; Serious Fraud Office; Crown Prosecution Service |
Tuesday 15 November | Until no later than 11.25 am | Tax Research UK; Tax Justice Network |
Tuesday 15 November | Until no later than 3.15 pm | British Banking Association; Financial Conduct Authority; Law Society |
Tuesday 15 November | Until no later than 4.00 pm | The Herald; Christian Aid |
Tuesday 15 November | Until no later than 4.15 pm | Rt Hon Dame Margaret Hodge MP |
Tuesday 15 November | Until no later than 5.15 pm | Royal United Services Institute; Corruption Watch; Global Witness; Transparency International UK |
(3) proceedings on consideration of the Bill in Committee shall be taken in the following order: Clauses 1 to 14; Schedule 1; Clauses 15 to 29; Schedule 2; Clauses 30 to 32; Schedule 3; Clause 33; Schedule 4; Clauses 34 to 44; new Clauses; new Schedules; Clause 45; Schedule 5; Clauses 46 to 51; remaining proceedings on the Bill;
(4) the proceedings shall (so far as not previously concluded) be brought to a conclusion at 5.00 pm on Thursday 24 November.—(Mr Wallace.)
The Chair
Therefore, the deadline for amendments to be considered at the first two line-by-line sittings has passed.
Resolved,
That, at this and any subsequent meeting at which oral evidence is to be heard, the Committee shall sit in private until the witnesses are admitted.—(Mr Wallace.)
Resolved,
That, subject to the discretion of the Chair, any written evidence received by the Committee shall be reported to the House for publication.—(Mr Wallace.)
The Chair
Copies of the written evidence that the Committee has received will be made available in the Committee room. We will now go into private session to discuss lines of questioning.
The Chair
We are now sitting in public again and the proceedings are being broadcast. Before we start hearing from the witnesses, do any Members wish to make any declarations of interest?
Victoria Atkins (Louth and Horncastle) (Con)
I used to practise as a criminal barrister and prosecute for many of the agencies that would use these powers.
The Chair
I think there are many in this place who are guilty of the same thing. We will list that.
Byron Davies (Gower) (Con)
I am a former Metropolitan police officer and member of the National Crime Squad.
The Chair
We will now hear oral evidence from the National Crime Agency, the National Police Chiefs Council and the Metropolitan police. Before calling the first Member to ask questions, I remind Members that questions should be limited to matters within the scope of the Bill and that we must stick to the timings in the programme motion that the Committee has agreed for this section, which will end at 10.20 am. Will the witnesses please introduce themselves for the record?
Donald Toon: Good morning, Chair. I am the prosperity director for the National Crime Agency. As part of my role I am responsible for the agency’s response to financial crime, including the operation of the UK Financial Intelligence Unit and, therefore, the suspicious activity reporting system. I am also responsible for our work on money laundering and asset recovery. As part of the agency, we have a responsibility to co-ordinate the law enforcement response to serious and organised crime, in this case in respect of money laundering and criminal finances.
Mick Beattie: Good morning. I work for the National Police Chiefs Council, which is the governing body of chief officers for the policing forces of the UK. I report directly to Mick Creedon, the national lead for financial investigation asset recovery. I am also the subject-matter lead for the regional organised crime units, which is the serious organised crime response from UK policing.
Detective Superintendent Harman: Good morning. I am a detective superintendent with the Metropolitan Police Service, specifically the SO15 counter-terrorism command. I head up the national terrorist financial investigation unit. Our responsibility is the investigation and prosecution of terrorist financing offences and financial investigation more generally within a counter-terrorism context.
Dr Rupa Huq (Ealing Central and Acton) (Lab)
Q Thanks very much for coming in today. I have an easy question first. Because you all enforce this every day, what are the current difficulties with the legislation that we have in recovering assets from individuals who are suspected of involvement in criminal activity overseas?
Donald Toon: One issue is the ability to have an effective overseas end to the investigation. A particular problem around international corruption has been the need to have evidence from overseas, often from a difficult jurisdiction if we are talking about political-level corruption, that is capable of being used in a UK court to take action to recover assets. From our perspective, the introduction of the unexplained wealth order is a particularly important step in response to that.
The other issue, perhaps, has been very much the ability to have sufficient time to be able to get evidence from overseas in standing up a law enforcement response to a suspicious activity report, where that report may be looking for a defence against money laundering, commonly known as a consent SAR. The difficulty there is that we run against a 31-day moratorium period. Essentially, if we cannot have a law enforcement case in front of a court within 31 days for restraint of the assets, there will be a deemed consent and transactions will continue. That is acutely difficult when we are looking for information from overseas. In some jurisdictions that can take an extended period.
Another piece in the Bill that is particularly useful is the extension of the moratorium period, subject to court order, of up to 186 days. In terms of references to the legislative position, it is very much that ability either to get evidence or find a mechanism by which we do not need to rely on overseas evidence, particularly when we are talking about difficult jurisdictions.
The other area that is particularly difficult for us has been very much around the ability to access beneficial ownership information overseas. Although not strictly part of this Bill, that has been a recent focus for legislative change. That is a particular issue for Crown dependencies and overseas territories. I can expand on that as necessary.
Mick Beattie: Yes, I echo those sentiments. Over the past 13 years, operational use of the Proceeds of Crime Act 2002 has thrown up some operational challenges, many of which have been addressed in the Bill. In terms of investigative resources, an example of that would be disclosure orders. The current system operates as follows: if you have a suspect A identified as having accounts in bank B, then an investigator investigating that person for money laundering would go to the court for a production order. If the court approves the order and it is then served on a financial institution that subsequently gives over the information required that identifies yet another account at bank C, then the investigator has to go back to the court to obtain another production order, and go through the same process of serving an order on the second bank.
If that bank again identifies another account at another bank, then the process is repeated. When awarded, a disclosure order, or something like it, lasts for the lifetime of the investigation, and can be served on anybody with an interest in or information relating to the matter. The resource implications could be massively improved from something like a disclosure order.
As far as items of portable wealth are concerned, legislation exists that refers to cash seizure. We have civil legislation that caters for anything over £1,000 that is deemed to be identified as resulting from criminal conduct or being used in criminal activity, but criminals are adaptive. They can transfer that cash into items of wealth such as watches and jewellery, which are easy to transport. The new legislation relating to that gives us more opportunities to search and seize those kinds of items.
Dr Huq
Q In relation to what you said about portable wealth, do you think the £100,000 limit is about right, or can people convert money into things worth £95,000 by buying paintings up to that value?
Mick Beattie: They can, and obviously they can collaborate among themselves to do that. Getting through that is an operational challenge for us. We have to try and investigate that as part of the investigation, and we have to look for those kinds of things. Anybody who facilitates that is potentially committing money laundering offences themselves, and can be brought into the investigative chain.
Dr Huq
Q Is £100,000 a good figure or is it an arbitrary figure plucked from the air?
Mick Beattie: I do not know how the figure came about. It is a high figure, but we are talking about serious and organised crime and criminals here, and they operate in those kinds of areas of value. I would not know the origin of the £100,000 figure.
Detective Superintendent Harman: There are a great deal of positives around international co-operation in the counter-terrorism area, as you might expect. There are strong relationships across the world for the purposes of sharing intelligence, and doing so quickly. As with our colleagues, what can slow us down is when we are looking for evidence that we can use in a court during a criminal prosecution. That can take a bit more time, so the first challenge is the time that it can take.
There is also the issue of the visibility of what money is used for. We may very well be able to show that money was sent out to Syria, for example, and we may have a strong case for believing that that money was used for terrorist purposes in theatre, but to follow that money into the hands of a terrorist and show what is was actually used for is and probably always will be a challenge for us. Where this Bill may help us is in the fact that the more that banks—they often have an international visibility and reach—can tell us about transactions, the more they can share information with each other and build up that picture. That will help us in our international anti-terrorism efforts.
The other point I would make is that in terrorism we are often talking about smaller amounts of money. Sadly, it does not cost a great deal of money to commit a terrorist attack, depending on its scale. Spotting those smaller amounts within the financial system and dealing with those smaller amounts moving overseas is again more challenging, although not impossible.
Dr Huq
Q The Public Accounts Committee did a report on confiscation orders. It said that there was a tension between whether the point is to disrupt crime or recover criminal assets—sometimes they are facing in two different directions. Would you three agree with that? If we enact all the clauses in the Bill, will the new version improve the mismatch between those two limbs?
Donald Toon: I am not sure I would necessarily feel that there was a tension overall. The issue from our perspective is around the roles and responsibilities of the agencies involved that are using the legislation. The statutory duty of the National Crime Agency is to secure an effective response to the threat from serious and organised crime. One aspect of that is to make use of the powers in the Proceeds of Crime Act 2002 for the disruption of criminality. From our perspective, that is the responsibility of the agency. It is about the relentless disruption of serious and organised crime, where we are able to do so, using whatever tools are available to us, rather than purely focusing on the recovery of assets. That said, to be effective in using financial disruption we will very often use either the criminal confiscation process or civil recovery, which ultimately recover assets.
One of the points to cover is that, from our perspective, it is very much about asset denial. If we are talking about overseas, large-scale corruption, the point is about denying the criminal, the corrupt individual or their representatives access to the funds. If that means the funds are ultimately dissipated, for example, through legislation, we have still denied the criminal that access. Our focus is fundamentally around the vulnerability within the system, rather than purely about getting money and assets back for the Government and the taxpayer. That is a particular point when talking about overseas criminality.
Dr Huq
Q Do you think £100,000 is about right as a threshold or should it be lower for the unexplained wealth order?
Donald Toon: I think it is a perfectly reasonable value. The vast majority of property involved is of high value. If we are talking about property in the UK linked, for example, to non-European economic area politically exposed persons, it is almost certainly going to be of significant value. A small case from our perspective would be somewhere a little under £1 million. The majority of the casework in that space will be multiple millions, if not much higher.
Mick Beattie: For me, anyone who enters the criminal justice system should not be leaving it with their criminal assets intact. It is all about removing those criminal assets. First, they provide the symbolism of wealth and status that money or assets can provide. Secondly, removing those assets is a good mechanism for reinforcing the compensation programme—we can compensate victims as a result of confiscation, with the enforcement capability behind it. It also stops reinvestment into crime, as mentioned by Donald. Commodity purchase is required to perpetuate the continuing criminality.
For me, it is all about removing those assets and everything associated with it and the image that is portrayed by the retention of those assets. It is well documented by some that serious and organised criminals are quite happy or quite prepared to do the time relevant to a prison custodial sentence. What really hurts them and their associates and family members is the denial and removal of the assets and the image that portrays to the public. It gets a lot of positive reception when we carry that out. From a public perception point of view, we know how much they appreciate the removal of assets.
Dr Huq
Q And on asset recovery?
Detective Superintendent Harman: Counter-terrorism is quite a different context for asset recovery, as you will appreciate. The people we are interested in are not looking to make a profit, and they are not looking to embark on an enterprise that is going to last for a long period of time and create a huge amount of wealth. They are looking to get money to achieve an objective. Our absolute priority is keeping the public safe and stopping a terrorist attack. Our absolute priority is therefore getting hold of that money and controlling it before it can be used. It is not much good to us to be retrospective after the fact: we are looking at stopping the attack. For us, it is about seizing assets before they can be smuggled overseas, seizing assets while they are sitting in a bank account, and interrupting and intercepting transactions that banks have hopefully reported to us as being suspicious.
Yes, of course, some of our terrorists do use crime to make money to commit terrorism, but really, we are not so much in the business of seizing huge amounts of assets. We are looking at stopping the cash before it can be used to hurt the public.
Dr Huq
Q What do you think of the £100,000 figure?
Detective Superintendent Harman: It sounds a reasonable figure to me when we are dealing with a higher end, it certainly does, but we operate less in that realm. We are more about the slightly smaller amounts causing a great deal of harm.
The Minister for Security (Mr Ben Wallace)
I want to clarify the point: the seizure threshold is £1,000 and the unexplained wealth order threshold is £100,000. I did not want members of the Committee to get confused about the two. If we are talking about taking money out of a bank account, it is at the £1,000 level; if we are talking about confiscating assets on an unexplained wealth order, it is £100,000.
The Chair
Order. Can I just say to the witnesses that we have only a very short period of time and there are at least five other members who want to ask questions? The Minister may also do so at the end. Your replies are very informative and welcome, but could you make them more succinct? Similarly, could Members confine themselves to instant questions that people want immediate replies to and that can be given?
Mrs Flick Drummond (Portsmouth South) (Con)
Q Are you confident that the enforcement agencies will have sufficient resources to make full use of the new powers in the Bill?
Detective Superintendent Harman: Yes I am. In fact, the Bill is very helpful for counter-terrorism in that one of its sections allows us to make more of the resources we have. To be brief, about 40% of our financial investigators are police staff, or “civilians”, as they used to be called. Under current legislation, you have to be a warranted police constable to conduct a lot of the financial inquiries that we need to do. The Bill offers those civilian investigators new powers similar to those of a constable, allowing us to make the most of the resources we have. We are very pleased to see that in the Bill and confident we will make good use of it.
Mick Beattie: Likewise, I gave an example of the attendance at court which can be reduced by the disclosure orders. Obviously the policing bill has been cut, as is well documented and, yes, that has been challenging, but there have been some positives. The Government have recently provided additional funding for ACE teams—asset confiscation enforcement teams—which allows us to go chasing confiscation. They have provided additional funding for section 22 where you can revisit outstanding orders—it is a little technical—and, only recently, they have announced additional funding for the regional asset recovery teams, all of which will benefit from the improvements identified in the Bill.
Donald Toon: You have already heard about the disclosure orders but I also think the power to require information for the Financial Intelligence Unit and the information sharing provisions are important in making us more efficient. The one thing I would bring out is that it is not just about resources in law enforcement. We are talking about the ability to harness resources and capability from across the regulated sector, in particular financial institutions. From that perspective, I think it is a huge strengthening of capability.
Roger Mullin (Kirkcaldy and Cowdenbeath) (SNP)
Q I would like to take a slightly different tack and ask about the existing powers that you have that this Bill seeks to build upon. I am concerned that the National Crime Agency has declined to deal with the Hermitage case, which has been discussed, and which involves about $30 million laundered in London. Although the evidence provided to the National Crime Agency has been sufficient in other jurisdictions to take action, there has been a refusal to take action here. Why is that the case? Is it a lack of resources or a lack of will?
Donald Toon: Frankly, it is neither. In the Hermitage case, the overwhelming majority of the actual criminality took place outside the UK. One of the key issues in terms of where we focus our attention has got to be the prospects of actually being able to bring the major criminality in front of a court, and hopefully achieve a conviction. The fact is that a number of overseas jurisdictions are investigating criminality that took place in their jurisdiction. The vast majority of the criminality did not take place in the UK, and those responsible are not in the UK. We have supported, we are supporting and we will continue to support inquiries in the UK that are designed to help to bring those people to justice in the jurisdictions where they can actually be targeted.
Roger Mullin
Q With all due respect, what I quoted was $30 million that was laundered in London. I am not talking about the other money laundered through Hermitage in other jurisdictions. My understanding is that they have been buying up different types of assets in London—they are not merely property assets—and that the individuals involved regularly visit London, which would seem to bring it entirely within the remit of the UK to do something about it.
Donald Toon: We have a remit in the UK to do something, as you say, but from our perspective, we have a remit to do something in support of those who are better placed to target the main criminals. My understanding of the position is that I am not at liberty at the moment to go into the detail to which you refer.
Scott Mann (North Cornwall) (Con)
Q I have three questions for you, Mr Toon, if I may. What have been the most significant challenges for the NCA in tackling economic crime? How will the measures in the Bill help the NCA to tackle economic crime? The third question is a small supplementary on the seizure orders and unexplained wealth orders. A small number of people make money from online gambling. Could you tell me how the Bill might affect them?
Donald Toon: I outlined earlier a couple of the biggest problems. Essentially, at the top end of money laundering, asset hiding and asset tracing, we are talking about something that is fundamentally international in scope and often involves us dealing with difficult jurisdictions. That has been an ongoing problem, notably around our ability to access sufficient information to track asset movements and identify ultimate beneficial owners. The fact that we have provision in the Bill for information sharing with the private sector is from our perspective hugely valuable. We have been working with the banks in a joint money laundering intelligence taskforce for about the past 16 or 17 months. This legislation essentially gives more cover for the banks to be able to share information effectively. Currently, they can do that only through us, through our gateway.
It is important to bring out that, with the capability that we have had so far, 58 arrests have flowed from the ability to share information with the banks. We have identified more than 2,100 suspicious accounts. Most importantly—there is something here about the shared intervention response—we have also had 730 bank-led internal investigations into customers and the use of particular accounts, which is hugely valuable to us. We are often dealing with large multinational financial institutions. They are in a very strong position to track the movement of money and see transfers between particular accounts, which enables us to identify the routes that we need to go down to track beneficial ownership. That information sharing provision, together with the work that has been done around improving transparency on beneficial ownership, is hugely valuable.
I have already mentioned the value of the unexplained wealth orders. Equally, there is the power to require provision of further information. We have an issue with suspicious activity reporting. Yes, we get a very large number of reports and that number continues to rise, but it is overwhelmingly from the banks. We have significant concerns about the quality and number of reports that we get from other parts of the regulated sector. Often, banks report suspicious transactions involving other parts of the regulated sector. It is very unusual for us to be able to see and track those transactions as they have gone through, say, the legal profession, accountants or company service providers. We should see better quality reporting in that space. The power in the Bill will give us the ability to seek additional information, either where we have a report and it lacks quality or where we have a report that leads us to want to start asking questions of other parts of the regulated sector that have been involved in the transaction. That is hugely valuable from our perspective.
The Bill as a package is really valuable, but not just because of that. I have mentioned the SARs moratorium period. That moratorium period has been so difficult, not just from our perspective, but from the perspective of law enforcement’s ability in the round to make effective use of SARs. With a seven-day turnaround and a 31-day limit, as soon as we go international, even with supportive jurisdictions, it is very hard to get information within that 31-day limit to be in a position to get a restraint order. That we can now see that go up to a maximum of just over six months—186 days—and that there is court oversight to give safety, is a hugely valuable step forward. Those are the major advantages of the Bill.
On the point about internet gambling, I confess I have not focused on that area. I would expect that, when we are in a position to be able to track those who are making particular profits, they could be targeted using the same provisions. The interesting thing is that while the information-sharing provision starts with the banks and the financial sector, the intention is to broaden that out and share information with the wider regulated sector. That would take us into things such as the gambling operators.
The Chair
Order. Before we proceed, I will say to the witnesses that this is your time. You have asked to appear and you have come to give evidence. This section will end at 10.20 am, no doubt whatsoever, so you are using your own time. You need to be more succinct to get more questions asked of you and replies given.
Scott Mann
Q Just quickly to pick up on what Mr Toon said, could you give me the timeframe for the 58 arrests?
Donald Toon: Those 58 arrests would be over a 15-month period.
Peter Dowd (Bootle) (Lab)
Q I want to come back to the issue of resources and capabilities. You all gave an answer but I did not get the sense that you were convinced that you have adequate resource. You told us that the capabilities in the Bill would give you just that—capability. You also said that additional resource was being put in and that other agencies, such as banks themselves, would do a lot of the investigation but you did not tell us that you believed that you were going to get sufficient resources for the proposals in the Bill and what you were being asked to do. I will ask a second time: do you believe that you will get sufficient resources to do the job that you are being asked in the Bill?
Donald Toon: From our perspective, the vast majority of our resource is not specific to criminal finances. We operate on the basis that we deploy resource against the particular problem we are dealing with at the time. We have got approximately 4,500 resources. We are capable of flexing that. Could we do more with more? That is always the case in any organisation but the Bill will make us more capable and efficient in terms of delivering results. We think we deliver decent results now and will be better at it.
Mick Beattie: Again, it is a case of competing demands. Obviously, in policing we have to refocus now with this emphasis on child exploitation and the emergence of cybercrime in recent years. That has really impacted on the limited resources that we have. There are approximately 1,800 financial investigators in and around the policing community. We could all do with more but, in terms of the balance around the competing demands, we have a very strong and productive capability.
Detective Superintendent Harman: Yes, I do think that we have sufficient resources to take advantage of what is in the Bill, a specific example being the seizing of portable items. We are expanding our teams at the ports who intercept illicit cash and goods; we are not reducing them. That is one example. As I touched on, an area of the Bill would enable us to make better use of the resources that we do have. To answer your question directly: I am content.
Peter Dowd
Q So it is reasonable to assume that you will not be coming back to us within, say, the length of this Parliament to ask for any more resources, all things being equal?
Detective Superintendent Harman: I would like to talk about financial investigation and that area of counter-terrorism. Obviously, counter-terrorism is a huge national issue and I would not like to speak for the assistant commissioner for national counter-terrorism. In relation to whether I can take advantages of the powers and measures in the Bill, yes, we have resources in place to do that.
Mick Beattie: I echo that. In terms of financing investigation, the Bill gives a lot of opportunities for improved efficiencies. I reiterate that only recently we have had notification of another financial injection to policing’s financial investigation capability.
Peter Dowd
Q That is not the question I asked. I am getting quite exercised about the response to this question. You have told us that you have the current resources, and therefore it is reasonable for me to say, on the basis of your projections of the level of crime out there and in the future, that you do not believe you will be coming back to us with any significant additional asks for at least the length of this Parliament—both in terms of legislation and, more importantly, in terms of finance.
Mick Beattie: I do not think I am in a position to answer that question.
Peter Dowd
It is a no, then.
Mick Beattie: For me, it is about financial investigation. In terms of policing plc, financial investigation is one capability. There are competing demands across the policing —or any law enforcement—landscape. By comparison and proportionately, I believe that we have a strong capability. Yes, we would like more financial investigators; yes, as the regime becomes more aware of the capacity and capability of financial investigation and what it can bring, there will always be requests within my organisation for more capabilities. In terms of an overall policing budget, though, that is not for me to respond to.
Antoinette Sandbach (Eddisbury) (Con)
Q To pick up on that last matter, is it not correct to say that proceeds of crime seizures in effect go to central funds and can be used, and there is part that is returned to the agency bringing the prosecution? To a certain extent, therefore, it is self-financing.
Mick Beattie: Of the money confiscated, 50% goes back to the Treasury and the remaining 50% is split three ways between the prosecuting element, the law enforcement agency and the court services. It is called the incentivisation fund. So yes, it goes back directly into law enforcement.
Antoinette Sandbach
Q So strengthening and broadening your powers will enable you potentially to seize more assets. Clearly, therefore, the aim of these measures is to deal with money laundering. How does the new criminal offence preventing the facilitation of tax evasion link in with that money laundering aspect of your investigations?
Mick Beattie: I am not a tax expert and do not represent Her Majesty’s Revenue and Customs. In terms of investigative capacity, as a senior investigating officer presented with an investigation, in determining your strategy you will look at what outcome you hope to achieve. It could be a criminal justice outcome, a disruption option or along those lines. You will look at all measures to achieve that. In some cases, the information, intelligence or evidence is such that a tax investigation may be more effective than a criminal investigation. We work with the National Crime Agency and HMRC colleagues in determining who should lead the investigation. In terms of legislation strengthening HMRC’s capability, it is clearly going to be advantageous to us in decision-making around the best strategy for a financial investigation.
Antoinette Sandbach
Q One criticism often levelled at law enforcement agencies is that they do not take enough steps nationally to recover assets that are the proceeds of crime. Apart from the disclosure orders and the aspect of portable goods—for example, jewellery—that you have already spoken about, what particular powers will help you with that asset recovery, and is there anything that is not in the Bill that you think should be?
Mick Beattie: The Bill contains technical amendments that, though they are not specific in themselves, tighten things up. Some of the legislation was restrictive and stopped upon a conviction; money laundering investigation powers would often stop. The Bill will nudge some of those on, to allow those powers to remain while there is a confiscation investigation. The powers in previous Bills have strengthened the investigative capability into the confiscation process, where there was a gap before in terms of what we could and could not do in serving production orders on accounts, for example. That has definitely helped.
Antoinette Sandbach
Q Is that the same, for example, with regard to extending the powers to revisiting orders under the Proceeds of Crime Act 2002, which was a gap that was not there previously?
Mick Beattie: The power to revisit the disparity between a benefit amount and a realisable amount is primarily the current role of the asset confiscation enforcement teams I mentioned earlier, which have been funded additionally by the Home Office directly from ARIS. The asset recovery incentivisation scheme has been top-sliced and a portion of that has been given to the three agencies to proactively do section 22 revisits.
Antoinette Sandbach
Q Are you therefore satisfied that the current procedures in the Bill tackle the major challenges you face in your aspect of the investigations?
Mick Beattie: It definitely improves some of the operational difficulties we have highlighted. We have been privy to the formation of the Bill, we have been invited, we have been allowed to comment and we have contributed to the drafting of the Bill. You always want more. There is more we would have liked around information sharing. But there are definitely advantages to the Bill that will help criminal investigations.
Nic Dakin (Scunthorpe) (Lab)
Q Thank you for your evidence. You seem to be saying there is more that perhaps could be done, Mr Beattie. What additional things should we take the opportunity to look at in the Bill, to make sure you have the powers you need to do your job?
Mick Beattie: A lot of what we would have liked, we have got. Information sharing between the private and public sectors is done through the NCA UK Financial Intelligence Unit, which is under a lot of pressure. It is a unit that services the whole of UK law enforcement. The Bill allows communication between the banking sector and the UKFIU, which would then release that information to policing. If we had a particular interest, we may have to go back through the UKFIU back into that institution. We would have liked a little bit more direct access, but it is not a problem. It is something we can overcome.
In the early stages, I can understand the reticence from the banking sector. This is a new area of business for them, piloted through the joint money laundering taskforce very successfully. I can understand the small-steps mindset in relation to that—get some understanding, some evidence and some culture. So we are very supportive of what we have got in the Bill.
Donald Toon: From our perspective, the Bill takes us forward on a range of difficult issues, but it does that in a balanced and thought-through way. From law enforcement’s perspective it is always easy to want more power, but that has got to be balanced against the fact that, for example, the financial services sector has to continue to do business.
We are satisfied that this makes the changes and we have been able to set out a clear, operational, evidenced case for the change. Do we think this will stop and it will be the panacea for the future? No, because we are involved in an arms race here. There are people on the other side—whether professionals involved in providing money laundering services or serious criminals—who will always be looking for another opportunity. That is why the Proceeds of Crime Act 2002 has had to be amended so many times since it was first introduced.
Do we think this will stop further amendment? No. Does it actually address the issues we can evidence now? Yes.
Detective Superintendent Harman: I echo that. The answer for us now lies not in more legislation. The Home Office consulted very closely with us. We are seeing the legislation in here that we asked for. The answer now for us is about co-operation with the financial sector, about sharing information. Just like we asked the public for information to help us to fight terrorism, now we are asking the regulated sector, and I think the Bill will help with that.
Richard Arkless (Dumfries and Galloway) (SNP)
Q For the most part, my questions have been dealt with by colleagues previously asking about additional powers, but I will come back to one point. There is a huge array of regulatory bodies that cover money laundering in the UK. Do you think that consolidating these would make life easier for you in the pursuit of money laundering activity?
Donald Toon: The Treasury has been doing work on this space now. From our perspective, all those regulated bodies are covered by anti-money laundering regulations and are required to submit SARs. We need to see clear, consistent standards across all parts of the regulated sector. I do not care whether that is achieved through one supervisory body or a number, provided they are all operating to the same set of standards and the same commitment to ensure that SARs are produced—and produced to the necessary quality—and they are prepared to take action against those parts of the regulated sector that they supervise when they do not live up to those standards.
Mick Beattie: I support that. The police get nearly 400,000 suspicious activity reports a year. There are definitely gold nuggets in there, but some of those reports are of such a poor standard, or they are defensive reporting or a means for the bank—really, their own regulators could have a role around the quality of the SARs submitted.
Detective Superintendent Harman: I do not have anything to add to what Mr Toon said.
Richard Arkless
Q You make it clear that there is an urge for law enforcement to have additional powers, but a balance needs to be struck. It is for Parliament to strike that balance, so take that out of your contemplation. You are not responsible for striking that balance, so what extra powers would you like to see in the Bill?
Donald Toon: As I have said, what we have in the Bill is what we are able to stand up a sensible evidential case for. We are conscious that we will see the opposition try to adapt. How they adapt, and in particular how some of the powers bed in, is what is going to inform the next stage. It is not something we feel that we are crying out for at this point.
Mick Beattie: I would like to see the courts given the power to defer Crown ownership on assets. I can understand the reasons—third-party ownership and the issues clogging up the courts—why that was not accepted, but that would have been a bonus.
Detective Superintendent Harman: As has been said, we see the powers in the Bill that we feel we need. I do not think we are looking for more powers; we are looking to ensure that we are using the powers well and we are co-operating with all partners in delivering our aims.
The Chair
We have eight minutes left before we must wind up this session, and a number of Members still want to ask questions. You will have to be brief on both sides. I call Mr Davies, briefly.
Byron Davies
Q My question is simply this, with respect to unexplained wealth orders and politically exposed persons. It is perhaps more to you, Mr Harman, than anyone. The measures reflect the concerns about those involved in corruption overseas and laundering of the proceeds of crime. How operationally viable do you think those are from an investigation point of view, particularly with some of the more difficult countries that we have to deal with?
Detective Superintendent Harman: I think there will be challenges, as you have highlighted. The unexplained wealth orders will help us to deal with the higher end, if I can call it that, of terrorist financing, where there are perhaps sham companies or charities being exploited and it is far more complicated. Such a power will ensure that people account for the money that they have. It will be challenging. To be honest with you, it will be a small part of our casework in the terrorism financing context, but it will be helpful.
Donald Toon: From our perspective—we run the international corruption unit for the UK—we see this as a hugely valuable step forward. We have a real problem at the moment in a number of jurisdictions where we cannot get usable evidence yet we have assets that are of deeply questionable probity. We do not expect the numbers to be huge, because the cases are large and complex, but we do think this is a very useful step.
Mick Beattie: We support that. Most of our international investigations go through the NCA anyway, so we agree with that.
Carolyn Harris (Swansea East) (Lab)
Q I have one observation and one concern. The observation is that one of my colleagues mentioned that you would need to come back for more money, and another colleague said you would be self-funding. That means you will have to bring in far more than you cost to run, so just be aware of that.
I am really concerned that you are not concerned about money laundering in the gambling industry. You seem to have little or no evidence that that is an issue. I am very concerned that high street bookies are able to launder, and if they are not actually reporting any excessive or unusual activity, that is a great concern.
Donald Toon: Can I correct the position? The specific question I was asked was about the application of these powers to online gambling. Do we see the gambling industry as a potential risk for money laundering? Yes. Traditionally, it has been an area where money laundering has been relatively straightforward, in the sense of being able to demonstrate the source of funds. Actually, we have seen quite a lot of improvement in the way the gambling industry has targeted that, particularly through the casino structure. We work with the industry and the main industry bodies, and we work very closely with the Gambling Commission on the regulation of that, and we do see some very good reporting. Is it still an abused area? Yes. It is an ongoing risk; we do seek to target that risk. It was a specific question I was responding to.
Carolyn Harris
Q Is there a benchmark to which you would expect bookmakers to report high or excessive use in a high street bookmakers?
Donald Toon: We would expect them to apply an objective test for suspicion and report. That is the point where we work with the Gambling Commission on making sure that that test is right.
Carolyn Harris
Q But you leave it them to decide at what level they report?
Donald Toon: It is an important point. It is absolutely the decision of any part of the regulated sector, including gambling operators. It is their decision when they should report. Should they fail to report when they should have done so, there are consequences. If they could be shown to be facilitating money laundering when we had gone into a major investigation and tracked back, then there would be potential consequences. Either we would seek to take action ourselves, or we would refer them—it does not matter which part of the regulated sector we are talking about—to their supervising regulator for action.
Carolyn Harris
Q Would it be helpful if it was a mandatory reporting level? For excessive use of a fixed odds betting terminal, for example, if we set a level and said, “Anything in excess of £1,000 a day,” from someone who would not normally spend that money?
Donald Toon: Frankly, no, I do not think it would. Every time you set a level, all you do is encourage people to create a level of complexity that always keeps below the level.
Mick Beattie: It is about the suspicion. It is all relevant to that individual, that money laundering reporting officer, their level of suspicion and the circumstances or action that determines that suspicion.
Nusrat Ghani (Wealden) (Con)
Q I apologise for being late this morning; I was at another Committee meeting. My question is to Detective Harman. I think you have already tackled funding of terrorism this morning but, as we know, terrorism has no borders nor does the funding, and with technology it becomes increasingly difficult for you to follow the flow of these funds. The Bill proposes more information sharing between the public and private sectors, which you have said will be incredibly helpful. Could you share whether there will be pushback from the banking sector and, as we seize the assets of terrorists, what might they do? What will be their next steps, so we can be ahead of the curve? Can you give us some advice on where they might end up putting their funds, so we can be a position to start seizing those funds once they come out of the mainstream?
Detective Superintendent Harman: It is a big topic. Briefly, our relationship with the financial sector—the banks and the MSBs—is fantastic. We have a very positive relationship. There are some official mechanisms for that such as the JMLT that has been mentioned. So, I do not expect any pushback, quite the opposite really. The banking sector wants to work with us, obviously respecting their client confidentiality and the rules around that, but they do want to work with us, and they do work with us. This really gives a legal gateway for the goodwill, if you like, that already exists. We look forward to working with them as the way people bank changes—becomes more digital and so forth. We will evolve with that; that is our intention.
The Chair
That brings us to the end of the allotted time for the Committee to ask questions. I thank the witnesses on behalf of the Committee for their excellent presentations and the queries that they have answered. We will now move on to the next panel.
Examination of Witnesses
Simon York, Mark Thompson and Nick Price gave evidence.
The Chair
We will now hear evidence from HMRC, the Serious Fraud Office and the Crown Prosecution Service. Gentlemen, please present yourselves and give a brief background to why you are here.
Simon York: Good morning. My name is Simon York. I am the director of Her Majesty’s Revenue and Customs fraud investigation service. We deal with criminal attacks and the most serious tax fraud against the tax system. I am here because we use a range of proceeds of crime powers alongside tax powers. We also have a specific provision in the Bill on the corporate offence of failing to prevent the facilitation of tax evasion, among a number of important provisions for us.
Nick Price: I am Nick Price. I am head of the Crown Prosecution Service proceeds of crime service. Why am I here? We have been working closely with the Home Office and partner agencies in bringing the Bill together.
Mark Thompson: I am the chief operating officer of the Serious Fraud Office. I was appointed only in September and before that I was head of the proceeds of crime division in the SFO for the previous four years. That is why I am here.
Dr Huq
Q Thank you for coming in. I guess to the layperson there are many bodies involved in these issues—the police, who we have just heard from, the CPS, HM Courts and Tribunals Service and the Serious Fraud Office. The natural thinking is that there should be more co-operation between different bodies. I notice that the report from the Home Affairs Committee says that one person should take the overall lead. Where do you stand on being more joined-up and having a more overall person? It said for the recovery of criminal assets it should be the National Crime Agency that co-ordinates and oversees the various different agencies operating at local levels, with the proviso of adequate resources and tools. Where do you stand on the point about an overarching person and who that should be, if we did have one?
Simon York: We all work closely across law enforcement on a whole range of issues tackling criminality including the proceeds of crime, and that co-operation is really important. What we find particularly useful in HMRC, though, is the ability to use tax powers, proceeds of crime powers and criminal investigation powers in concert. That is what we find works best. We will use whatever combination of powers gets us the right result that allows us to confiscate, recover and prevent the losses. It is important to us that we have the ability to do that in the range of other things.
Dr Huq
Q And you are happy with how it is at the moment with you all working in concert. Does anyone think there should be overall supervision?
Nick Price: We all work very closely together. It is worth the Committee being aware that the CPS has lawyers embedded with HMRC, the NCA and the regional organised crime units where the regional asset recovery teams work. We work very closely with the SFO. So, we already work very closely.
In terms of overall supervision, the Committee will be aware that there is a Criminal Finance Board that is ministerially chaired. Sitting beneath that are a number of sub-groups. There is a criminal finance improvement plan. Those things draw together the agencies with real strategic oversight as well.
Mark Thompson: The only thing I would add to that would be the need for integration between those tackling proceeds of crime and those who are in a criminal investigation. I actually think one lead agency would make things worse, not better. The reason these things are successful is that I have proceeds of crime people working in the Serious Fraud Office alongside our criminal investigators, and that is the best way to tackle these crimes.
Dr Huq
Q Part 3 of the Bill introduces the controversial criminal offence of failing to prevent the facilitation of tax evasion. Some people who have given evidence to the HMRC consultation have argued against the new corporate offence. How do you rate the risk posed to the Exchequer from illegal tax evasion, compared with tax avoidance and other activities that contribute to the tax gap? There are some really scary figures; the most shocking one I saw was that over the last 26 years, the Government have collected 26p of every £100 generated by criminal activity. What do you think of the new offence? Nobody here has a crystal ball, but could you comment on the scale of offshore tax evasion?
Simon York: We estimate the tax gap in relation to tax evasion as a whole as around £5 billion a year. That includes a range of different types of evasion, such as what is colloquially known as offshore evasion. This is certainly an important issue. Corporates can be significant facilitators of tax evasion, as we have seen on a number of occasions. There is a real public and, I think, political appetite to tackle it. We find a difficulty in attributing criminal liability to these sorts of corporate entities. We think this is an important proposal in improving corporate behaviour in this area—deterring bad behaviour and improving good behaviour. This is by no means the only provision or capability that we need to tackle tax evasion, which is a very broad issue, but it is an important one in tackling a very specific area.
Nick Price: I cannot really add a great deal to what Simon said on that topic.
Mark Thompson: Me neither. Tax is HMRC’s primary responsibility.
Dr Huq
That is only from 2010, so it is not an old Act, and again, nobody here is Mystic Meg, but do you have the tools in this legislation to bring about successful prosecutions or are there too many obstacles, such as that the SFO is involved and that behavioural change would be needed, as you said? Do you foresee there being a low or high level of prosecutions when the Bill is enacted?
Simon York: A good result would be that corporates change their behaviour and that there is less facilitation of tax evasion, and consequently, less tax evasion. We certainly have the tools, through a combination of this proposed legislation and our existing capability—HMRC is a very competent and successful law enforcement agency and criminally investigates many people and convicts them successfully every year, so I think we have that capability. Do I think we will have a lot of prosecutions in this area? I hope not, but I think we will be looking for a number to act as part of this deterrent to show that the legislation has teeth and to show that we mean business.
Nick Price: I would just make a quick general observation: all prosecutions are difficult and we operate an adversarial system, which of course we are well used to. This is a really useful piece of potential legislation, with some really useful elements to it. Are we going to see a phalanx of extra prosecutions coming over the horizon? Perhaps not, but there are some really useful aspects of the Bill that we will no doubt deal with shortly.
Mark Thompson: In my experience, it is not inherently a numbers game, in terms of numbers of prosecutions. We have found that the section 7 offence of the Bribery Act is a useful tool for us as prosecutors. It focuses the corporate mind and there has been a large response from the private sector in complying with that. I would be surprised if the tax evasion offence did not have the same implications.
The Chair
Thank you. May I point out that we have got 30 minutes left, and eight other Members of Parliament want to ask questions? I remind both witnesses and Members that it is your time, and that witnesses are here today to answer as many questions as possible.
Mike Wood (Dudley South) (Con)
Q This question is directed in particular to Mr Thompson. Could you tell us more about the challenges faced by the Serious Fraud Office in investigating a suspected criminal financial activity, and how the specific measures in the Bill will help you to do that more effectively? In particular, I would like to know more about how unexplained wealth orders might be expected to help in pursuing foreign officials suspected of grand corruption.
Mark Thompson: Members of the SFO and I have been involved in consulting with the Home Office as this process has developed. Unexplained wealth orders provide an avenue for us to start civil recovery investigations effectively in a way that we cannot do at a moment. Where information is held abroad, or is in jurisdictions where co-operation is unlikely, this tool provides us with a way of kicking the process off and taking action against property in the UK that we suspect to be derived from crime. As things currently stand, the thresholds for pursuing civil recovery are, in many cases, high enough to make this difficult. That is how I would see our using the legislation in the first instance.
Nic Dakin
Q The new corporate offence relates only to tax evasion, which makes sense. But is there a case for extending it to dissuade companies from facilitating quite aggressive tax avoidance?
Simon York: At the moment this is a criminal offence, and tax avoidance is not a crime, which is why that would be difficult. We are currently consulting on additional legislation that would penalise the enablers of tax avoidance, so we are seeking legislation in that area too.
Victoria Atkins
Q Thank you, and it is a pleasure to serve under your chairmanship, Sir Alan. I want to pick up on the point about avoidance and evasion. Mr York, you said that these powers are directed at tax evasion, which is a crime. To give us an idea of the complexity of veering into the world of tax avoidance and tax efficiency, is it not right that a person simply investing in a pension can be described as being tax efficient because that prevents them from paying as much tax as they would otherwise pay?
Simon York: Certainly it can be tax efficient. We tend to use the phrase “tax planning”, so a pension or an ISA or something like that would fall into that category. Tax avoidance is typically where people are using schemes—which are often quite contrived and artificial—to do something that Parliament never intended. They are not lying to us, or being fraudulent, or misrepresenting something, but it is all artificial. We will criminally investigate the kind of situation in which people step over that line—which sometimes they do—and when they are part of something that might appear to be an avoidance scheme that actually becomes fraudulent, or where they are deliberately going out to defraud and disguise it as an avoidance scheme. We have had some significant wins over the past 12 months on big complex frauds disguised as avoidance. When it crosses that line, we will come right down on that. But if it is avoidance in the theoretical, pure sense, we will tackle that through civil litigation and take those cases to court.
On the subject of tax avoidance, the Government have done lots of work on tax avoidance over the last five or six years, and 40 loopholes have been closed down. In particular, we have brought in the accelerated payments legislation which completely changes the economics of tax avoidance, and makes people pay upfront while we wait for tribunal results. There are some really striking figures. The flow of new schemes is now down 99%. In 2006, there were 600 new schemes a year; last year there were seven. A couple of years ago, there were 2,300 new users of avoidance schemes; last year there were 410. We are really taking the bottom out of the individual market of avoidance schemes. The proposed legislation is to tackle another intractable problem, which is evasion, which is a criminal offence.
Victoria Atkins
Q On behalf of all the lawyers in the room, only one person may be convicted, but that conviction may mean that many hundreds of millions of pounds has been stolen from the Exchequer. With one conviction, you have solved that crime. Is that correct? In other words, one conviction does not necessarily reflect the extent of the damage that that particular defendant has inflicted on the UK economy.
Simon York: Not necessarily, no. We will use whichever approach we think is the most effective. Sometimes—for example, in relation to organised crime or groups of wealthy individuals—we will use a mixture of our civil tax powers and criminal investigation powers quite deliberately to get the biggest impact. My team recovers or protects about £5 billion a year through a combination of civil and criminal activity.
Roger Mullin
Q I have two short questions. First, what types of business formations are most susceptible to use by criminals?
Simon York: I think most sorts of business formations can be susceptible. Companies, partnerships, limited liability partnerships, Scottish limited partnerships and trusts are all used most widely for completely legitimate purposes but all, in the wrong hands, can be used to attempt to obscure ownership or value, or to launder profits of crime. They can all be used in different ways.
Nick Price: I am not sure that there is a specific type that lends itself to criminal activity any more than any other.
Roger Mullin
Q Perhaps this is for HMRC again then. How effective are we at supervising for anti-money laundering purposes all trust or company service providers that register UK companies?
Simon York: HMRC is the supervisor—TCSPs are not regulated in any other area. Our strategy is that we have teams that conduct anti-money laundering supervision, try to support that industry, particularly those that are susceptible or vulnerable to money laundering, and help them. My teams tend to get involved when we clearly suspect some of those organisations of facilitating crime, money laundering, tax fraud or whatever. Our strategy is to, again, use a combination of the money laundering supervisory regulatory powers and our tax powers. We have some really quite significant projects—I cannot go into too much detail—on the go at the moment in relation to TCSPs in particular.
Antoinette Sandbach
Q I want to come back, Mr York, to attributing criminal liability to corporates. You felt that that would prompt good behaviour. For example, there have been some well publicised cases of licence payments where profit will be taken out of the UK because of some form of licensing agreement or other device that removes profits from the UK. How do you see the new advisory part 3 capability in tackling that? That is tax avoidance, rather than tax evasion, is it not?
Simon York: It could only be used to tackle that sort of behaviour if that, in itself, was a criminal offence. I think what you are describing is typically the sort of tax planning or avoidance that multinationals might engage in. If that was fully presented to us and it was completely upfront, this would not be the appropriate response to that. If, however, anything was misrepresented to us and it effectively became a fraud and a criminal offence, and that was being facilitated by someone else, it could. But this is not really aimed at that at all.
Antoinette Sandbach
Q Can I perhaps take it to the other extreme, where, for example, single parents are trying to claim support from non-resident parents who are not declaring their income appropriately? That would be tax evasion. Would you see this offence as dealing with those people’s accountants and advisers? In other words, if professional accounts have been filed and there is then a tribunal finding that there has been an inappropriate amount declared for income tax, would you get involved?
Simon York: Our interest is in tax and tax evasion, so if we see tax evasion in whatever form, we will tackle it. We certainly could tackle scenarios like that. It is already a criminal offence for individuals to evade tax and for others to directly facilitate that evasion of tax. What is new here is that the Bill deals with a corporate body failing to take reasonable steps to prevent its representatives from facilitating the evasion of tax by someone else. It is that third stage; it is when you get to the corporate, which under current English law it is really quite difficult to attribute criminal liability to. That is what this offence is designed to address, so I do not think it would directly affect that sort of situation, but we would tackle that in other ways.
Antoinette Sandbach
Q Could it, for example, affect a high street accountant that was providing advice on something that may be on one or the other side of the line?
Simon York: It could if that accountant was a corporate body and its representatives or employees were facilitating or enabling tax fraud. Yes, it could help there.
Antoinette Sandbach
Q Mr Price, will unexplained wealth orders help the CPS make greater use of its existing civil recovery powers?
Nick Price: Unexplained wealth orders are interesting. We welcome that provision, and we have worked closely with partners in bringing it forward. The CPS is not an investigatory body, as you know. We think that these orders are likely to be used more by our partner agencies. Will it mean that we do more by way of civil recovery? As you know, the NCA already has its own capability to do that; it is likely that HMRC will get its own capability to do that as well—there are provisions in the Bill that would enable that—and the SFO likewise. We are likely to do a small additional amount of civil recovery work, and unexplained wealth orders may well be part of that, but I think the vast majority of that work is going to be done by the other agencies.
Antoinette Sandbach
Q Will extending the moratorium period on SARs assist you in getting the material that you need to get cases to a point where you can charge?
Nick Price: This is a very significant and welcome change for us. There are cases that we have not been able to take forward for early restraint simply because the moratorium period was far too short and the investigation simply could not be completed in the time that we had. Why is early restraint important? It is, I suppose, a trite observation in this field, but if you are unable to restrain assets at an early stage in proceedings, the likelihood of them being available later on is pretty remote. The extension of the moratorium period is critically important to us. There is considerable judicial oversight of that provision—you will have seen that in the Bill—so we very much support that.
Peter Dowd
Q The Chartered Institute of Taxation has expressed some concern that the new corporate offence of failure to prevent the criminal facilitation of tax evasion may lead to a string of prosecutions in relatively small cases where current civil penalties already provide enough punishment. What is your view about that?
Simon York: That is probably unfounded. Our approach here, like it is with all our criminal investigation work, would be to focus on where the behaviour is at its worst and most fraudulent, and therefore on where it is having the most impact, particularly where a corporate is having a very wide impact on a wide group of taxpayers and where the amounts involved are large. That is typically our approach. We would be equally selective with this power.
Peter Dowd
Q Some people suggest that HMRC has got form for not going after the big organisations—the Googles—for tax avoidance. What confidence can you give us that you will not just avoid the big ones because they are in the “too difficult to do” box?
Simon York: Our track record on this side is that, last year, we charged around 1,200 people with criminal offences, and about 12% of those were for frauds involving more than £0.5 million. You will probably have seen reported in the press some extremely big, valuable and complex frauds that have been in criminal court for over a year—that sort of thing—and that we have won. We are increasingly targeting that sort of behaviour. We have had extra investment from the Government, particularly to build our capability to tackle wealthy individuals, corporates and offshore evasion, and we are busy doing that at the moment. We have a significantly stronger pipeline of that sort of work currently.
Peter Dowd
Q Which brings me nicely to my last question, which is about your confidence in whether you as enforcement agencies have sufficient resources under the new provisions to do your job properly.
Simon York: In my part of HMRC, I have 4,500 people carrying out investigations into serious fraud, both criminal and civil investigations. Within that, and relevant to what we are talking about here today, I have a team of over 400 who deal with proceeds of crime in the widest sense—financial investigators, criminal taxes teams, insolvency practitioners and so on. It is something we treat as very important. We have had increasing investment over the years from Government, so the size of my team has increased quite significantly over recent years.
Nick Price: The CPS set up a proceeds of crime service just over two years ago. Operating on a national basis obviously means that we can be as efficient as we possibly can be, and we can meet the peaks and troughs in demand in terms of the various casework we are dealing with. We deal with work from the very top end at my end of the scale, down to the other end of work. As I say, that is on a national basis.
We are sufficiently resourced, and we also benefit from additional resource from the top-slice arrangements in relation to the asset recovery incentivisation scheme, or ARIS. That money is financing a specific project: we are working in conjunction with the police asset confiscation enforcement or ACE teams in the RARTs and ROCUs—regional asset recovery teams and regional organised crime units. That work is focused around section 22 revisits. You will of course be aware that there are some really important provisions in this Bill that enhance our ability to deal with revisits. I will add very quickly that we have seen a 150% increase in the number of revisit cases we are dealing with, so the provisions in the Bill are critically important to our work.
Mark Thompson: From our point of view, the proceeds of crime division has roughly doubled in size in the last two to three years. It remains a high priority for the SFO, and our funding model allows us access to additional funding from the reserve if we have cases that exceed a certain size. I make no complaint about resources at the moment.
The Chair
Order. We have 11 minutes left and I will stop this at 11.30 am, so help yourselves: please give yourselves more time for each other.
Mrs Drummond
Q I will be quick because you have touched on a lot of the stuff about which I was going to ask, particularly about the overseas corporate offence and how that works in practice. Mr York, will this actually pick up companies that operate mainly out of the overseas territories and the Crown dependencies?
Simon York: Yes if they are facilitating tax evasion in the UK or if their representatives carry out their business in the UK and are facilitating tax evasion that happens somewhere else. It catches Crown dependencies and overseas territories in the same way it catches other jurisdictions.
Mrs Drummond
Q Even though they have headquarters over there?
Simon York: Yes. That is precisely one of the targets of the legislation. If a company is facilitating tax evasion that is occurring in the UK—someone evading UK taxes—it would absolutely catch that. Equally, if that organisation is based overseas but its representatives are doing business in London to help someone in London to evade taxes in France, it would catch that as well.
Richard Arkless
Q First, to Mr York, the UK tax code has a reputation for being unnecessarily complicated. I am sure you are acutely aware of those allegations. To what extent does that complication play a role in criminality? Does it make it more susceptible to criminality? Do any specific examples arise out of the complication that would encourage, facilitate or make criminality easier?
Simon York: I am not sure that it does. Criminality is always pretty straightforward at its core. It is people lying, misrepresenting things and forging things. Sometimes that is disguised within the complexity of the tax system. I mentioned some times when people disguise a fraud as avoidance. We also get quite a lot of criminal attacks over the years that revolve around the VAT system, particularly the cross-border European stuff, known colloquially as MTIC—missing trader intra-community—fraud or carousel fraud. That can appear quite complicated but it is typically the criminal who is creating the complication to try to disguise the activity.
Richard Arkless
Q I am acutely aware of time. Mark and Nick, do you think that the threshold of £100,000 for unexplained wealth orders is at a fair level? Should it be lower or higher? International standards would dictate that it should be a little bit lower. What are your views?
Nick Price: From my perspective, it is a reasonable level at which to set the threshold. If you look at the two gateways into an unexplained wealth order—politically exposed persons or people suspected of involvement in serious criminality—you see that the likelihood in those cases is that the overall values will be far more than £100,000. For me, that is broadly where it needs to be.
Mark Thompson: I would agree with that. To make the criminality serious enough, I would have thought that it needs to be at a level that marks that sort of criminality. I think it is about right.
Richard Arkless
Q Many properties in my constituency are valued at less than £100,000 but more than £50,000, so I hope we are not basing that on London property prices.
Mr Thompson, on corporate economic crime, it is clear that the provisions in the Bill extend to employees facilitating tax evasion, and it does not go beyond that. Do you think there is a case for going beyond that? It strikes me that there is nothing in the Bill that gets at what the public understand as being the problem with corporate criminality. There is nothing that could catch the riggers of the LIBOR market, for example. There is nothing that could catch swathes of unscrupulous mortgage advisers giving 120% mortgages to dogs in kennels, which many people would argue has caused a great deal of the suffering that we are still all trying to recover from. Is there is a case for that?
Mark Thompson: There is a case for it. The SFO has made that case previously. The Attorney General has also called for consultation. My understanding is that there has not been a consultation yet on that measure, and that the Government may consider one. We have made the point before that it is inequitable that bribery and tax evasion attract these sort of corporate penalties, but that money laundering does not—it is a crime that attracts 14 years in jail. It also seems unreasonable that it is easier under the current law to prosecute small and medium-sized enterprises and not big corporates because of the way they operate. We have made that point before, but my understanding is that it was never going to be in this Bill anyway. It is a wider matter.
Scott Mann
Q There are information and data-sharing initiatives as part of the Bill. How would you interact with those measures and with the joint money laundering intelligence taskforce?
Mark Thompson: We do already interact with the joint money laundering intelligence taskforce, and we have a representative who attends it. We have access to that through the National Crime Agency. The data-sharing provisions are mainly for the NCA, and we would benefit from those arrangements. We entirely support them and think they would be advantageous.
Dr Huq
Q Are there any other changes to the existing proceeds of crime regime that you would like to see in the Bill? I was thinking of some sort of parallel enhanced supervision of the property market. Is there anything else on your wish list that you would have liked to see?
Nick Price: From a CPS perspective, we are content with the provisions in the Bill for now. It is too early at this stage to know how those will play out and the impact they will have. Inevitably, we will assess the use of these provisions as we go forward.
Mark Thompson: These are the second changes to the Proceeds of Crime Act 2002 in relatively recent succession. We still need to work out exactly how we use all these powers effectively. Like the CPS, I am content with where we are.
Simon York: We are content and very supportive.
Dr Huq
Q Finally, I would like to ask a question that I asked the other selection of witnesses. The Public Accounts Committee’s report on confiscation orders said that sometimes there is a bit of tension between whether the point of those orders is to disrupt crime or to recover the proceeds and collect criminal assets. What would you say to that statement?
Nick Price: From a CPS perspective, as I said earlier we deal with cases at the low end of the spectrum, and we deal with cases that are very much at the high end of the spectrum. In all those cases, there are victims. In many of those cases, there are people worthy of compensation. I do not believe there necessarily is, and I would not see it as, a tension. We deal with the full range of cases, and it is important we do that.
Mark Thompson: From our perspective, we only deal with the top end of fraud and corruption cases. Inevitably, there is a financial element, and it behoves us to consider confiscation and compensation of victims in all those cases, which is what we do.
Simon York: Our aim is to take the profit out of crime, whichever way we do that. Whether it is disrupting criminals or recovering proceeds afterwards, it is all part of that overall picture.
The Chair
I thank the witnesses for appearing in front of us. We are grateful for the concise and informative way in which you have helped us today. We will now move on to the next panel.
Examination of Witnesses
Alex Cobham and Professor Richard Murphy gave evidence.
The Chair
We will now hear evidence from Tax Research UK and the Tax Justice Network. You have until 11.25 am prompt. Even if we are not concluded by then, I will adjourn the Committee because Members have to be over in the House for other business. Would you introduce yourselves and outline the work you do?
Professor Murphy: I am Richard Murphy, the director of Tax Research UK. I am a chartered accountant and also a professor of practice in international political economy at City University.
Alex Cobham: I am Alex Cobham, chief executive of the Tax Justice Network and a visiting fellow at King’s College London.
Dr Huq
Q It is a pleasure to serve under your chairmanship, Sir Alan. It is good to have two academics in front of us; I am an academic trapped in an MP’s body.
Part 3 of the Bill would introduce the new criminal offence of failure to prevent facilitation of tax evasion. How do you rate the risk posed to the Exchequer by illegal tax evasion? We have just heard the figure of £5 billion a year. Is that accurate? Is it a conservative estimate? What are your thoughts on tax evasion versus tax avoidance and other activities that contribute to the tax gap? What would you say is the true scale of offshore tax evasion?
Professor Murphy: I have probably prepared the only alternative estimate to HMRC’s. My estimate is that tax evasion in the UK could be as high as £70 billion a year, in contrast to the HMRC estimate of £5 billion. Let us put that in the context of a £1.8 trillion UK economy. My estimate of tax avoidance is around £25 billion a year, as opposed to the Revenue’s, which again is around £5 billion. I believe its estimates are wrong. I think this Bill is focusing heavily on types of tax evasion that are a small part of the problem. The biggest part of the problem is the domestic economy; the biggest risk within the domestic economy is the fact that HMRC does not collect tax returns from 1 million UK domestic companies a year. The problem is with HMRC in this case.
Alex Cobham: We find Richard’s analysis rather more compelling than HMRC’s on the tax gap in general. Perhaps the difference is that we consider the international avoidance element to be particularly badly treated in the HMRC methodology. In some ways, if all your estimates are lower than they should be but in proportion, that is not a big deal, because it is not telling you to go the wrong way, but if your estimates of avoidance are significantly depressed compared with your evasion estimates, and you then put your policy emphasis according to those bad estimates, that does matter. I think we would be concerned that the tax gap is not a neutrally wrong estimate; it drives attention towards evasion rather than avoidance. We think evasion is important—certainly Richard’s numbers show that—but we are concerned that it encourages HMRC to take avoidance less seriously, and that is a risk.
Dr Huq
Q Several stakeholders who responded to the HMRC consultation—these clever people who know how to get around the rules—argued that a new corporate offence was unnecessary. It sounds as if you take issue with that. Do you think there is enough in the Bill to provide the significant behavioural change that is really needed to drive this out?
Alex Cobham: I think the behavioural change question is really important. There are two elements of it: one is how directly it affects the behaviour of actors involved in the process, but the second is how it affects the wider behavioural change. Over the years, we have had any number of economic models of tax behaviour, all of which have suggested that, in country after country, if we were rational economic maximisers we would be much more abusive about tax than we actually are. The reason for that is that we do not respond just to the risk of being caught and the price of being caught. Paying tax is a social act, and by and large two things drive people’s tax compliance. One is the extent to which tax revenues are redistributed and seen to be redistributed in a fair way—the more you think that, the more likely you are to contribute. The other is your perception of other people’s compliance. If you think that the people at the top—the big companies and wealthy elites—are systematically not paying their fair share, the prospects of you complying as a normal citizen are much lower. Who wants to be the only mug if the big guys are not playing the game?
There is one thing that I think is really important for the Bill. On the technical side we can have concerns about how it is framed, and on the enforcement side we might have concerns whether the resources are actually there to make it happen, but what is perhaps missing from that discussion is whether or not we have consistent reporting about the performance under this measure. If, year on year, we hear HMRC saying, “This is our estimate of the tax gap in this area. This is the amount of evasion we have stopped and the number of prosecutions, the revenue at risk in that area,” then, “This is the number of those cases where we have also gone after the facilitator, and so this is the proportion where we are consistently tracking this all the way through,” what you do, apart from giving HMRC a useful metric to demonstrate progress—if HMRC thinks this is the biggest part of the tax gap, then clearly it needs to be tracking this, showing the reduction over time—it also shows the public this is not just one more piece of tax law that may be more form than substance.
Particularly if you think about the Google tax law, for example, there is a growing sense of a lack of trust among the public that when tax laws are passed they are actually meaningful or meaningfully enforced. This is a great opportunity to go the other way, to make sure from the beginning that you will have that accountability and, to go back to your question, to have that in place in a way that is likely to drive behavioural change both of the immediate actors and facilitators but also of the wider public.
Professor Murphy: Can I make three brief points? The first one is that the law as drafted is going to be very difficult to prosecute. We have seen that from the Bribery Act 2010 on which it is based. The number of prosecutions is likely to be very low indeed. This is a strict liability offence—tax evasion triggers the potential liability. The defence that is provided is that there are systems in place. That means that the company—the corporate entity that permits the action—has a defence available to it. That defence will largely be available only to the biggest companies. They will have systems that can be easily documented. Most money laundering training systems now in place in large companies will provide an automatic defence to them: the defence is that they have the systems in place and that there was a bad apple who did the wrong act. Therefore, I think the chance of prosecutions against large companies under this Bill is remote in the extreme.
I think at most this will reinforce the impression that smaller companies are subject to penalty and larger companies are not. First, the chance of prosecution is low because the amounts of money involved will not attract SFO attention—by and large the SFO goes for high-profile cases and there will not be many here that can be prosecuted. Secondly, the behavioural change resulting from this Bill will be very low indeed. There are vastly better ways to achieve behavioural change in this Bill.
Tristram Hunt (Stoke-on-Trent Central) (Lab)
Q One of the attempts to deliver that kind of behavioural change is among the new clauses I am submitting. Will they garner your support for asking the Secretary of State, for example, to make an annual report to Parliament about unexplained wealth orders, to make it a duty to prevent corruption, and to establish quite swiftly a publicly accessible register of beneficial ownership of UK properties? Do you think the good intentions of the Bill could do with a boost to make sure the foot is on the accelerator on some of this?
Professor Murphy: I would entirely agree with a number of points you make. In fact, I would support all those measures. I do not need to comment further; they would all help.
It is clear that transparency is of enormous benefit. The biggest problem with regard to transparency in this country is that 400,000 companies a year in the UK do not file an annual return with the Registrar Of Companies and do not file accounts as required by law. We have no idea what those companies do. They are struck off. It is assumed they have no tax liability, so it is just assumed they have not traded. That is a completely unreasonable assumption for the registrar to make. HMRC does not pursue these companies. I did some research in 2014 on the recovery of penalties imposed on these companies for non-compliance. More than 99% of the penalties imposed were not paid.
In other words, we have an enormous hole in our economy, so we cannot rely upon these systems of registrars and beneficial ownership. The proposed register of beneficial ownership in the UK is simply a voluntary honesty box arrangement, because there are only four extra people being tasked to monitor it. When 400,000 companies do not even file a return, which is where they would disclose their beneficial ownership data, the chance that we will have reliable information is incredibly low indeed. We have to get down to very basic levels to get this right.
I am not saying that the Bill is wrong, but in terms of direction of effort, parliamentary time and resources, there are many more important tasks that would bring about the behavioural changes that Alex has talked about that would encourage compliance.
Roger Mullin
Q I have been concerned for some time about the Scottish limited partnerships and similar vehicles. To what extent do you think that there are particular types of business formations that are most susceptible to criminal activity and tax evasion?
Alex Cobham: This is one of the interesting features of the Bill. If the Government were a relevant body, I think the continuing provision of Scottish limited partnerships would make it very easy to prosecute the Government for facilitating evasion. The work of Richard Smith and David Leask, who I think will be giving evidence later, is very clear on this point. Something like one in four limited partnerships in the UK, but about two in three of Scottish limited partnerships, are structured in such a way that one of their partners is an anonymous company registered in a secrecy jurisdiction.
That is the perfect model for unaccountable business, unaccountable ownership of assets and income streams that may be criminal. The effective facilitation that the UK provides in that way is simply unacceptable. What is good about this Bill is a very clear recognition that that facilitation is unacceptable; what is missing is application to the Government themselves. I think the only consistent action would be to make impossible the use of anonymous partners for limited partnerships.
Professor Murphy: I agree with all that. I extend the concern to the limited liability partnership. I have been a partner in limited liability partnerships and they potentially have a very useful commercial role—they are tax transparent in a way that is very important, which is why I used one. The truth is that they are also used extensively by offshore agents, again using anonymous companies, to create structures that look as though they are present in the UK and give them an air of credibility. In fact, they are entirely controlled offshore and can be used for abuse. Both need a significant review. I can see no legal or commercial justification at all for limited partnerships in terms of their current use. Limited liability partnership legislation needs explicit change to make sure that it cannot be abused.
Roger Mullin
Q You mentioned a review, so I take it that you would support the new clause we have tabled calling on the Government to have a specific review of Scottish limited partnerships?
Professor Murphy: Yes.
Roger Mullin
Q You have mentioned the issue of money laundering and have given us an estimate of the tax gap. Do you have any estimates of the extent of money laundering in the UK?
Professor Murphy: The money laundering estimates that are available—for example, peer-reviewed work undertaken for the World Bank—would suggest that the UK has a shadow economy of about 10% of GDP. Curiously, that is very consistent with the data reported by HMRC with regard to VAT abuse, where the figure consistently runs at around 10%. It is absolutely impossible that you can lose 10% of VAT and end up with an overall tax gap of 6.4%, by the way. You cannot lose 10% of the top line and yet end up collecting the tax elsewhere. There is no accounting mechanism for that income to reappear in the national profit and loss account to be taxed further down the system—I say that as a chartered accountant. Therefore, absolutely on a basic methodological and logical level, HMRC’s estimates have to be wrong, but around 10% is likely. We are relatively low in that figure, by the way; as a contrast, in Germany the figure is 16%.
Alex Cobham: On the money laundering point, an informal or shadow economy of 10% is not out of line with a number of other high-income countries, but at least anecdotally, the number of times that UK vehicles crop up in foreign criminal cases seems disproportionately high. It is true that because the UK has been a leader to an extent in transparency it is easier to do some of this analysis involving UK companies, but that would also be a reason why they should not be used by people committing crimes and yet, they still seem to be. I think you would probably conclude that at the moment, although the evidence is not consistent, it is likely that the UK is disproportionately important in national money laundering. How disproportionately so is completely uncertain and, again, that makes the case for a review.
Professor Murphy: We do have a disproportionate number of companies per head in the UK compared with any other European country.
The Chair
Can I point out that four Members are still asking to get the floor and you have 10 minutes left?
Antoinette Sandbach
Q Professor Murphy, I want to come back to your evidence that the new offence of corporate liability will effectively target small or mid-range companies. In relation to the “bad apple” point you made, do you accept there is still reputational damage for a company if one of its employees is charged, and that that in itself may make big companies’ compliance far more rigorous?
Professor Murphy: That is obviously true. No company wants to appear on the front page of a newspaper and no company wants to be prosecuted. I have spent quite a lot of time in the last year or two talking to large firms of accountants—names you will be familiar with—and large companies about their response to the sea change in public attitude towards tax, and I am reasonably convinced that they have noticed that there is reputational risk to them, and that they are changing their behaviour as a result. To that extent, I feel that this legislation is a little too late, in the sense that they are trying to steer clear of some of these activities as fast as they can. Again, that is a reason why I think the impact will be on smaller businesses. The largest ones will have learnt how to get rid of the risk.
Antoinette Sandbach
Q If I can go back to the smaller business point, I do not know if you were here when I asked Simon York about the other end of the scale. Some tax evasion is not for the purposes of evading tax—the purpose is to evade other liabilities that follow on from declaring taxable income. That can be supported by small accountancy firms that may not apply regulations as rigorously as they should do. Do you think this offence will have a deterrent effect on the smaller and mid-range companies?
Professor Murphy: I think it will. The reason why is that it is a strict liability offence: the existence of evidence of tax evasion is sufficient to prove liability without motive being questioned. That could be important in certain cases. I can think of a very recent example—it has been in the press—where somebody has not paid tax quite deliberately, it seems, out of a company for which they were responsible. It would make it easier to prosecute in those cases. It will have a deterrent effect. I do not have a problem with strict liability offences for that reason. I know many in my profession do.
Nic Dakin
Q You both spoke earlier in giving evidence about the great opportunity to bring about behavioural change or improve compliance. Are there measures we ought to be looking at in this legislation that you would like to see us take the opportunity to put in?
Alex Cobham: I would say it is the reporting of it. If the Bill is seen as having made it on to the books without driving any serious change either in the way that HMRC operates and the extent to which it looks at enablers or in the ultimate prosecutions and revenue recovery, or if there is a perception of that even without that being the case, that is a missed opportunity in terms of how much impact it has. There needs to be a requirement for consistent reporting of the numbers of prosecutions, and of the transition between prosecution of evasion cases and, for each of them, whether there is a related prosecution of the enabler or not. If the second number is a very small fraction of the first number consistently, there needs to be space to come back and review, but at least having that will drive attention.
Professor Murphy: I would make the non-provision of accounts and a corporation tax return a strict liability offence for tax evasion under the terms of the Bill. I would also require a provision that is very similar to one we are demanding internationally, which is that banks simply report each year to HMRC which companies they provide services to.
We will next year be in the absurd position that HMRC will get more information on a company owned by a British person in the Cayman Islands than they will on a company owned by a British person in Stockport, because there is automatic information exchange from the Cayman Islands and there is not within the UK. If banks were required to provide information to HMRC on which companies they provide services to and the simple value of sums deposited in a bank account each year, we would know which companies were trading and therefore which were due to file accounts and which were due to submit a corporation tax return. Failure to submit would be a strict liability offence. Nothing would scare the accountancy profession or small company directors more than that. Make them personally liable for the tax not paid at the same time and you have solved the problem of tax evasion virtually overnight. It is simple.
The Chair
We have only five minutes left, so I will ask the three Members who want to speak to ask their questions first, and then you can reply. You will get a copy of the minutes, which will include any questions that you did not have time to answer.
Victoria Atkins
Q Professor Murphy, there is good precedence in the world of health and safety, where companies are prosecuted for causing workplace fatalities and accidents or bringing about an environment in which they occur. Do you agree that that success in health and safety bodes well for sending out the message to corporate entities that tax evasion is not permissible and will be prosecuted where evidence of it exists?
Richard Arkless
Q Professor Murphy, you have highlighted the difficulty with the Bill’s proposals on tax evasion in relation to corporate economic crime. Your solution would be a position of strict liability. Do you see any case to extend the provisions on corporate economic crime beyond tax evasion, leaving aside the problem of strict liability and enforcing it? Is there a case, for example, to extend the provisions to catch people who rig the LIBOR market, or perhaps mortgage brokers who fraudulently completed application forms that caused the mess we are in? Do you think there is a case for extending corporate economic crime beyond facilitating tax evasion?
Peter Dowd
Q On resources for agencies—enforcement or otherwise—in relation to prosecutions and chasing up, do you believe that the authorities have sufficient resource to do their job, or are they just misdirecting the resources that they already have?
The Chair
You have only two or three minutes to answer, so please be very brief. If you want to give fuller answers to Members, you can write to the Committee Clerk and we will make sure that all Members get a copy.
Professor Murphy: One brief answer—yes, it is effective. I think there are more effective mechanisms available but I am not disputing it has a behavioural consequence. I am afraid I am not expert enough to comment on the other areas. I simply am not an expert on mortgage fraud or LIBOR in that area. I am a tax specialist not a criminal finance specialist.
Does HMRC have enough resource? No, clearly, it does not. It needs to have a lot more resource and to be seen in local communities so that people realise that the threat is personal in that sense, but it is going in the wrong direction of travel at present. It is the risk of being caught that changes behaviour at the criminal end of activity, and transparency would expose that. That is why I think creating the smoking gun of information is the critical measure that needs to be taken to give HMRC a chance to identify those who are creating most risk.
Alex Cobham: We have a report out with the Public and Commercial Services Union, being launched across the road this afternoon, that says exactly that HMRC neither has enough resources and nor are they appropriately allocated to deal with the relative prioritisation that we think it should have.
Mr Wallace
Q The ARIS scheme allows HMRC, the investigators and the prosecutors to keep 50% of the proceeds of any confiscation. If the Bill leads to further confiscation, would you say that therein lies some of the solution that you are going to highlight across the road? If they will be able to keep what they recover, will unexplained wealth orders, for example, or seizures improve their budgets?
Alex Cobham: That seems potentially helpful, but I think you would be wise to look at the bigger question of whether HMRC is appropriately resourced given the bang per buck that it actually gets in different areas, rather than having just that one measure in mind.
Professor Murphy: I would rather have no crime and no proceeds than fund collection through increased recovery.
Mr Wallace
Q Unlike Corbyn economics, we live in the real world.
Professor Murphy: But it is the wrong direction of travel.
The Chair
I thank the witnesses for coming to answer Members’ questions. If you wish to give fuller answers, please submit them to us in correspondence.
Criminal Finances Bill (Second sitting)
Tuesday 15th November 2016
(7 years, 11 months ago)
Public Bill CommitteesRead Full debate Criminal Finances Act 2017 View all Criminal Finances Act 2017 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 15 November 2016 - (15 Nov 2016)
The Chair
We will continue with oral evidence from the British Bankers Association, the Financial Conduct Authority and the Law Society. We have until 3.15. I had better warn you before we start that there were lots of questions in the session earlier today, so please try to be succinct in your answers. I must also warn you that there is likely to be a vote at 3.15, coinciding with the end of your session. We will have to adjourn, go to vote and then come back. Hopefully you will be able to escape before then. Can you please introduce yourselves and tell us about your role?
Amy Bell: I am the chair of the money laundering taskforce at the Law Society. I am a solicitor. The taskforce comprises a number of solicitors and professionals dealing with money laundering, and we provide support for the Law Society on matters of policy and interpretation of the legislation.
Nausicaa Delfas: I am Nausicaa Delfas. Until last week, I was director of specialist supervision at the FCA, responsible for financial crime supervision. I am now executive director at the FCA and acting chief operating officer.
Anthony Browne: I am Anthony Browne, chief executive of the British Bankers Association. Despite our name, we represent banks operating in Britain, rather than just British banks. That includes all the foreign banks. I am not a financial crime specialist, and I should say that if there are questions needing follow-up, we will provide written evidence afterwards.
The Chair
Before I call Dr Huq, I want to apologise to you; the Minister is involved in the debate in the Chamber at the present, as is the Whip, who is also on the Committee. Hopefully they will be able to attend, but perhaps not during your session.
Dr Rupa Huq (Ealing Central and Acton) (Lab)
Q 7070 Thank you for coming to give evidence. To continue the thread, although I guess you were not here this morning, I will compare some of your answers to what we heard from the panels then. Part 3 of the Bill would create a new criminal offence to prevent the facilitation of tax evasion. Quite a few of the stakeholders who provided evidence to the HMRC consultation do not think that that is necessary. Why do you think that might be, and do you think that it is needed or not?
Nausicaa Delfas: If I can answer from the FCA’s perspective, we would be looking at systems and controls in banks in any event. Tax evasion is a predicate offence to money laundering, so that is something we would look at in any event, but we do not have a view on the provision in the Bill; it is just our perspective.
Anthony Browne: We are not convinced that it is necessary, but we are not opposed to it, and we accept it. We think it is probably better to lead as a regulatory approach with the co-operation of the regulators and the banks in a partnership way, but we accept the Government’s wishes to do it.
Dr Huq
Q So it is a good step up, but it was not absolutely necessary?
Anthony Browne: We think that it would be better to use regulation to enforce this, rather than creating a criminal offence for banks as such, although there are also already criminal offences for individuals.
Amy Bell: Our view is that there is already a predicate offence in relation to this, but our tax law committee has been involved, and they are generally happy with the drafting.
Dr Huq
Q There is also evidence that since 2009, a lot of specialist trained investigators of financial crime who were trained on the public purse have jumped ship and gone over to the commercial sector, some of them even to gambling. An amendment that we are tabling would keep people within—I cannot remember the exact wording, but they would have to repay the cost of training. Do the three of you have any thoughts on that and potential poaching?
Nausicaa Delfas: I do not have a view on poaching, but we have accredited investigators at the FCA.
Anthony Browne: I do not have any views on this, but I can ask my members about it. There is clearly circulation between law enforcement authorities generally and banks on a two-way basis, in the sense that people at banks go to work for law enforcement authorities and vice versa. If you ask the law enforcement authorities and certainly the banks, it is actually very valuable to get that exchange of information, insight and expertise across the two. This is partly a development of the fact that the battle against financial crime, to which the banks are very committed, is a lot more of a partnership now.
Law enforcement authorities see that the banks are fully committed to this and working to the same ends. We have the same goal in mind: banks do not want to handle illicit money. Bringing the expertise of law enforcement experts within the banks helps the battle against financial crime. I do not have a view on the costs of training.
Amy Bell: We do not have a view on that either. It is not something that we see very often, people coming from law enforcement into solicitors’ firms. It happens occasionally but not on a widespread basis. We prefer investigators.
Roger Mullin (Kirkcaldy and Cowdenbeath) (SNP)
Q A lot of research indicates that about 70% of major organisational crises are caused by culture. Why has the FCA scrapped the proposed review of the culture of banks? How is that going to assist in an attack on criminality?
Nausicaa Delfas: You are aware that the FCA is looking at culture with each individual institution. Although we would not be conducting that particular piece of work, we are doing other work. In terms of the Bill, I do not have anything further to add.
Anthony Browne: It was an investigation into the culture of retail banking and it was a decision for the FCA what it did with it. We did not ask for them not to do it at any time and would have been very happy for them to do it. As Nausicaa said, the FCA does a lot of work on culture already. The banks are doing a lot of work on culture through a lot of different means. We completely agree with your assessment of the importance of culture and of getting a better culture in banking. That is why from the chairmen and chief executives down they are spending so much time, effort and money trying to improve the culture in banks.
Roger Mullin
Q I will try another familiar area. There has also been removal of a proposal regarding the reverse burden of proof. How is the removal of that proposal going to assist in an attack on holding people responsible for criminal behaviour?
Nausicaa Delfas: That was a matter for the Government and legislation. There are still protections within the regulations to address senior management responsibility.
Richard Arkless (Dumfries and Galloway) (SNP)
Q I would like to push Ms Delfas on the point about banking culture. Do you see a link between banking culture and criminality? Do you think that a bad banking culture—to put it in layman’s terms—could be a conduit for criminality, or could exacerbate the potential for criminality in the financial sector?
Nausicaa Delfas: Obviously, we regard banking culture as incredibly important. We believe that it should be driven from the top down. We have not seen connections with criminality. We actually see that a lot of the sector operates well. Where there would be any issues around crime, they would obviously need to be detected and rooted out.
Richard Arkless
Q Do you agree with the Government’s decision to row back from the oversight committee and the reverse burden of proof? You rightly mentioned that it was a decision by Government. Do you agree with that decision?
Nausicaa Delfas: The regulations operate well as they are. Obviously, cases need to be made but I question what this has to do with the Bill.
Richard Arkless
Q The inference is clear. There is a link between banking culture and a financial system with banks being susceptible to criminality. I think it would be remiss for us to ignore that dynamic.
Nausicaa Delfas: What is really important here and what the Bill really promotes is how best to detect and prevent the financial system being used for financial crime. I think that should be our focus, so that many of the Bill’s provisions such as information sharing actually help to make the system more effective, so that crime and money laundering can better be detected and better information be given to law enforcement agencies to be able to deal with the issue. I think that is the focus here and that is absolutely right.
Richard Arkless
Q We heard evidence earlier that the new provisions for corporate economic crime may disproportionately impact smaller organisations, the theory being that larger organisations would find it easier to demonstrate protocols and processes that they could use to rebut the allegations that employers and their systems have failed to flag it up. Is that something that your members have discussed and that you have a view on? This may well be obvious, but as a former consumer lawyer, I can tell you the amount of times that big banks used to roll out their processes and protocols in defence of various actions, which smaller companies found it hard to do. Is that something that concerns you that might impact widely and disproportionately on your membership?
Anthony Browne: I agree with the general principle of your question. I have not had discussions with my members regarding this Bill. In terms of regulation more generally, there is no doubt that it can often benefit large organisations at the expense of smaller ones for exactly the reasons that you claim. It can act as a barrier to entry for smaller banks or as a barrier to growth for exactly the reasons you say: they do not have the resources, scale or internal expertise to deal with some very complex issues. The more complex a regulation is, the more that issue will be realised, as it were.
It is important to distinguish between proportionality ––we support proportionality of regulation––on the prudential side and proportionality on the conduct side. Proportionality on the prudential side, in terms of the capital that banks have, is a more straightforward issue. On the conduct side, it is quite difficult to argue that there should be lower standards for smaller banks because then the criminals or the misconduct would all be focused at smaller banks and you would create an unintended consequence. We massively support competition in the banking sector. We have done a lot of work to try to ensure that there is a level playing field and to remove any barriers to growth or entry.
Richard Arkless
Q Do you think that your members are in favour of the Bill’s corporate claim provisions? How do you think your members would react to those provisions being extended beyond tax evasion?
Anthony Browne: As I said in response to the question from Dr Huq, we do not think it is necessary, but we accept it and we have worked very closely with the Government on it. We are doing tax guidance–– 60 pages of guidance for banks to help them comply. In terms of extending it to a general criminal offence in respect of facilitating economic crime more widely, I just make this observation. There are lots of different bits of regulation and legislation on different elements of financial crime. There is tax evasion, counter-terrorism finance, money laundering and bribery. They all operate in a different way, and we would like to see a more coherent view of financial crime more generally. This is a longer term aim and this Bill is part of it. They are all different aspects of financial crime, so we are not opposed to the broad principle of extending it but we would say that it would need very careful consultation. You would need to think through very carefully how it might operate in order to make sure that there are no unintended consequences because there are a lot of very detailed complexities. You need to make sure that it would work effectively in the way that you, Parliament and the Government intend.
Antoinette Sandbach (Eddisbury) (Con)
Q Back in 2012, Coutts was fined £8.75 million by the FCA for systemic failings that had resulted in an unacceptable risk that it had handled the proceeds of crime. Do you think part 3 of the Bill will effectively address those risks at a banking level? In the not so distant past, we had HSBC Switzerland accounts being used to evade UK tax. Are you confident that the measures in part 3 will address those systemic failings in the banking sector?
Nausicaa Delfas: The Bill’s provisions will certainly help law enforcement to address these issues and, by virtue of that, will also have an impact on the banks themselves.
Antoinette Sandbach
Q Will they help you as a regulator?
Nausicaa Delfas: From our perspective, the areas that will particularly help us are information sharing, which I mentioned—so greater effectiveness in the anti-money laundering regime to detect and prevent instances of money laundering—and the civil recovery powers being extended to the FCA in line with those of other law enforcement agencies, so that when we undertake investigations we are able to move forward and take the civil recovery as well. That will help the FCA.
Antoinette Sandbach
Q The corporate responsibility obligations are only on tax evasion. They would not pick up issues around the LIBOR scandal, for example. Do you think any other measures are needed in the Bill or are you satisfied that it provides the appropriate tools?
Nausicaa Delfas: From our perspective, it is not so much a matter of powers. To go back to information sharing, the one proposal we would make is for the threshold for sharing information to be lowered, so that institutions can share information when they see unusual activity and not just when they actually have enough information to have a suspicion, because then they have to file a SAR. I know that there would need to be safeguards and that we would need to look into the matter in more detail, but the biggest benefit from our perspective would be to enhance that and therefore get better quality, rather than quantity, of information going to law enforcement.
Antoinette Sandbach
Q Mr Browne, you spoke about other pieces of legislation. Those have clearly not stopped the kind of matters that I referred to, in terms of the way the law has been interpreted or applied by your members. You said that you felt your members would be willing to have the scope of the Act extended to a broader economic crime.
Anthony Browne: You raised the question of LIBOR. Legislation was brought in after LIBOR to deal specifically with that. I should say more generally that we support almost everything in the Bill to different degrees. As banks, we are totally committed to combating all forms of financial crime. We spend in excess of £5 billion a year doing it and we want to make sure that that is as effective as possible. We have thousands and thousands of staff who deal with it. We support provisions such as information sharing, undisclosed wealth orders, disclosure orders and so on—we can talk about those in more detail later, perhaps.
In terms of widening the criminal offence to prevent wider economic crime, my point was that it is very complicated when you get into the details. We would caution against introducing it suddenly without detailed consultation about how it might operate or not operate. There is a very complex constellation or jigsaw, with lots of different interlocking bits of legislation and regulation on financial crime. Putting a blanket thing on top could make it less effective and lead to unintended consequences.
Antoinette Sandbach
Q Ms Bell, do you think part 3 of the Bill will affect your members more, particularly the high street firms that may be caught by its provisions?
Amy Bell: I echo what the BBA said in relation to the smaller firms and their resources to implement these things. We in the Law Society provide quite a lot of support for the smaller firms—the high street firms. In relation to these kinds of offences in particular, we published a toolkit when the Bribery Act 2010 was being implemented to help our members to implement the Act.
Antoinette Sandbach
Q But should not your members be aware of what constitutes tax evasion?
Amy Bell: Yes, sorry—the reasonable provisions. Sorry, I am talking about the procedures that they need to put in place. That is the part that would be difficult for smaller firms that do not necessarily have compliance departments to help them with that. We are talking about practitioners on a day-to-day basis. They will absolutely understand the law but it is about what reasonable preventive provisions they need to put in place.
Antoinette Sandbach
Q And you are providing guidance on that, or you will do.
Amy Bell: Yes, absolutely.
Victoria Atkins
Q (Louth and Horncastle) (Con): Just to pick up on that point, tax evasion is tax evasion, whether it is committed by small companies or large companies.
Amy Bell: Yes, of course.
Victoria Atkins
It involves an element of dishonesty. So any member of your profession or any other business who is conducting tax evasion is liable to be prosecuted in the criminal courts. I am slightly concerned about that distinction, that tax evasion conducted by small companies is not quite as bad as tax evasion conducted by large companies.
Amy Bell: No, I do not mean that. I am talking about the implementation of the provisions and the requirement to have reasonable procedures in place. Absolutely, tax evasion already is a crime. Picking up on what you were saying about the implementation of measures, I am talking about whether preventing corporate tax evasion is prohibitive for smaller businesses. But that is about guidance, and it is our role at the Law Society to help our members understand what is necessary.
Anthony Browne: I would like to make it clear, lest there is any question about my response, that although we want to ensure that there is as much competition in the banking industry as possible, the point I made about proportionality in terms of conduct being problematic is exactly that. Tax evasion is tax evasion; it does not matter how large the firm is that is doing it. Mis-selling to customers is mis-selling; it does not matter how big the firm is. The sort of protections you need against misconduct apply to all sizes of firm.
Peter Dowd (Bootle) (Lab)
Q This question is not specifically directed at you, Ms Bell, but I notice that you are the head of compliance and training at the Jackson Canter Group. One of the new clauses we have before us relates to the National Crime Agency making a report to Parliament about the training it provides to its staff on financial investigation and the operation of the Proceeds of Crime Act 2002. In a more general sense, what is your view about the whole question of training within, let us say, the finance sector, in relation to the issues before us? Do you think there is enough training? Too much? Give me a view about that.
Amy Bell: In relation to anti-money laundering?
Peter Dowd
Yes, take that for a start.
Amy Bell: We are fortunate to have the Solicitors Regulation Authority recent thematic review, which looked at that in some detail in relation to the legal profession. The authority visited 250 firms of varying sizes that it considered to be high on its risk rating, either because they were very large or because they already had some identified issues. In those firms it saw good levels of training and that people understood their obligations under the regulations—that systems were in place to enable people to do that—and about suspicious activity. So we have some qualitative data from the Solicitors Regulation Authority that show that in the legal profession training is taken very seriously and is effective.
Peter Dowd
Q May I ask the other two witnesses their view about training in general? By training I might mean awareness and the extent of trying to prod that awareness within the industry.
Nausicaa Delfas: My observation, from our work through supervision, is that firms take the matter very seriously and devote a lot of resource to anti-money laundering controls and related training.
Anthony Browne: I have not had a direct conversation with my members about the amount of training in terms of financial crime, but they put a huge amount of time and effort into it. There is absolutely no point in having regulations on anti-money laundering or anything else unless staff are properly trained to be aware of it and know what to do and when. The banks expend a lot of effort in ensuring that their staff are competent in carrying out those roles.
Peter Dowd
Q Do you think that the amount of training within the system fits the Bill, so to speak? Is there enough there?
Anthony Browne: There are certainly a lot of training providers. I should declare an interest here in that the BBA provides training, although we are a tiny part of the whole. Larger banks tend to do in-house training. There are a lot of third companies, external to banks, that provide training. There could be an almost unlimited supply of training, so I do not think that that is a constraint.
Nausicaa Delfas: We have talked about training in firms but there also is training for investigators exercising the powers in the Bill and other legislation. There is accreditation and monitoring of them, so the system is robust.
The Minister for Security (Mr Ben Wallace)
Q Thank you very much for your input into the formation of the Bill. It helps the Government, and hopefully the Bill reflects some of that. I am keen to find out from the regulated sectors and the professions what you envisage could or would happen to any one of your members should they be convicted of the offence of corporate tax evasion or money laundering. What penalties are available to you to deal with either law firms or the individuals who could be convicted?
Amy Bell: In relation to law firms, while the Law Society is the named supervisor, we delegate enforcement responsibilities to the Solicitors Regulation Authority. Its powers are incredibly wide and include restricting or stopping a firm from practising, intervening in a firm, closing the firm down, stopping the individual solicitors involved from being able to practise and ultimately referring them to the solicitors disciplinary tribunal, where they can lose their right to practise and be removed from the role. Quite serious options are open to the SRA.
Mr Wallace
Q And for the banking and financial sector?
Nausicaa Delfas: From our perspective, obviously, individuals could be prohibited from the industry. In terms of firms, there are significant fines and reputational damage.
Mr Wallace
Q And they could potentially lose their banker’s licence, if they are a bank.
Nausicaa Delfas: Removal of permissions, yes.
Mr Wallace
Q Ultimately, if an international bank loses its British banker’s licence, what does it mean for that bank in the global world? Is it usually the case that if they lose their banker’s licence in a developed market, it is pretty much curtains for them in the rest of the world?
Nausicaa Delfas: It would have a significant impact, yes.
Anthony Browne: If you lost your licence to operate in London, it would clearly have a dramatic effect on an international bank.
Mr Wallace
Q Do you think some of the overseas offences here will have a change of behaviour effect on foreign-owned banks that operate here as well? Ones that may previously have been able to exploit their jurisdiction elsewhere will find that the stakes are higher for them.
Nausicaa Delfas: Undoubtedly so. Obviously, where controls are exercised from the UK, those powers already exist, but this certainly goes further.
Anthony Browne: One aspect of the criminal offence of failing to prevent tax evasion about which we do have concerns is its extraterritorial impact and the degree of extraterritoriality. For example, if a US citizen who is a customer of a US bank operating in the US evades tax in the US and that US bank has a branch in the UK, the entire US bank could become criminally liable for an action that has no nexus in the UK whatsoever—it is a US citizen, US tax and a bank operating in the US under US law. The same goes for Japan, and so on. Effectively, that would place us as regulators for jurisdictions overseas. The US Department of Justice, for example, does not have such authority over UK banks operating in the US. It could have a dramatic impact on the UK’s competitiveness as an international financial centre.
Mr Wallace
Q But the US regulator does have a say in things like foreign and corrupt practices over examples such as the one you used. You do not have to have an entity with their extraterritorial reach in their other legislation.
Anthony Browne: It has to be a nexus in the US, I think. That is my understanding of that, but we can get back to you on the detail of it. Our understanding is that there no legislation which has this impact, in the sense that it is entirely extraterritorial without any nexus. It does not involve UK taxes, UK citizens, UK banks or UK laws.
Mr Wallace
Q But we do not really want tax evaders anywhere, do we? We do not want to allow tax evaders to rob other countries of their wealth either. We do not want to be a permissive society.
Anthony Browne: No, but obviously, the US, Japan and other countries have very sophisticated tax evasion laws already. Getting them to comply with two different laws simultaneously on a global basis, for both the UK and other jurisdictions, would have quite big implications. I do not know whether you have spoken to other Governments about the impact of this.
Mr Wallace
We have not had any representations from the United States objecting to this.
Roger Mullin
Q I would like the panel’s views on whether there is a case for strengthening protection for whistleblowers in the financial sector.
Anthony Browne: The protection for whistleblowers has just been strengthened in the financial sector. Ms Delfas might know more about it. We have been working with the regulators to ensure that each bank has a proper independent whistleblowing regime that does exactly that: protect whistleblowers. There is a senior manager or a board director who is a champion of the whole whistleblowing regime within the bank. That is a process that we have been going through over the past 18 months or so, to strengthen it.
Roger Mullin
Q Are you satisfied it is working satisfactorily?
Anthony Browne: I know that, as the banking sector, we think that it is a lot stronger. It is very important to have a strong whistleblowing regime. It is an important part of improving the culture of banks and preventing wrongdoing. We have been working with the regulator on this, so you should ask the regulator.
Nausicaa Delfas: I agree that the regime has been strengthened. We regard it as very important. It feeds into work on culture in banks as well. I would be interested if you thought it should be further improved.
Amy Bell: I cannot comment, unfortunately, in relation to the financial sector. In relation to the solicitors’ profession, we do have in our regulations the obligation for people to report serious misconduct. We do not have any specific whistleblowing provisions but that is not something we have encountered an issue with.
Nic Dakin (Scunthorpe) (Lab)
Q From the evidence we had this morning I formed the opinion that there is a view that banks are pretty good at spotting irregularities and bringing them forward to the authorities but other parts of the regulated sector are less proactive in that way. That seemed to be what was coming through the evidence this morning. Does that ring true to you? Are the measures in this legislation likely to improve the performance of other parts of the regulated sector?
Anthony Browne: We think it is important that the Government and law enforcement authorities use all the tools that they can to combat financial crime and not just rely on banks. I would agree with the assessment that banks do an awful lot; we certainly do an awful lot. It is important that you do not underplay or pay too little attention to other sectors—not just lawyers but accountants and estate agents. There are lots of different groups that get involved with this. They can all play their part against financial crime. We should all play our full part in that way.
Nausicaa Delfas: I agree with that. I obviously cannot speak for the other professions but we are aware that there are about 400,000 suspicious activity reports filed with the NCA each year. The vast majority of those, I understand, come from the financial sector. Obviously, perhaps more could be done. I go back to the point that that is a huge number. It is a quantity issue and we would urge any changes that could be made to improve the quality of those so that there are better leads for law enforcement.
Amy Bell: We have to be careful in judging the numbers of suspicious activity reports. The Financial Action Task Force and the NCA’s predecessor, SOCA, were both clear that there is no right number of reports. It is fair to say that the vast majority of reports do come from the financial sector. They see patterns of financial activity that we do not see. I do understand that there is criticism levelled at the professions in relation to reports about clients that banks report but maybe the professions are not reporting, but that is because we see different parts of the transaction. That should not be underestimated.
Although I think we should continue to be vigilant, we need to be very careful about drawing any conclusions from the disparity in the numbers. I think the information sharing will help because that means that the bank can communicate with the regulated sector where they see things that will give data to the professions to be able identify suspicious activity.
Peter Dowd
Q This morning we had evidence from the National Crime Agency, the National Police Chiefs Council, the Met police SO15 counter-terrorism policing, Her Majesty’s Revenue and Customs, the Serious Fraud Office and the Crown Prosecution Service. To a man—they were all men, by the way—I would say that they looked at the Minister, gulped and said that they had enough resource to do their job. Will you give me a view from outside, so to speak, as to whether you get the sense that those agencies have sufficient resource to do their job, given that you presumably have pretty close relationships at points in the investigatory process?
Nausicaa Delfas: Every organisation has constraints around resources. The question is how best to deploy them. The more precise the information, powers and so on that can be given, the better, but there are constraints in all cases.
Anthony Browne: Clearly it is important that they are properly resourced. We submit about 80% or 90% of the SARs that are submitted—360,000 last year. One of our concerns as an industry is that they are not all followed through, and we get very little feedback about what follow-through there is. A huge amount of SARs are put in, but we have concerns about whether there is sufficient resource to follow up that suspicious activity.
As you know, there is a whole Home Office programme to reform the SARs regime to make it more intelligence-led and less of a tick-box exercise, and to improve the quality of the SARs rather than just the numbers. We totally support that but it will only work if there are enough resources to follow through. That is why one thing that we have proposed in a submission to the Government is a forfeiture for the proceeds of crime in bank accounts such that the money raised is used to add resource to the SARs regime.
Amy Bell: The well known difficulty with the SARs regime—the reporting system—is one of resource. I echo what my colleagues say in relation to the numbers of SARs that go in and the feedback we get, and I believe that is a resourcing issue.
Tristram Hunt (Stoke-on-Trent Central) (Lab)
Q This question might not quite fall within your competencies but I will ask it anyway, given your knowledge of law, finance and the City. It seems that one of the challenges in the current legal set-up is a kind of fear among statutory and investigative authorities about the cost of pursuing certain lines of inquiry, with all the legal ramifications if those who are pursued for unexplained wealth orders and so on are found innocent. How does it affect the culture of investigation within the City when there is a fear about reputational and financial impact on those pursuing those lines of inquiry? Do you have any thoughts on that either from a legal or financial stance? There is a chance to think about an amendment regarding capping the reimbursement of costs or not allowing for the costs.
Nausicaa Delfas: We are aware of the costs but I suppose we regard it as part of the discipline of litigation, so it is not exceptional. The capping idea is certainly interesting.
Amy Bell: I do not think we have a view on it, but we are happy to take it back and get in touch with the Committee if we have any views.
Tristram Hunt
Q I will pursue this slightly differently. Do you have any sense of the international comparisons? Is the UK behind the curve on these investigations or is it out in front?
Anthony Browne: I do not know.
Dr Huq
Q Can you think of anything that is not in the Bill that you would have liked to have seen in it? I was kind of thinking sideways—maybe enhanced supervision of the property market or something. I know that is not one for you three directly, but if there is anything you would like to see in the Bill, we are told that the Minister is in listening mode.
Mr Wallace
Always.
Anthony Browne: We broadly support this Bill and almost all the provisions in it. The one thing we would like to see changed in the Bill is the threshold for intelligence sharing, which is a point that Ms Delfas made earlier. It would be beneficial and make the regime more effective if you lowered the threshold for intelligence sharing. If there was activity that was just below the formal level of suspicion, so that banks do not deal with it as a suspicious activity report, if they could at that stage share intelligence with other banks like two pieces of a jigsaw, they could find out that something happening in bank A is also happening in bank B.
That could raise it to a suspicious activity and so enhance the intelligence sharing and make it far more useful and effective. We are worried that the way it is prescribed at the moment would actually be a lot less effective than either the Government or the banks want.
Dr Huq
Q Do you think that the £100,000 for an unexplained wealth order is about right as the threshold where that kicks in? Would you like to see it higher or lower?
Anthony Browne: I do not have a view on that, but I can get back to you.
Nausicaa Delfas: I do not particularly have a view but, certainly from our experience, the cases of money laundering tend to be of higher value. I do not have a view on the figure as such.
Dr Huq
Q Is there anything you would like to see?
Nausicaa Delfas: Yes, there are other points. I have mentioned the lower threshold on information sharing. There are other ideas that we have in terms of how the SARs regime could be improved so that it is better quality rather than quantity. One is information sharing. Other ideas would probably not be in the Bill but are for future thought. What are the incentives for people who are submitting the SARs? For example, there is criminal liability on an MLRO. Is that right? Obviously, it is a difficult question but there are certainly incentives to report defensively.
We have heard from banks other ideas in which we can see the merit, such as having a sort of centralised transaction monitoring system to be able to see how transactions are flowing through banks. That is another very big issue that would need to be looked at. Again, it would improve the effectiveness of the system.
There are other provisions such as reliance. A bank cannot rely on another bank’s due diligence of a customer, so the customer has to go through due diligence again with the second bank. There would be a question about whether legal liability on the second bank could be removed, so that it could rely on the due diligence of the first bank, provided it had done some checks.
All those things are ideas that we are happy to share, or have shared, with the Government for the future, in terms of improving the regime overall, its effectiveness and efficiency. Mr Browne mentioned that his members estimate that the current regime costs them about £5 billion. Things that can reduce the cost and relate to effectiveness are welcome.
Richard Arkless
Q You have made it clear that you are broadly supportive of the measures in the Bill and you have given the reasons why. I think most people in the Committee are broadly supportive. The point of contention comes when some of us do not think that the Bill goes far enough.
I am quite perturbed by some of the answers you have given in relation to what could be done to make it easier for the people you regulate or your members. I am not getting the impression that those are things that you think would make it easier to catch the criminals. Am I confused by this? It smacks of self-preservation. What I want to hear are things that we could put in the Bill to make it easier to catch the criminals, not to make your lives easier.
Nausicaa Delfas: I am not suggesting how we can make our lives, or anyone else’s, easier. I am suggesting exactly what you said: to improve effectiveness in terms of being able to produce useful intelligence that helps to prevent money laundering in the financial system. That is certainly our aim; it is not to make anything easier. I think the Bill contains good provisions that will go towards that aim. We can always think about these issues and what we can do in future. We are certainly supportive of the Bill.
The Chair
That brings to an end the time allotted for questions. I want to thank all the witnesses who have come forward to give evidence. At some point, copies of your evidence will be available. Thank you very much for attending.
Examination of Witnesses
David Leask and Toby Quantrill gave evidence.
The Chair
Thank you very much for attending. We expect a vote on the Floor of the House quite soon, so your evidence may have to be interrupted. Before we start, could I ask you to tell us about your background and some of the roles that you have in your industry?
David Leask: My name is David Leask. I am a newspaper reporter with The Herald in Scotland. I am here because I am very interested in the use of Scottish shell companies by tax avoiders and other unpleasant people in other parts of the world, particularly the former Soviet Union.
Toby Quantrill: My name is Toby Quantrill. I am the principal economic justice adviser with Christian Aid. We are here because we have been working in the area of financial transparency, especially with regard to tax, for over 10 years. We are members of a number of global coalitions of civil society—the Global Alliance for Tax Justice and the Financial Transparency Coalition—which include members from both the north and the south. Our concern is with the management of British overseas territories specifically and the problems that they cause with regard to financial secrecy and criminal activity, especially in developing countries.
The Chair
You informed me, Mr Leask, that you were defended earlier by one of our Scottish Members, who explained that you were the chief reporter of The Herald, not “The Glasgow Herald”. We were put right on that.
Dr Huq
Before we were so rudely interrupted, Toby, because of the stuff you have published, I was going to ask you—this may also be relevant to David—about the new corporate offence, which will apply to tax evasion offences both in the UK and overseas. Will the foreign tax offence have a significant impact on developing countries?
Toby Quantrill: Potentially, yes. We very much welcome the extraterritorial nature of this. We would like to see this extended beyond tax evasion to all financial criminal activities—we are slightly puzzled as to why it is restricted in that respect.
The question will be implementation. As long as sufficient resources are put into implementation, we think this has the potential to have quite a significant impact around the world and in developing countries. So, yes, we welcome it.
Dr Huq
Q The same question about other jurisdictions—which Scotland might be if certain things continue going in one direction.
David Leask: The thing that we have been interested in at The Herald is the way in which some of these Scottish companies are directly marketed as a means of not paying tax. In that respect, when you have UK entities explicitly sold off the peg as a way of not paying tax, perhaps that is something that you will want to think about.
Dr Huq
Q How do you rate the risk posed to the Exchequer by illegal tax evasion? We heard different figures this morning: the witness from HMRC told us the tax gap was £5 billion and the professor said it was £70 billion. Do you have estimates on that?
Toby Quantrill: No, we do not take a particular view on the tax gap. It is clearly significant. There are many different ways of calculating it, but our main view is it is significant. It goes beyond pure resources and finance; this is about fairness and justice as well. It is about people everywhere in the world understanding that if they pay their taxes, so should everybody else.
Dr Huq
Q Christian Aid’s evidence keeps going on about the need for the beneficial registers of ownership to be made public. Will you stress again why you think it is important that it can be consulted when needed, and why it is not enough just to have it?
Toby Quantrill: As I said, we welcome the Bill overall. We very much welcome the leadership that has been shown by successive Governments. David Cameron especially at the G7 at Lough Erne put the issue of financial transparency and tax on to the global agenda, and the UK is the first of the G20 countries to create a public register of beneficial ownership, so that UK companies registered in the UK have to put on the public record who really owns them and who sits behind them.
Our concern is that this is a criminal finance Bill that does not address the question of our overseas territories and the role that they play in the global system of corruption and financial crime. That is strange and rather odd. We do not really understand why that has not been included. For us, what is really critical is that the company secrecy that is enabled in our overseas territories in places such as the BVI and Cayman Islands needs to be dealt with by doing exactly what we have done in the UK. We need to ensure that the registers of beneficial owners that are being created are put on to the public record and made public. We would like to see that done through this Bill or through some other process, but done with a clear timeline so that we know when it will happen, because that is not something that can wait. As I say, I represent civil society from across the world in many respects and there is a clear concern about the role the UK plays.
Dr Huq
Q The Public Accounts Committee has raised concerns that there is not a sufficient number of successful prosecutions of offshore tax evasion for it to deter people effectively. Do you agree and do you think that the new corporate offence in part 3 will make a difference?
Toby Quantrill: I think it has the potential to make a difference. The critical thing is to avoid these things happening in the first place. It is important to have some sort of measure that creates the requirement to put in place the measures to stop this from happening. As I said, it is a measure that we welcome. We especially welcome the fact that it applies to the way that UK companies act anywhere in the world.
Antoinette Sandbach
Q I am not as familiar with the Scottish devolution settlement as you are, but I had always understood that Scotland had a separate legal jurisdiction.
David Leask: That is correct.
Antoinette Sandbach
Q Can that legal jurisdiction not regulate the Scottish companies that you refer to? Where does the ultimate responsibility for that regulation lie? Is it with the Scottish Parliament or with Westminster?
David Leask: You probably need to speak to somebody more qualified in the law than I am. I can tell you about what these companies do and why people want to own them. Obviously, the companies were created by this place more than 100 years ago and not by the Scottish Parliament. In terms of law enforcement rather than regulation, if you were to ask the police what they would do about this, I honestly think they would tell you that they would do very little, because the criminality, or sometimes the unethical behaviour, is being carried out outside the legal jurisdiction of Scotland.
Antoinette Sandbach
Q I accept that, but what I am asking—it may well be that you do not know the answer and we need to get that from elsewhere—is whether company law is devolved in Scotland.
Antoinette Sandbach
My suggestion was that, given that there is a separate legal jurisdiction, there is the power already in Scotland to deal with these matters, but I see my colleagues are shaking their heads. To that extent, would the changes, particularly in part 3 of the Bill in terms of corporate responsibility for tax evasion, largely address the concerns that you have?
David Leask: I do not think it is my job to come here and have concerns. It is my job to come and tell you what these companies are doing, why people are using them and just how many of them there are.
Antoinette Sandbach
Q Have you looked at the Bill and read the provisions that are in it?
David Leask: I do not feel qualified to tell you as a legislator how to legislate, I am afraid. Sorry.
Antoinette Sandbach
Q You cannot give us an opinion on whether you think it will tackle the abuses that you are trying to describe to us?
David Leask: There is a reasonable case for the United Kingdom authorities to take a detailed look at Scottish limited partnerships and what it is that they do. I think there is a reasonable case for you to look at what similar English companies are doing and ask yourself whether you want Britain and Scotland to be associated with that kind of activity, and whether you think that is good for your national brands.
Antoinette Sandbach
Q We heard the evidence of the various law enforcement authorities in earlier sessions. I do not know whether you were here for that, but they were quite clear about the additional protections the legislation will afford them in tackling illegal tax evasion.
David Leask: They would be better placed to tell you about that than I would be. However, the issue really is that right now, tens of thousands of companies and firms are operating around the world and we do not know who owns them. They are involved in things that are quite questionable, from simple matters of peddling diet pills that do not work and combs that they tell you will grow your hair back—I am sure they do not—to very serious criminality, including, for example, being used as legal intermediaries by corrupt officials in countries such as Ukraine. Prosecutions are now under way of individuals in Ukraine who are accused of using Scottish and English companies as intermediaries in arms deals. These are serious matters, and they are outwith the jurisdiction of the law enforcement officials that you saw this morning. It is within the power of Westminster to change the law in respect of Scottish limited partnerships, but you probably need to take a closer look at what they are doing.
Roger Mullin
Q I will direct my questions to Mr Leask, but I would be very happy if Toby decided to join in as well. If it had not been for Mr Leask’s groundbreaking research over the past year or more, I would not have been aware of the seriousness of the situation, so I would like to put that on the record. Could you give us a sense of your perception of the scale and type of criminality that is associated with Scottish limited partnerships?
David Leask: There are some 25,000 of these firms on the register at Companies House. A colleague of mine, Richard Smith, has scraped data from these and we think some 17,000 of them have entirely opaque ownership, meaning that they are owned by members—partners in partnerships—who are in some of the places that Toby has talked about, such as the British Virgin Islands, Panama and Belize. There is no way of knowing who stands behind those companies.
How do we know what they are doing? We cannot gauge the scale of criminality, tax evasion or anything else because we do not know who these companies belong to or who controls them, but some of them have started cropping up in criminal matters elsewhere. For example, we have seen a company called Fuerteventura Inter, which is registered on the high street in a small mining village in Lanarkshire, named in a prosecution in Ukraine for corruption involving the export of shells from Ukraine to the middle east. We have seen minor cases as well: for example, in what you might think are tuppenny-ha’penny corruption cases—they involve tens of thousands of pounds—officials have used them as fake intermediaries for exports of alcohol. They then take a cut, allegedly.
We have also started seeing these companies being used substantially in the world of e-commerce, both for what you might think of as being criminal, unregulated and unethical behaviours. Only yesterday, we reported that Scottish limited partnerships were being used as fronts for the kind of unregulated cash-transfer firms—sort of PayPals, only not regulated by anyone—where an anonymous sender can send an anonymous amount of money to an anonymous recipient by email. They actually guarantee that they can provide identity-masking. That may not be an illegal activity but it is unregulated, and again, we do not know who stands behind those companies.
Roger Mullin
Q To follow up on that, I read the article yesterday and I was taken aback, to say the least, when it alleged that there could be contacts with what used to be known as the KGB.
David Leask: There have been stories in Ukraine that have accused some of these companies of having connections—albeit tenuous ones, to some extent—with people who are connected to the security service in Russia. However, the companies concerned deny that.
Roger Mullin
Q You have already started to give us a sense of the type of criminality that is involved. To confirm, we are talking about financial criminality, but not just financial criminality—I think one of your investigations was into things that involved, for example, paedophile websites. Is that correct? Could you say a bit more about that?
David Leask: One of the types of companies that Scottish limited partnerships have become quite popular as fronts for are businesses that you might call cyber-lockers. They are essentially subscription services where you can access material and peer-to-peer sharing. That might include, for example, bootlegged Hollywood blockbusters. It can also be things that are quite unpleasant. People post such things to those sites and you pay a subscription to access that material. There is a lot of concern about the use of those peer-to-peer file sharing systems. Sometimes it is quite innocent—people sharing pictures of their families—and sometimes it is not. That is subject to an investigation by police in Scotland.
There is a similar issue involving the alleged theft of copyrighted material by a well-known torrent site. That is another site where people can access copyrighted material such as TV programmes and films in the United States, where the estimated value of the copyrighted material stolen is $1 billion. That involves a Scottish company as part of the payment mechanism for those services.
Roger Mullin
Q I will allow other Members to speak, but I want to ask one more follow-up question. I can understand why you are reticent to suggest what legislators should do but, as far as I am aware, you have been one of the leading researchers in the field. However talented you may be, Mr Leask, you are limited in your resources to research further. Would you welcome the UK Government putting their shoulder to the wheel, as it were, and conducting a detailed review of the use of SLPs for criminal purposes?
David Leask: That is a reasonable ask. As I said earlier, we are talking about companies that are trading on the brand of Scotland and the brand of Britain. When they are offering these services, they are stressing that the addresses that they are using are British. The United Kingdom’s status is part of the reason that these companies are popular. That is part of the reason that you may want to look at the matter.
One of the reasons that people in countries such as Ukraine or Russia may wish to use a Scottish or British company as a shell company is that it lends the enterprises respectability. I am not sure that our authorities will want to lend the respectability of countries such as Scotland, which have an image in the world of being stand-up places where there is the rule of law, to some of the enterprises we are talking about.
One thing I urge you to do if you are remotely interested in the issue is simply to go online and google “Scotland” and “offshore”. If you can do so in Russian, all the better. You will see the most extraordinarily explicit explanations of how these companies do not need to pay tax, report any financial findings or reveal who their owners are, because those owners will be in entirely opaque jurisdictions.
Q Toby Quantrill: So much of what Mr Leask has talked about in terms of how anonymous companies are used applies equally to our overseas territories, including the issue of respectability by connection to the UK.
I want to say a couple of things on volume, especially with respect to developing countries and the impact there. A high-level panel was put together by the United Nations economic and financial committee. It was run by Thabo Mbeki, so it is known as the Mbeki panel. That panel estimated that illicit financial flows out of Africa run at somewhere in the region of at least $15 billion a year. That is money being lost from Africa at a far greater rate than aid is going in. That money is either illegally obtained, illegally transferred or illegally utilised, so it covers a range of activities including transfer pricing—the illegal movement and transfer of finances—and criminal activities and many of the kind of things that have been described. It is worth noting that the sort of picture being painted there would apply equally and, in many respects, more so.
One little pertinent fact that I have written down is that 11% of foreign-owned companies operating in Russia are apparently registered in the British Virgin Islands, but we do not know who sits behind them.
Mrs Flick Drummond (Portsmouth South) (Con)
Q This question is really a supplementary to some of Dr Huq’s comments on the overseas territories. I asked a previous panel including the Serious Fraud Office, HMRC and the Crown Prosecution Service whether they thought they had the resources to go in there. They have automatic access to all the records, although I know that it is not public document. I want to know a bit more about that, Mr Quantrill, because obviously you are a great expert on it. To add to that, are you confident that the enforcement agencies have enough resources and the capability to do what is in the Bill and prosecute people in the overseas territories and Crown dependencies?
Toby Quantrill: It would be an awful lot easier if we had transparency in regard to beneficial ownership. It is true that all of the overseas territories have now agreed to share information with the UK Government and a number of other Governments on a Government-to-Government basis. However, from the perspective of a citizen in a developing country who may well not trust their Government and wants to know what is going on, they will not be happy. First, they cannot hold their Government to account to use that data even if they get it—most developing country Governments will not. As long as it is shared only between Governments, there is a limit to who will see it and who can act on the information. That is critical.
We cannot put this an awful lot better than David Cameron did when he was talking about the UK’s beneficial ownership register. He was asked, “Is it not enough for it to be available to Government officials?” and he said:
“we in government will use this data to pursue those who break the rules, and we’re going to do that relentlessly, but there are also many wider benefits to making this information available to everyone. It’s better for businesses here, who’ll be better able to identify who really owns the companies they’re trading with. It’s better for developing countries, who’ll have easy access to all this data without having to submit endless requests for each line of inquiry. And it’s better for us all to have an open system which everyone has access to, because the more eyes that look at this information the more accurate it will be.”
Yes, there is a question of resources and availability to use the information once it is provided, but the more people who have access to it, the more likely it is first to be accurate and secondly to be utilised.
I was talking to a colleague from Global Witness just before last weekend. They spent the whole weekend with a group of data analysts sitting and looking at the information now available through the UK’s beneficial ownership register, making connections and linking that with other databases they have. This information does get utilised, and the more people utilising it, the more likely it is to be helpful. Our sense is that it is not enough just for the authorities to have access.
Mrs Drummond
Q As far as the Bill goes on transparency, obviously it is only for the UK. You have also been talking about other countries and it is up to them to follow our lead and have more transparency.
Toby Quantrill: The UK has legislative authority over the overseas territories.
Mrs Drummond
Yes, but I think Mr Leask was talking about other countries and corrupt Governments. We cannot cover that in the Bill. We can cover the overseas territories. Were you not talking about other countries outside the overseas territories when responding to Mr Mullin?
David Leask: We were talking about the use of both English limited liability partnerships and Scottish limited partnerships as shell companies. Those shell companies often provide cover and a way for people in Russia, for example, to buy a company in the British Virgin Islands. Often the shell on the outside will be British, but, when you crack it open, on the inside you get the British Virgin Islands or another Commonwealth or British overseas territory. Sometimes it is a country such as Belize or Panama.
One of the things said to me by a colleague—a lot of work is being done on these stories by colleagues in countries like Ukraine and Latvia—was, “We keep coming up with that British Commonwealth problem.” That really struck me, once you start unwrapping these shells. One final point I will make is that, in many countries, there are blacklists of offshore fiscal paradises and tax havens, and the British and Scottish companies enable you to bypass those blacklists.
Toby Quantrill: In the recent Panama papers data that were revealed, just under half of companies in the documents in Mossack Fonseca in Panama were registered in the British Virgin Islands. It was by far and away the most utilised location. It is at the heart of the system. With the ability to deal with that comes a responsibility to do so.
Mr Wallace
Q I thank The Herald for what you have done. I have read some of your stuff and it has been quite an eye-opener. The SNP obviously raised it in the debate and that prompted me to have a meeting with one of my business Minister counterparts to see where we can go forward with it. Some of the stuff that you have identified—well done for it—is the truest form of good investigative journalism that can be produced. It was the Glasgow Herald when my grandmother wrote for it way back 40 or 50 years ago. It is clearly a structure that has been abused, and I think we want to ensure that that does not happen.
I want to ask Mr Quantrill about a bigger issue: the Crown dependencies and overseas territories. If we stack it up, going back to the anti-corruption summit chaired by David Cameron back in May, we have got to a position now where all of them will have a central register of beneficial ownership, except the Caymans, which will have a linked register of ownership. Our law enforcement agencies will have access to them. We are the only country in the G20 to have a public one. Never mind the dependencies or anywhere else; our neighbours in Europe do not have them yet, so the trajectory is in the right direction. It seems to boil down to a call to make the Crown dependencies make them public—that we, the UK Government, impose our will on the Crown dependencies and territories, in primary legislation.
Do you recognise what that actually means? I have many constituents who, for example, have very strong feelings on abortion. Does that give this sovereign Parliament the right—technically, we are sovereign over Scotland and the Crown dependencies—to impose that very strong will on those Crown dependencies? That is the next step. The step you are suggesting is for us to ignore their own Parliaments and impose our will on them, because it is a subject that you and many other people feel passionately about. I respect that, but it is what you are proposing. Is that something that you are happy to do?
Toby Quantrill: Not happy—
Mr Wallace
By working with them, we have got to a position rather quickly of having central registers and getting our law enforcement automatic access to those data without long, drawn-out court cases. We have done that in the space of a year. Is Christian Aid proposing that we override the democratic expression of those countries, whether they like it or not, because it is a subject that you have decided is more important than other issues?
Toby Quantrill: I certainly recognise the difficulties. I would also very much prefer that we did not have to go down the path of legislation. I do not necessarily think that we would need to, but it ought to be available, and it ought to be made clear that it is available. There have been precedents in the past.
That is one thing, but what we are looking for is a timeline and to be really clear by when this will happen, so that we know what is happening and can see the UK using all its powers to persuade and support these places to go in that direction, primarily. However, we do not think it is acceptable for this not to happen within a timeline. The reason for that is that the impact globally is so great. The Panama papers are a game-changer in this respect. It puts these places right at the heart of the system. The damage being done globally, to our mind, overrides the very real discomfort of taking this action, but it is not an action without any precedent. The UK has gone down that route in the past, as I am sure you are aware, on a number of different issues.
Also, interestingly, I had sight of a paper recently, the Foreign Office annual report on the Cayman Islands Government from 2003; it goes back some time. In it, there was a single paragraph relating to the EU savings directive. At that time, the Caymans Government clearly did not want to implement it; it was a similar issue of making certain information available. The paragraph stated that voluntary action by the Caymans Government meant, effectively, that we did not have to legislate. It was clear that the threat of legislation had been used, and had been effective in that case. It has been done in the past, in a similar incident.
Yes, I recognise the difficulty—I honestly do—but there are potential implications of maintaining secrecy in these places. It is not just one particular place; it was, as I said, one of the most important centres of financial secrecy in the world. I think the potential impact of that staying in place is too great to ignore, but what we are looking for is a timeline, persuasion and all means possible first.
Mr Wallace
Q You quote the Panama papers, which was a significant leak, and there have been previous ones—Liechtenstein and others. The access that our law enforcement agencies will now get will be greater than the Panama papers. The Panama papers are not complete, and they are effectively within the control of the journalists in the sense that they were selectively leaked to them and then published. No one is able to get the full picture because we do not have open access to Panama, which is not a Crown dependency or an overseas territory; it is a place that Scotland had a bad relationship with a few hundred years ago.
What we are proposing, and what the Crown dependencies are giving our law enforcement access to, is the complete picture. In one sense, we will have a greater advantage than the Panama papers because our law enforcement agencies will be able to have full access to the full range automatically. Therefore, in one sense we are 90% there. As you said, we do not have the transparency bit, but the Government’s intention is to do that. We are doing it, first, by leadership. We are the first in the G20 to say it is our aspiration. The step that seems to be mooted is to impose the sovereign will of Parliament on them, but in 12 months we have gone 90% of the way.
Toby Quantrill: We are looking for a timeline. We must give time and support to moving in that direction and be clear about when we are going to reach it. The Panama papers demonstrated the power of making this information public, because the impact has been global. In countries all around the world, citizens have gained information about people often within their Government and judiciary, and they have been able to investigate, follow those leads and hold their Governments to account. That is the power of transparency. It should be full transparency, not just the bits and bobs. We should not have to rely on leaks to hold our Governments to account. That is the point we are making.
Carolyn Harris (Swansea East) (Lab)
Q Have you ever heard of the Magnitsky clause?
Toby Quantrill: No.
Carolyn Harris
Q This is a blank piece of paper. If you had the opportunity to write what is in the Bill, what would be on it?
Toby Quantrill: There is already an amendment—new clause 4—that we support. The critical thing is to see action, whether within the Bill or through other means, to get the outcome we are looking for. All I would write on that paper is simply a public register of beneficial owners in overseas territories by whatever means. As I said at the start, this is a Criminal Finances Bill, and it seems odd not to include that issue in it.
David Leask: I have nothing to say on that, I am afraid.
Richard Arkless
Q First, David, thank you for your groundbreaking work. I was very heartened to hear what Ben, the Minister, said about reading your work and taking note of it. I was encouraged to hear that. Let me be the matchmaker in the middle here. Would you be willing to work with the Government and provide them with all the evidence you have uncovered in the past few months, based on what Ben has said?
David Leask: It is entirely published in the pages of what Mr Wallace would like to call the Glasgow Herald. It is therefore up to date. I can offer you a subscription, if you like.
Richard Arkless
Q Perhaps that is something that the Minister could consider. He very helpfully expressed a willingness in the Chamber to have a look at the issue, and he clearly demonstrated that he is doing so, so hopefully there can be communication from here on. For lay people watching this who find it difficult to conceptualise how transparent companies can be conduits within a system that can lend itself to criminality, is there a way that you can explain very simply what it is about SLPs that makes them susceptible to criminality?
David Leask: In some ways, the way to look at that is to ask how they are being sold and marketed off the peg, and what people find attractive about them. I am sure you could find lawyers who can identify some of the weaknesses in the Scottish limited partnership, but what fascinates me is the way in which they are sold. They are companies that have legal personalities, which means that, for example, you can open up a bank account with such a company—or a firm, strictly speaking.
Richard Arkless
Q How do they differ from normal companies, then?
David Leask: That is normal for a company with a legal personality. I will start again. Imagine that you are sitting somewhere like Kiev, and you open up the internet to look at agencies that are offering offshore companies. You will see a menu drop down and you will be offered a limited partnership in Canada or a limited company in the Czech Republic. You will have to choose the one that best fits your bill.
In this case, the Scottish limited partnership has legal personality, like many other types of company, which means you can open a bank account. These agencies will then offer, right there on the same internet page, to open a bank account for you. That bank account is often going to be in Switzerland, or even more often in Latvia. It is almost as if you are able to pick and choose the areas of the world where they have the weakest regulation. For Britain, that is going to be corporate law. For Latvia, it is going to be banking. You had bankers in here earlier talking about what they can do in Britain against money laundering; perhaps there are other jurisdictions where it is weaker.
You have to see a Scottish limited partnership or an English limited liability partnership as part of a kit that you can buy online. It is essentially a do-it-yourself kit for tax avoidance at best and money laundering at worst. That will include all the things that certain people like about SLPs: the fact that they have legal personality, that you do not have to say who the ultimate owner of the company is, and that there are no tough reporting restrictions. As I said, we have 25,000 SLPs in Scotland; I have never seen a single one of them file accounts, and I do not think that any ever have. I am happy to be proven wrong on that, because I have not read the paperwork for all 25,000. Some of them are perfectly legitimate businesses.
The next thing is that because there is no taxation on a Scottish limited partnership that does not operate in the United Kingdom, the agencies are quite entitled to tell people who want to invest in an overseas offshore company that they can have a zero-tax company, and they are bluntly marketed in that way. There is no taxation, so there is no need to say who you are and no need to file any accounts. There is then, of course, the extra element of these companies, which is that they do not fall under the blacklists that some Governments have imposed on their citizens.
Lastly, there is the simple prestige of owning a company or a firm in the European Union, in the United Kingdom, and in Scotland. It is about that particular cocktail being of particular interest to certain types of people. Some of those people might then look around those menus and find another type of company. That might be a British company or an English company, or it might be one elsewhere, but they will pick on the weakest regulatory regime they can for any part of their kit to launder money. In the case of companies, I am sorry to say that I think that is Britain.
Richard Arkless
Q That is very useful, Mr Leask. Thank you very much indeed.
Mr Quantrill, it seems from the discussion today that most people around this table would agree with most of the Bill’s content. As you have rightly said, the point of contention comes with what is not in the Bill. You have mentioned overseas territories and Crown dependencies, but those aside, could you quickly run us through perhaps two or three aspects that you think ought to be included in the Bill but are not?
Toby Quantrill: There are a couple of other areas I would highlight. I think my colleagues from Transparency International and Corruption Watch UK will give evidence; we support them and work with them closely. In part 1, could the unexplained wealth orders be extended so that they also apply to assets held in, for instance, the overseas territories? That would be helpful. We welcome the fact that the “failure to prevent” legislation is extraterritorial in nature, but perhaps that could be extended to other financial crime, beyond tax evasion.
Richard Arkless
Q Do you have any idea of which crimes you would extend it to?
Toby Quantrill: Just broadly.
Richard Arkless
How about market manipulation?
Toby Quantrill: Yes, those sorts of things. I do not have a particular list in front of me, but it seems strange to limit it to just one specific type. Beyond that, our main focus has been on the one issue, as I have probably made very clear.
Tristram Hunt
Q I was struck by what you said about the debate in Africa about the amount of money flowing out of that continent. We obviously give a huge amount of money to different countries in Africa through development aid. Will you give us a sense of the nature of people’s frustration about some of the money leaving the continent of Africa and their analysis of where they see London and its role in all this? What kind of reforms are being urged in many of those countries on the continent that, on the one hand, we are supporting through development aid, but from which on the other hand, it seems to me, we are allowing too much wealth to leave?
Toby Quantrill: As I say, this issue has been picked up by a number of civil society coalitions—our networks of partners and organisations across Africa—as being critical. They highlight the fact that on the one hand we are providing aid and on the other, we are facilitating these losses, which may massively extend, in terms of volume, way beyond—I think this goes beyond more than money, though. The other frustration is the fact that we are talking a lot about corruption, but, through our overseas territories and other forums—property ownership and so on is being dealt with appropriately—we are perhaps helping to facilitate or not doing enough to clamp down on some of the kind of flows of corrupt money, supporting corruption and so on. It is very hard to get into a lot of detail, because a lot of this activity, by its very nature, is secret and hard to pin down.
The best example is a very real one, which has been used before. A very good investigation was run by Global Witness into a particular case in the Democratic Republic of Congo. There was the massive underselling of mining rights—as low as 5% of market value—out of the country to a company registered in the British Virgin Islands and a number of others. Today, a new press release from Global Witness also links this to companies in the Cayman Islands, at extra money. Those rights are then sold on to other companies including, for instance, Glencore, at massively inflated prices. Somewhere in the middle somebody is making a lot of money and we do not know who. It is estimated that the losses from that particular transaction could be worth as much as $1.3 billion to the DRC, so the people of the DRC are being ripped off and they do not know who to blame for that. They do not know who to point the figure at, because they cannot find out.
The Chair
I will now bring this session to a close. It has been very good of you to come here and we are all very grateful for your evidence, but we must finish this session. Thank you for your attendance; we will start the next session at 4.30 pm.
The Chair
Q We will now hear oral evidence from the right hon. Dame Margaret Hodge. I have known Margaret for a very long time, and I am pleased that I know her. There are new Members of Parliament who are not up to date on your background and work on the Public Accounts Committee and so on, so before we begin, could you just give us a brief summary?
Dame Margaret Hodge: First, thank you for asking me to give evidence. I was really pleased to be given the opportunity. My interest arises out of the work that we did on the Public Accounts Committee, which I chaired for five years from 2010 to 2015, and particularly our work on tax avoidance and evasion, and the links to corrupt practices. I warmly welcome the Bill, as I am sure everyone has said to you. I hope that in the brief time I have, I can say where I think there are a few gaps and where we could strengthen the Bill—there are a few omissions that the Committee could rectify as it considers the Bill.
We tend not to think about this, but we have to remember that, along with our overseas territories and Crown dependencies, the UK is probably the biggest secret jurisdiction in the world. That is why so much money gets laundered through the UK and why the Bill is so important in tackling corruption around the world. David Cameron was really strong in saying that he would lead on anti-corruption. He said quite clearly that we have to lead by example. There are certain omissions and issues in the Bill, but if we strengthen it, we could make a reality out of his statements and commitments.
The Chair
Thank you very much for that. We are time limited. We have until 4.52 pm, which does not leave us much time at all, so will Members please be concise with their questions?
Dr Huq
Q It is great to have you here, Dame Margaret. You were the Chair of the Public Accounts Committee when a landmark report came out in 2014. How much of the stuff that you recommended is reflected in this legislation? You hinted that there are some omissions that need addressing. Could you tell us about those?
Dame Margaret Hodge: Again, in the context of general welcome for the Bill, let me talk about three issues, including the overseas territories and Crown dependencies. What is missing is a clause in the Bill— I know an amendment has been tabled already and I hope the Committee will consider it carefully—that provides for registers of beneficial ownership that are open to the public. Let me just quote from somebody who made a statement about this because it is really important:
“Now some people will question whether it is right to make this register public. Surely we can get the same effect just by compiling the information and using it within government and sharing it between governments? Now of course, we in government”—
that gives it away a bit—
“will use this data to pursue those who break the rules, and we’re going to do that relentlessly, but there are also many wider benefits to making this information available to everyone. It’s better for businesses here, who’ll be better able to identify who really owns the companies they’re trading with. It’s better for developing countries, who’ll have easy access to all this data without having to submit endless requests for each line of inquiry. And it’s better for us all to have an open system which everyone has access to, because the more eyes that look at this information the more accurate it will be.”
That was actually David Cameron when his Government launched the UK public register of beneficial ownership.
We have given the overseas territories and the Crown dependencies three years to come on board with this. It was first raised by David Cameron in 2013. I think that is long enough. I know there is a reluctance by the Government and that they feel that we have come some way, but that commitment to openness and transparency is vital. It is at the heart of ensuring that we really tackle corruption and money coming into the UK. If we cannot get the commitment in the Bill, which is what I would love, we are seeking a timeline that says that, within a certain time if the overseas territories and Crown dependencies have not come on board with public registers, we will instruct them through Order in Council to do so. We have the powers to do that.
Dr Huq
Q Are there examples of where that has been done before? You probably know more than me but I think there is precedent.
Dame Margaret Hodge: There are plenty of examples where we have used those powers. May I quote again from a Government White Paper? This is particularly about the overseas territories, which is a slightly different position from the Crown dependencies. This is a Government White Paper—I understand that there have been some questions about that during your consideration today. The paper says:
“As a matter of constitutional law the UK Parliament has unlimited power to legislate for the Territories.”
We do have that power. I am sure you heard examples this morning. A Conservative Government used it to outlaw capital punishment. A Labour Government used it to outlaw discrimination on the grounds of sexuality. We used it in the Turks and Caicos when there was systemic corruption and maladministration, and we should use it again. This is so much at the heart of the whole agenda. It would be a terrible missed opportunity if we did not, during the course of the Bill, go for public registers of beneficial ownership. I just cannot see an argument against it.
Dr Huq
Q A last question from me: the new corporate offence relates to cases of tax evasion, so is there a case for extending it to come down on companies for facilitating tax avoidance?
Dame Margaret Hodge: Or economic crimes. Can I just say again that I really welcome the Bill? This is the first time that we have tried to get at those companies and organisations that are actually responsible for devising many of the schemes that lead to aggressive tax avoidance or evasion. It is a really important toe in the water and a first step forward. The real experts on this are Edward Garnier, Nigel Mills and Catherine McKinnell—all lawyers who have been arguing strongly that the provisions ought to cover all economic crime.
Another amendment could be really helpful. If we could at least have a report to Parliament showing how the failure to prevent tax evasion power is actually being used by the enforcement authorities, I think that would really improve the Bill. I would like to see how much it is used. We could then see how effective it is, as with the unexplained wealth orders—it is important to report to Parliament once a year on the progress made on the use of unexplained wealth orders. I cannot see anything particularly controversial about that sort of amendment, so I would do it for both. Of course, I think you will find that the lawyers think we should do this for all economic crimes. I am with the lawyers on this.
Antoinette Sandbach
Q Dame Margaret, I am very interested by your proposal that that should apply effectively to every company’s beneficial ownership, because it was, of course, the Government that you were part of in 1998 that passed the Data Protection Act, which recognised that there should be privacy around individuals and disclosure of their data. Why, at that time, did you not—
Dame Margaret Hodge: Sorry, I am trying to think what you are getting at here. I do not quite understand what aspect of the Bill you are referring to. I am really sorry.
Antoinette Sandbach
You are talking about disclosure of beneficial ownership—
Dame Margaret Hodge: By companies.
Antoinette Sandbach
By companies, which would presumably relate to named individuals. The register looks at controlling interests—
Dame Margaret Hodge: The register of beneficial ownerships?
Antoinette Sandbach
Yes, of named individuals or other companies. I can see why, if it is another company, there would not be an issue, but if it is a named individual, this Parliament decided to protect data around individuals. Does your premise not assume that every company is therefore acting in a way that is, in effect, criminal, and should not the burden be the other way? In other words, having private registers allows the Government to interrogate the data where there are serious allegations of crime, but still to protect the privacy of individuals.
Dame Margaret Hodge: I am slightly muddled, so I apologise if I am answering this wrongly—if so, do come back at me. The register of beneficial ownership of companies in the UK is actually public. It is not private. In fact, I think another weakness of the Bill, and of the unexplained wealth orders, is that until we bring into legislation the George Osborne commitment that there would be a register of beneficial ownership of properties in the UK, it will be very difficult to administer the unexplained wealth order power. I hope the Committee will look at that.
Do I think it will create difficulties for individuals? I do not. Should we have done it? Yes. It is ironic, the whole issue. It gained momentum. It was not a big issue at the time. That is my only explanation. Transparency is at the heart of it. Whenever I look at any of these problems, I always find that if you have transparency, you are well on the route to tackling some of the bad behaviour, be it tax evasion, avoidance or whatever. Have I not answered properly?
Antoinette Sandbach
Q Clearly there is a distinction between evasion and avoidance. One is legal, and the other is illegal.
Dame Margaret Hodge: Can I come back on that?
Antoinette Sandbach
Certainly.
Dame Margaret Hodge: There is a distinction. I call it a spectrum, which is why I think this power is limited and why we need to think further. There is a spectrum from sensible tax planning through avoidance and into evasion. The honest truth is that people often say to me, “But we’re only acting within the law.” There is a story in The Guardian today about people being employed by companies set up to avoid national insurance and other taxes.
The reality is that when we as parliamentarians write far too complex, far too long tax law, we have an intention. If we could write it in a way that was really copper-bottomed, covered every eventuality and had no ambiguity, we would do so. I do not think this is a particularly partisan thing. We cannot do it. Therefore, you find that a lot of aggressive avoidance is unlawful when HMRC finally, if it has the resources, catches up with it, but it is difficult to call it evasion.
Antoinette Sandbach
Q I understand that there are now changes. We are awaiting tribunal assessments where there is doubt about whether it is legal avoidance or illegal evasion, but the law has now been changed to require individuals to pay up front.
Dame Margaret Hodge: That is an improvement.
Antoinette Sandbach
The burden has been reversed.
Dame Margaret Hodge: But it still assumes that HMRC catches up with them, and it does not always do so.
Antoinette Sandbach
Q Given that this is a really important first step, and that the Government are working with the overseas territories to get co-operation, would it not be useful, rather than going to a broader system that is more difficult to manage, to focus on the more serious cases and allow that co-operation initially? If it is then seen to be inadequate, we can perhaps broaden it out.
The Chair
Order. Before you answer that, Margaret, we have two Members still to ask questions and you have got two minutes. I am going to ask them to ask their questions, and then we can hopefully get some correspondence from you to answer the questions more fully.
Dame Margaret Hodge: There are lots of answers. One is that they have had three years to get on with it, and they have not done it. David Cameron said they should be public at this point. I am sure people have talked to you about the Panama papers, but so much of that went through the BVI, for example—nearly half of the corporations were established through the BVI. If we do not tackle that, it particularly impacts on the poorest countries because they do not have the resources we have for enforcement. We are bad at it, and they are even more poorly equipped. If they do not have the resources, they lose three times as much in tax avoidance and evasion as they gain through the international aid that we give. They have had their time, and this is the moment when we should get tougher. We are saying that there should be a timeline.
The Chair
Can the two Members—Mr Hunt and Mr Mullin—ask their brief questions? Then we will conclude.
Tristram Hunt
Q Our previous witness from Christian Aid proposed the idea of looking into unexplained wealth orders for overseas territories. I just want to know your views on that.
Dame Margaret Hodge: Looking at them for overseas territories—
The Chair
I think we will have a written reply.
Dame Margaret Hodge: Okay. I am going to think about that one. Thank you. That will save me, Sir Alan.
Roger Mullin
Q Is there a case for extending public registers to cover trusts?
Dame Margaret Hodge: Yes.
The Chair
Order. I am afraid that brings us to the end, Dame Margaret. Our allotted time has run out again. Thank you very much for coming. It was a delight to see you.
Examination of witnesses
Tom Keatinge, Dr Susan Hawley, Chido Dunn and Duncan Hames gave evidence.
The Chair
We are now going to hear oral evidence from the Royal United Services Institute, Corruption Watch, Global Witness and Transparency International UK. I have got to warn you before we start that we have had votes and they have put everything back. We are also restricted on time because there are Members who have got other things to go to, as do two of the panel, so we are going to conclude by 5.30 pm at the very latest. Can you briefly introduce yourself and be very concise, because Members want to ask questions?
Duncan Hames: Good afternoon. I am the director of policy at Transparency International in the UK.
Tom Keatinge: I am director of the Centre for Financial Crime and Security Studies at RUSI.
Chido Dunn: I am from Global Witness, and I work on governance and corruption issues.
Dr Hawley: I am from Corruption Watch.
Dr Huq
Q I have an easy question first of all. What difficulties in recovering assets from individuals suspected of involvement in criminal activities overseas have you encountered? Can we start with Susan Hawley?
Dr Hawley: I think Chido and Tom might be better placed to start off with that one.
Chido Dunn: Based on our investigation in Global Witness, the use of anonymous companies incorporated in places such as the overseas territories and Crown dependencies—[Interruption.]
The Chair
Order. I am afraid we have some bad news for you. We are suspended for 15 minutes for a vote.
The Chair
Q Order. I apologise to the witnesses. Members engaged in the vote will come back, but we have not got much time left and, to be fair to you, we should try to give you the time to make a statement about what you think of the Bill and where any problems may be. The time is yours and we have only until 5.30 pm. If there is time left for questions, we will use that, but if not we will receive in correspondence any more ideas you have left out or we may write to you with questions that may arise from today. Mr Hames, would you like to start?
Duncan Hames: Thank you, Sir Alan. We at Transparency International warmly welcome this piece of legislation, which we believe could be the most significant in the fight against corruption since the Bribery Act 2010. We are particularly interested in part 1 of the Bill, which introduces the new investigatory order: the unexplained wealth order.
We think that is important for two particular reasons. First, if we want to prevent corruption, we need to restrict the opportunity that corrupt individuals have to enjoy the benefits of their illicit wealth. Secondly, it is often the case that where corruption occurs it is so endemic in that society that those corrupt individuals are untouchable by the law there and they have not received a criminal conviction for their actions. To answer the question posed before the Division, at the moment it is incredibly difficult to start along the road to recovering corrupt assets without a conviction in the country of origin. So we very much hope that the unexplained wealth order will be a tool available to UK law enforcement as a result of the legislation.
We have been asked, and we have heard you ask other witnesses, about what is missing from the Bill and about other matters. The Government have a raft of commitments in the anti-money laundering action plan, which is clearly relevant to a piece of legislation on criminal finances. The Government recognise the need to reform the supervision of anti-money laundering activity and it would be welcome if they were to bring forward measures to do that. We have made a number of recommendations, which I will be happy to provide to the Committee in writing. But, principally, the No. 1 change we would like to see is the word “Bill” replaced with “Act”.
Tom Keatinge: Thank you for the opportunity, Sir Alan. As mentioned, I am from RUSI. Our research focuses on the partnership and information sharing efforts to tackle financial crime. We are particularly interested in the provision for information sharing in the private sector; what is or is not happening with regard to the SARs regime and reform thereof; and importantly, how this architecture will improve the UK’s ability to tackle financial crime. Like many others, we welcome the Bill, but it is important that we do not view it purely as a piece of legislation and that it is used and implemented by law enforcement. As Donald Toon said very honestly at the Financial Conduct Authority financial crime conference last week, we need to improve our understanding of financial crime in the UK. As I say, we need implementation and understanding.
We welcome the opportunity for private sector organisations to share information with one another. They often work in trenches and silos, and by being able to build a complete picture, they can support law enforcement in its attempts to prosecute criminals. We question the mechanism by which information can be shared. At the moment, as I understand it, it needs to be shared on the basis of suspicion; we think it should be shared on the basis of assisting to form suspicion. We also welcome the unexplained wealth orders. There are one or two other nuances about which I can perhaps write to the Committee in the interests of time.
The important point to remember is that we are on a journey. We would like to see urgent reform of the SARs regime, which the Home Affairs Committee highlighted in its inquiry earlier this year. We will be judged on our effectiveness by the Financial Action Task Force next year. Implementation of this legislation will be important to demonstrate that we are effective.
The last thing I would say is that we would like to see early and strong use of these new powers. It is no good having them if we do not see things like unexplained wealth orders used, because that will quickly add a deterrent factor. As Dame Margaret said, it is important that there is regular reporting to Parliament on the way in which the Act is being used.
Chido Dunn: I am Chido Dunn from Global Witness. We are also very supportive of the Bill. We think the UK has shown real leadership in recent years in recognising its own role in facilitating corruption overseas and providing a safe haven for corrupt people and their assets. We have conducted more than two decades of investigations, and we see some common features arising. Usually, state money is stolen by a foreign official and funnelled into places like the UK via an anonymous company, which is almost always incorporated somewhere like the UK’s tax havens. There is almost always a UK facilitator involved—a bank, an accountant or a solicitor—who, while perhaps not violating their obligation under the anti-money laundering rules, has allowed that deal to happen.
That is why we welcome the Bill: it addresses a lot of those issues. We welcome in particular the extension of the suspicious activity report period and the unexplained wealth orders, as my colleagues have mentioned. There are some practical issues that will have to be fleshed out in later versions of the Bill, and we are happy to make submissions on those later, but I would echo the points that have already been raised in terms of the biggest gaps. Given the role of the British overseas territories and Crown dependencies in all the deals and behaviour we have seen so far, it is a striking absence that they are not addressed in the Bill and that some other commitment has not been made to address the problem of there being no public registers in those overseas territories and Crown dependencies. Also, given the role of facilitators so far, we welcome my colleagues’ calls for the “failure to prevent” offence to be extended to other financial crimes, like money laundering. It is a very useful and welcome move, but it could have a real impact if it was extended.
Dr Hawley: Corruption Watch welcomes and applauds the Bill’s ambition and courage and the fantastic cross-party support for it. We think the Bill is a unique opportunity, and we are concerned that it may be the last legislative opportunity to put all financial crime on an equal footing, given the impact that Brexit will have on the legislative calendar.
The Home Secretary spoke last Friday about how the Government are committed to developing world-leading legislation to combat financial crime. We think an amendment to part 3 to include other financial offences could be a significant step towards achieving that, and we would like to see the Government give such an amendment serious attention.
One of the key issues is that business has not yet been consulted on extending part 3 to other financial crimes. I would like to quote a leading QC I was discussing this with yesterday, who said, “Well, you don’t consult burglars on burglary legislation.” The idea behind this legislation is to capture those bad actors who are not fulfilling their regulatory requirements under the Financial Conduct Authority handbook to have procedures in place to ensure that they are not used to further financial crime.
The second point that we would like to make is that this would be a very good first step, but it would only be a first step. There is urgent need for broader corporate liability reform. As I am sure some of you are aware, the current liability laws in the UK penalise small and medium-sized enterprises, which bear the brunt of prosecution; give effective impunity to large companies; and create a perverse incentive for bad corporate governance. On Second Reading, Sir Edward Garnier made an important point that we need broader corporate law reform to be on the agenda, whether that be vicarious liability or a change to the identification principle that governs substantive offences. We would like the Government to show some commitment to producing, as a priority, something on broader corporate liability reform.
Thirdly, we think that the Bill could be an important opportunity to consider something that was raised by the Select Committee on Home Affairs—the creation of specialised confiscation courts. The Serious Fraud Office has been calling for specialised economic courts for some time because it takes 18 months on average to get a court slot for some of its cases. Perhaps this would be a legislative opportunity to find some way of ring-fencing Southwark crown court for financial crimes, and to create a cadre of specialised judges who have the expertise and experience really to tackle financial crime across the board, including confiscation orders.
From our monitoring of how the Bribery Act is being implemented, we think that three key things have to happen to instil confidence that a failure-to-prevent model can work. These are all covered by various amendments that have been tabled by Members. One is to ensure that senior executives can be held to account for those failures. That is where we think an amendment to the Company Directors Disqualification Act 1986 would be important. Another is to ensure that companies that fail to prevent these offences are excluded in some form or manner from public procurement. We welcome and support the amendment to put the offence in part 3 into the Public Contracts Regulations 2015.
Finally, companies that are convicted and companies that are offered settlements need the equivalent level of scrutiny of their compliance procedures, so we welcome and support the amendment to introduce corporate probation orders. This is a unique opportunity for the Bill to set world-leading legislation on financial crime.
The Chair
We have around about 12 minutes left, so would all Members and witnesses be concise in their questions and replies?
Dr Huq
Q Are you confident that enforcement agencies will have sufficient resources to make full use of the new powers in the Bill? I am thinking of the creaking IT system, ELMER, which was designed to cope with 20,000 SARs a year, and the figure at the moment, before this legislation, is more than 300,000.
Tom Keatinge: Resourcing is clearly a major issue. Cynically, one of the reasons for involving the private sector is to harness it to do some of the work. The point that I was trying to make in my remarks was that implementation will be critical. I do not believe we have the resources that we need. For the structure as it currently exists, the question is whether we are tackling financial crime the right way or whether we can make more efficient uses of the resources we have. Do we really need to have 381,000 SARs a year, and everything that that means for resourcing? We do not have them for the structure that we have now. Is the structure we have the right one? That is the question that we need to answer.
Duncan Hames: I would not go as far as to say that we were confident, although I am sure that people make special pleading cases with every area of Government spending. Reform of the use of the consent SAR would help to give more time for law enforcement bodies to collect the information they need to know how best to respond to it. That is a welcome measure in the Bill.
Chido Dunn: One argument made for public registers in places such as the overseas territories is that there can be more eyes than just law enforcement and Government actors. People such as journalists and civil society actors like us can help the process by identifying potential crimes and alerting the authorities to them.
Dr Hawley: We would like to ensure that the National Crime Agency’s international corruption unit, which will bear the brunt of enforcing unexplained wealth orders, is adequately resourced. We have concerns that at the moment there is not enough transparency in the funding model of that unit. It is partly funded by the Department for International Development, which leaves a whole series of countries that are not DFID priority countries to be funded. We need transparency that the Home Office is putting up the matching funding to cover those countries, because UWOs are going to be global—they will not be just for DFID priority countries.
Antoinette Sandbach
Q Mr Keatinge, may I pick up on the point about reporting to Parliament? It is very easy to get data in the public domain about the number of requests or prosecutions under a particular Act: you can use the Freedom of Information Act, or parliamentarians can table written questions to get those data in the public domain. Why do you feel that that requires a report? Dr Hawley, in relation to the cadre of specialised financial crime judges, why do you say that judges are not capable of adequately dealing with financial cases when effectively you have juries sitting on them? If you cannot explain them to the jury, you will certainly not be able to explain them to the judge.
Tom Keatinge: Let me take your first question. The way in which we seek to tackle financial crime in the UK cuts across a number of different Departments. There are many cooks in this particular kitchen, for various reasons. As an outsider, my question is: who is ultimately accountable for ensuring that the Bill is used effectively when it is enacted? Should there be a commissioner? Ultimately, what I would like to see is someone who has to report to Parliament what has happened as a result of the new legislation. As for where that information comes from, I accept that it can be brought to light by Freedom of Information Act requests or other means, but I would like to see someone made accountable for explaining how the Act has been used.
Dr Hawley: Judges play a key role in instructing the jury how to interpret some parts of the law. These are incredibly complex cases. In a way, we are reflecting what has been expressed to us by some in the law enforcement community who are trying to put these complex cases to judges who are not specialists and so do not have the level of knowledge about the crimes that they would like.
Antoinette Sandbach
Q That could apply to any crime, whether it was murder or child pornography.
Dr Hawley: The difference is that these are much longer trials than for those kind of crimes. Another key issue is that cases of economic crime are often at the back of the queue for court slots, essentially because defendants are often given bail, which in murder cases they would not be. That is why it takes so long for the Serious Fraud Office to get court slots.
Tristram Hunt
Q Could the Committee have some examples from Global Witness of case studies of that three-way process—the extraction of wealth, often from developing nations, the facilitation via London and the hiding of that wealth in overseas territories or Crown dependencies? It would be good to have some narrative examples. Secondly, one issue that has been put to the Committee and on which I will pursue a probing amendment is the fear among enforcement agencies that, if they use unexplained wealth orders or go after those who have allegedly hidden wealth and committed crimes, they will be liable for the costs involved. That has serious ramifications for the culture of risk within an organisation. I am interested in whether you think either that those costs should not be borne by the state or that they should be capped.
Chido Dunn: I will speak briefly to the narrative examples point, but I am happy to provide more. One of the case studies we worked on, which was covered on the BBC last week in anticipation of the Bill, was a case that arose in Kyrgyzstan. The former President was overthrown in a coup and he and his family were accused of widespread corruption and violence. His son fled and arrived in the UK on a private jet and claimed asylum. At Global Witness, we identified him living—we have no proof of who owns the property—in a mansion in Surrey. It was purchased for £3.5 million six or seven years ago, so it is worth a lot more than that now. The home is owned offshore and no one can prove exactly who owns it or where the money came from.
At the time when the Bakiyevs were in power, Kyrgyzstan was ranked by Transparency International as one of the 20 most corrupt countries in the world. Since then, we have seen the Kyrgyz authorities trying to rebuild their courts and their systems and not receiving the assistance they would like from foreign powers. They are finding themselves coming up against a lot of legal hurdles around issues of mutual legal assistance, extraditions and things of that nature. That is just an illustration of the extent of plundering that can happen overseas, the fact that London in particular is seen as a safe haven by corrupt officials and their families, and some of the practical difficulties in trying to seize those assets or identify the people involved. In that case, we identified UK estate agents and lawyers involved in the deal.
That is one of the best case studies that shows how a Bill such as this could help. It would allow the police to have more time to conduct their investigations. It would lessen the burden on them in identifying who owns a property and whether the money came from legal sources. There are many, many other examples that we could give, but generally it is the same pattern of behaviour that we see time and time again.
Duncan Hames: It is not initially clear from the Bill what the degree of exposure in relation to costs for law enforcement would be. It may be that the investigatory order of the UWO is less exposed to action to recover costs than other asset recovery actions and the interim freezing order, for example. Perhaps in the course of the Committee’s consideration, you will be able to get some clarity on that. We would like you to bear in mind that there will be a great backlog of established illicit wealth already in this country for law enforcement to address when awarded this power, should the Bill become law. We would not want them to be impeded from making full use of this law because of potentially intimidatingly large costs being incurred by those against whom they are using either the unexplained wealth order or the interim freezing order.
Peter Dowd
Q The Home Office set out the intentions of the Bill, which are about giving
“law enforcement agencies, and partners, the capabilities and powers to recover the proceeds of crime, tackle money laundering and corruption and counter terrorist financing.”
The Bill also aims to make the UK a more hostile place for those seeking to move and hide proceeds and so on. Do you think the Bill is a game-changer in terms of that aim?
Witnesses: Yes.
Tom Keatinge: Yes, if it is implemented and if we have the resources to use the powers to make this a hostile environment.
Peter Dowd
Q The second thing is this: you mentioned the key element of resources, and you almost intimated earlier that you were not convinced about the capacity and resources of the enforcement agencies. Is that a fair assessment? What would you say to that? Do you think the capacity and the resources are available to the agencies to make the Bill a game-changer?
Tom Keatinge: It remains to be seen. There are resourcing issues. In theory, some of the powers—the UWOs—could be used relatively swiftly. If we use them swiftly and roll out the deterrents quickly, we have the resources.
Duncan Hames: You make the case for having strong accountability on whether the powers are being used. That may contribute to being able to understand the case in relation to your question after the powers are brought into law.
The Chair
Order. I am afraid that that brings us to the end of the session. We are very grateful to the witnesses for coming here. We assure you that if you want to provide any further advice, the Committee would welcome receiving it. There are no further questions, so I invite the Whip to move the Adjournment.
Ordered, That further consideration be now adjourned. —(Andrew Griffiths.)