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The Deputy Chairman of Committees (Lord Bates) (Con)
My Lords, welcome to this first Hybrid Grand Committee, which will now begin. Some Members are here in person, respecting social distancing, while others are participating remotely, but all Members will be treated equally. I must ask Members in the room to wear a face covering except when seated at their desk, to speak sitting down and to wipe down their desk, chair and any other touch points before and after use. If the capacity of the Committee Room is exceeded or other safety requirements are breached, I will adjourn the Committee immediately. If there is a Division in the House, the Committee will adjourn for five minutes.
The time limit for the debate on the Industrial Training Levy (Engineering Construction Industry Training Board) Order 2020 is one hour.
Industrial Training Levy (Engineering Construction Industry Training Board) Order 2020
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Baroness Berridge
That the Grand Committee do consider the Industrial Training Levy (Engineering Construction Industry Training Board) Order 2020.
The Parliamentary Under-Secretary of State, Department for Education and Department for International Trade (Baroness Berridge) (Con)
My Lords, engineering construction as a label is not easily understood, but as the country responds to and recovers from the impact of Covid-19, there can be no doubt about how reliant we are on a skilled engineering workforce.
I ask your Lordships’ House to consider how different our lives would have been in recent months without the electricity, oil, gas and nuclear industries being able to cope with the shifts in demand on power supply; without access to clean, healthy water systems; or without the right infrastructure to enable the food industry to meet an unprecedented demand from the public—and, critically, to consider how much our hopes lie with the pharmaceutical industry being able to identify and roll out a vaccine to this terrible virus. All this is enabled by the engineering construction sector.
As noble Lords know, this House passed legislation only last year to ensure that Britain meets the Committee on Climate Change’s ambitious target to reduce emissions to net zero by 2050. These challenges, whether brought about by Covid, climate change or clean growth, mean that investment in skills and training and supporting young people into jobs in engineering construction are now more important than ever. This goes to the heart of the Engineering Construction Industry Training Board, known as the ECITB. The order before your Lordships will enable the ECITB to continue to play its role in securing and maintaining a sufficient supply of highly skilled labour in the engineering construction industry.
Established in 1964, the ECITB—then named the Engineering Industry Training Board—is industry led and is there to ensure that the engineering construction industry has a highly skilled workforce. It provides targeted training grants to employers to enable workers to access and operate safely on engineering construction sites, drive up skill levels and incentivise training that would otherwise not take place. It also supports strategic initiatives to maintain vital skills in the industry and create a pipeline of skilled workers.
The ECITB is responsive to the needs of the engineering construction industry. During lockdown, it swiftly introduced a package of support measures including a scheme to retain apprentices and graduates and a new scholarship to support new entrants. Over the coming three-year levy period, the ECITB expects to raise around £80 million, to be invested in skills training. The latest available figures show that in 2018, 99.4% of the levy raised went directly into supporting training.
Turning to the detail, I wish to thank the Secondary Legislation Scrutiny Committee for considering this draft order. The key change from the previous 2017 levy order is an increase in the levy rate for offsite employees. These offsite workers are defined by the geographical location of their work, which is mainly at a distance from an engineering construction site such as a chemical works or power station.
The offsite rate is increasing to reflect the substantial growth in demand for training grants for offsite workers in recent years. Last year, offsite training took out almost 25% of total grant expenditure, yet paid in only 13% of the total raised. The ECITB considers that the demand for offsite training is likely to increase further still as companies harness opportunities from new technologies and more work is conducted remotely. This increase from 0.14% to 0.33% of an employer’s annual payments to workers for services is being phased in over the three-year period of this levy order to minimise its impact on employers. Noble Lords will be reassured to learn that the sector affected gave overwhelming support for the increase. The rationale for a fairer split between who contributes to the pot and who can take from it is clear.
This order also recognises that SMEs are a critical part of the engineering industry but at the same time are less likely to have an in-house training budget. As such, it retains the exemption thresholds from the 2017 levy order, which ensure that smaller engineering construction firms can access the support that the ECITB provides without having to contribute financially. The ECITB expects that around 25% of all establishments within the scope of the levy will be exempted from payment.
The ECITB has consulted industry on the levy proposals via its consensus process. Consensus consists of two tests: both the majority who pay the levy and those who pay more than half the levy raised must agree to the proposals. I assure noble Lords that both tests have been overwhelmingly met. To summarise, 75% of all companies in scope of paying the levy, who together are likely to pay 87% of the value of the levy, voted in favour of the proposals before us. This is testament to the value in which the ECITB is held by industry and the recognition that there is a long-term skills challenge, which can be addressed only through collective action.
This order will enable the ECITB to continue to carry out its vital training responsibilities. As the country responds to the Covid-19 pandemic, this is now more important than ever. I beg to move.
Lord Addington (LD)
My Lords, when we look at something that deals with training across such a wide field, the obvious question that comes to mind is: how have the groups the Government are supporting been set? We need a bit more of an idea about the exact criteria for where you get the support from. That would help us in future.
Also, if you are going across these sectors, when will we decide how to encourage the necessary people in? The noble Baroness has already expanded my knowledge of this slightly by suggesting that we interact with both apprenticeships and graduates. There cannot be many other bodies doing that degree of consultation and trying to bring people into the construction sector. It is quite reassuring to hear that, and to hear that we are not only training people but encouraging them to work in the field and telling them how to access training.
Another steady subject of mine when it comes to these issues is, what about people with special educational needs or other disabilities? How are we encouraging them to get involved? The range of skills that has been suggested here is mind-blowing, going from the most basic forms of apprenticeship to postgraduate qualification and bringing them together. Presumably, that includes people training in colleges. A huge number of people can take on the training, provided they get over the initial hurdle.
I declare my interest—I did not do so earlier—as the president of the British Dyslexia Association, as someone who is dyslexic and as someone who uses technology to enable them to write more easily; I certainly use it all the time. How are we working these things to make sure that we get the right people through? We have a skills shortage in these places. What is the current outreach capacity? There are other groups that you will want to look at, but are you looking at the people who have a problem not with the initiation or even considering it but with taking the exam?
Here, a wide-ranging body has a very good opportunity to set an example by saying, “This is what you can do practically to go on and do this, using the flexibility of examination boards and institutions.” We often have a problem with one small aspect of this training: the English language. I remember somebody in apprenticeships training saying, “Oh, don’t worry about that, I wouldn’t pass the English language test”—and they were doing the training. There are certain arbitrary barriers. What are we doing to make sure that we get the right people into these positions? Here, the levy is supporting an organisation that is perfectly placed to undertake some of this work. It would be interesting to know whether this is being considered.
The Deputy Chairman of Committees (Lord Bates) (Con)
I now call the next speaker, the noble Lord, Lord Bourne of Aberystwyth.
The Deputy Chairman of Committees (Lord Bates) (Con)
Can you unmute, Lord Bourne?
Lord Bourne of Aberystwyth (Con) [V]
I think that is it. I apologise; I thought I was going to be unmuted.
My Lords, I first thank the Minister for setting out the background of the draft industrial training levy order. I am certainly not, in principle, against employers contributing via a levy, but I have several concerns about the background to the order.
The first matter that strikes me is that this really seems to come from a different, pre-Covid world. For example, the consultation exercise was carried out by the Engineering Construction Industry Training Board between July and October last year. The situation facing the country and industry now is massively and dauntingly different from then.
The questions I wish to ask are not on the micro-aspects of the order itself but on what I believe is the massive leap of imagination needed by the Government, and awesome extension of ambition, in relation to apprenticeships in general. We face a position now where many apprentices have not, for understandable reasons, been getting the work experience that they normally would have received and which they, and we, expected. Many people have of course been furloughed, and many more, alas, will lose their jobs. Against this background, we really need to address the situation we are facing in relation to apprenticeships, rather than looking at a bit of a mouse of a measure of what is really needed.
I believe that we need an apprenticeship guarantee scheme. This has been echoed in the other place by Robert Halfon, the chair of the Education Committee and the right honourable Member for Harlow. The Prime Minister has committed to look at this; he has said that this is something we should be doing, and I agree. I would like to hear from the Minister how far down this road we now are, because that was said in June. What progress are we making on this?
As a nation, we had made some progress on apprenticeships over the last few years, though that had stalled a little bit, even pre-Covid. We need to ensure that we do something for some of the disadvantaged youngsters who will fall behind because of the education stutters—rather more than stutters, to be honest—that we have experienced. What are we doing in relation to that? That has got to be done against the backdrop of an apprenticeship guarantee scheme, to help the people who will suffer because of the economic consequences of the pandemic. The Chancellor has moved very nimbly on the furlough scheme, but we need to address the education gap and the apprenticeship problems that we face.
The apprenticeship scheme will need to be backed up with infrastructure projects—particularly green projects—on a nationwide basis, to give support to the apprenticeships guarantee that we would bring in. I am sure that the noble Lord, Lord Hain, will have something to say on this in relation to, for example, the Severn barrage tidal lagoon project. These are the things which will be needed to provide training for our youngsters for the future, so that we can address our productivity gap and some of the real problems and challenges that we face. This will certainly involve the public sector playing its part. Some rebalancing of the levy may be needed to ensure that we are getting the appropriate help for the more disadvantaged youngsters who have suffered; they really will suffer through this crisis if we do not make some real efforts to address these problems.
These are the issues I wish to raise against the backdrop of the order. As I say, I have no particular problem with the order, but it does not begin to address the scale of the problem that we have, as I am sure the Minister will acknowledge. I will not be opposing the order, but I certainly think we need to come up with some bolder solutions. It would be good to hear from the Minister how she sees that going forward.
The Deputy Chairman of Committees (Lord Bates) (Con)
Before calling the next speaker, the noble Lord, Lord Hain, I would like to clarify that all speakers will have seven minutes, not six minutes as was indicated earlier, apart from the Minister, who will have 10 minutes at the end. I now call the noble Lord, Lord Hain.
Lord Hain (Lab) [V]
My Lords, I very much agree with the points made by the noble Lord, Lord Bourne, especially on the vital necessity for new skills on green projects. Wales, of course, has many to offer, not least the Severn barrage, which is capable of harnessing the enormous power of the Severn estuary, but also the tidal lagoons and other forms of tidal power and marine energy. Anglesey has developed a marvellous strategy as an energy island. I hope that the skills needed for that will be supported by the Government in the UK, by providing the funding to the Welsh Government. I also welcome the Minister’s acknowledgement at the outset of the vital role of key engineering workers in keeping going the essential infrastructure of the country during the Covid lockdown.
Although the Explanatory Memorandum is candid about the policy background to the order, it is hardly comprehensive in its coverage and it is short on significant detail. It is indeed true that industrial training boards have operated in the UK since 1964—since March 1964, in fact, because industrial training boards were originally set up in the dog days of Alec Douglas-Home’s Conservative Government.
Today’s Tories seem shy about acknowledging one of their party’s more important initiatives aimed at tackling UK skills shortages. We know why: the noble Lord, Lord Tebbit, put 16 of the 23 industrial training boards to the sword nearly 40 years ago. The Engineering Construction Industry Training Board was one of the few that survived his cull. It also survived a more recent review, in 2017, by shrinking its board and taking the nonsensical step of cutting its training levy.
There are several reasons why the Engineering Construction Industry Training Board has lived on where others have been sacrificed; some are identified in the Explanatory Memorandum, and others are acknowledged in the board’s 2019 annual report. The overwhelming reason is market failure, which Ministers never seem willing to acknowledge. There are few incentives for individual employers to train, since the work is often short-term and the labour force highly mobile. This means that long-term skills needs get overlooked, and these are vital, in engineering especially. The board is right to claim that it helps to make the labour market in engineering construction more efficient and more effective.
The board’s chair, Lynda Armstrong, is also right that it faces an emerging skills shortfall as an ageing workforce retires. The 137% rise in the number of recruits starting apprenticeships in 2018—to 1,171—is a positive development, and I welcome the priority that the board is attaching to promoting the recruitment of a more diverse workforce.
I also welcome the fact that the board has an advisory council that includes trade unions and not just employers, trade associations and other stakeholders. However, I note that this falls a long way short of the provision made in the Industrial Training Act 1964 for equal numbers of representatives of employers and employees. Perhaps the Minister will say something about that.
The Engineering Construction Industry Training Board is an example of successful intervention that the Government are reluctant to build upon in other industries. It is a love-child that the Government are too embarrassed to acknowledge openly. Its very success highlights the discomfort that the Tory party feels when its free market ideology comes up against the practical consequences of free market failure. I hope—although I fear my expectations are very low indeed—that the Government will take heed of this story and begin to invest properly in the vital skills we need for the future. They have not done so for more than 10 years.
With not only the green projects of which the noble Lord, Lord Bourne, spoke, but with robotics and artificial intelligence coming up fast, surely the Minister must agree that the Government should start investing massively in skills now, or see Britain continuing to fall behind badly on productivity and the new jobs of the future.
Baroness Garden of Frognal (LD)
My Lords, this order is not contentious, but it is worthy of some discussion. The construction industry is alone in continuing a training levy, as the noble Lord, Lord Hain, just set out. Some years ago, industry training boards were transformed from statutory to non-statutory bodies, and as the Minister stated, the Construction Industry Training Board, or CITB, and the Engineering Construction Industry Training Board, or ECITB, retained their statutory status and powers. They make annual proposals for the levy for their respective industries. The Secretary of State, having been satisfied that the proposed levies meet the statutory criteria, lays orders before Parliament to give effect to the proposals. This is the routine order we are now considering. The ECITB training levy is specific to the engineering construction industry. The ECITB determines how the money is invested in training and other projects for the benefit of the sector and is a registered charity. There might be advantages in other industries having such well-regulated training requirements.
However, issues now arise with the introduction of the apprenticeship levy. I agree with what the noble Lord, Lord Bourne, said. Employers with a pay bill of more than £3 million per fiscal year relating to employed labour have been required to pay the apprenticeship levy since April 2017. This payment is made to HMRC through the PAYE process and is in addition to any industrial training levy charged by the ECITB. The apprenticeship levy is ring-fenced to support apprenticeships in England across all sectors and occupations. However, we know there have been many issues with this levy, with it being applied to programmes of learning which could in no way be described as apprenticeships, such as master’s degrees and other advanced learning. In my book, an apprentice is somebody who is starting out on their career. Employers have long asked to be able to use the levy for a wide range of training, not just apprenticeships. Does the Minister have any update for us on whether that change might happen?
As we have said before, the apprenticeship levy system means that the electrical and construction industries have a double bill of training levies. Can the Minister say whether this is contentious in the industry? What discussions are held to ensure that those in the engineering and construction industries are happy to pay twice for training in this way? We know that the ECITB consults widely and we hope that it would pick up such concerns.
We know that the construction industry’s workforce is around only 2% female, yet women who are practitioners can earn an excellent living and enjoy their work. What efforts are the Government making to attract more women and girls into construction? How, for instance, does careers advice and guidance in primary schools, as well as in secondary schools, portray this industry as attractive and accessible to all? The image of construction is of burly men with hods in muddy fields, and of engineers with spanners and greasy overalls. The reality is so very different. My daughter was an oil engineer for a number of years, yet she never had greasy overalls. Early in her career, she was the most senior woman at Esso’s refinery, which said less about her meteoric career and more about how very few women there were at the refinery—yet most of the jobs there could equally have been done by men or women.
The Prime Minister has expressed his intention to “build, build, build”, but without qualified builders, this is a hollow promise. Vocational, practical, technical education should be right at the heart of the political agenda, yet this Government have driven a coach and horses through long-standing, well-understood, highly-respected vocational qualifications by bringing in the untried, untested and flawed T-levels. I declare an interest as a vice-president of City & Guilds, an organisation for which I worked for 20 years. I am very well aware of the value of and respect for City & Guilds qualifications, and indeed of BTECs, which are highly regarded but are sidelined by curious, non-expert decisions with this new qualification. How do the Government hope to encourage and train construction workers when they are set on destroying the very training and qualifications which have been the bedrock for generations?
A further aspect of the apprenticeship levy is that Liberal Democrats would seek to expand its scope to a wider skills and training levy and to add flexibility that works for employers and trainees. While keeping the contribution at 0.5%, we would use the cash raised not just for apprenticeships but for a wider training programme, and ensure that 25% of the funds raised would go into a social mobility fund, which we would use to feed into the regions and the cold spots and to make sure that we have diverse apprenticeships in the parts of the country and the sectors where they are most needed.
The electrical and construction industries are vital to our economic revival. As we agree this order—because we have no other option—can we keep in mind the vital importance of explaining and selling these exciting industries to children and adults? If we continue the obsession with academic qualifications and achievement, we shall never be able to restore the economy as the country needs.
Lord Watson of Invergowrie (Lab)
My Lords, I thank the Minister for the clear and concise manner in which she laid out this statutory instrument and what it seeks to achieve. The Opposition welcome the introduction of the latest version of the Engineering Construction Industry Training Board levy.
The levy has gained the status of a most venerable instrument. As my noble friend Lord Hain, an esteemed historian, said, it was first introduced in 1964, at a time when the UK was ending 13 years of Tory misrule by welcoming the Government of Harold Wilson and the white-hot heat of the technological revolution. The levy that we are considering today has certainly stood the test of time, although, as my noble friend Lord Hain also highlighted, the representation on the board unfortunately has not.
In a previous life, I was a trade union official involved in negotiations in the manufacturing sector. That involved regular dealings with some of the various industrial training boards then in existence. From memory, there were in excess of 20, until being significantly reduced in number by the Industrial Training Act 1982 —the legislation under which this order is issued. Today, there are just three boards, each of which is a non-departmental public body sponsored by the Department for Education, and thus accountable to Parliament.
The ECITB website reveals, to my surprise, the importance of the sector. It directly supports around 190,000 jobs and accounts for more than one-fifth of the total UK economy. The board raises its funds through training levies, and we learn from the Explanatory Memorandum to this order that, in 2019, the ECITB made grants of just under £20 million to subsidise employers’ training costs. Inevitably, that figure will be substantially lower this year, and it would be helpful if the Minister could indicate what estimate the ECITB has made to her officials about what it expects it to be.
Given the effects of the pandemic, does the Minister know whether the ECITB intends to return or retain levies paid this year that are currently unable to be used for training purposes? If the latter, does it intend to reduce the amount taken from employers in levy payments in 2021 as a consequence?
The annual priorities letter sent to the board by the predecessor of the noble Baroness in January this year—it now seems a lifetime away—states:
“The ECITB has a vital role in ensuring that our country has the technical skills needed to deliver critical infrastructure and energy projects.”
The letter set out the Government’s six priorities for the ECITB for the current year. While all are important—even more so because of the pandemic—the one that stood out for me was this:
“Help the industry to tackle current and future skills issues, with a primary focus on supporting employers to recruit a diverse and inclusive workforce, engage with the apprenticeships programme and to develop the training that best meets their needs, supporting the implementation of the new engineering and manufacturing T levels and the provision of industry placements.”
I emphasise that priority because it links to the need to ensure that more young people, particularly females, understand the importance of the engineering construction sector and the fact that it offers sustainable and well-paid employment, and embrace the STEM subjects at school to enable them to follow that path. There remains a serious and distinct market failure in the development of skills in the construction industry as a whole, something that stems in part from the fact that trading conditions, incentives and culture do not, it seems, lead to a sufficient level of investment in skills by employers. That is not by any means a failing restricted to the construction sector, but the ECITB also has a vital role in providing support in reskilling and upskilling, a factor that will increase in importance after the break with the European Union.
The introduction of the apprenticeship levy in 2017 was a clear sign that the Government accepted that employers would not in sufficient numbers invest in skills of their own volition but required a firm hand on their shoulder to encourage them to do so. As other noble Lords have said, that levy has not yet been as successful as many had hoped, but I believe that no purpose is served by criticising an initiative that is a positive step and ultimately will raise significantly the number of apprenticeships undertaken. The question now is how long that will take, with so much of industry in difficulty.
There is no mention in the Explanatory Memorandum of how the ECITB levy interacts with the apprenticeship levy. There are many apprentices in the engineering construction sector whose employers are being asked to pay two training levies, albeit that they are differently focused. Given that in general many apprenticeships are taken up by people aged 25 and above, it is perhaps surprising that greater resistance from employers in engineering construction is not evident. The Explanatory Memorandum tells us that 25% of employers registered their opposition to the levy in the ECITB’s consultation but gives no hint as to the reasons for that sizeable minority position. On a point touched on by the noble Baroness, Lady Garden, can the Minister say whether being asked to pay two levies was an issue in the sector?
The so-called consensus process to which the Minister referred—it is the name given to the way in which the board seeks the industry’s approval for its proposed levy rates—gained acceptance for the existing levy rate being maintained for onsite employees but being raised on a phased basis over three years for offsite employees. I was going to ask the Minister about this, so I was glad that she explained in her opening remarks why such differential rates are deemed appropriate.
The consultation demonstrates that engineering construction employers strongly support the levy, clearly valuing the payback from their contributions. I wish both the organisation and the industry that it represents well and I look forward to hearing of progress in the development of the skills that are required when Parliament comes to consider the effectiveness of the levy from this year until 2022.
If I may, I should like to finish by paying tribute to my noble friend Lord O’Neill of Clackmannan, who very sadly passed away last week. I feel it appropriate to do so here because my noble friend campaigned long and hard against the construction industry’s failure to pay subcontractors on time, too often causing the bankruptcy of small companies. The noble Lord, Lord O’Neill, argued for the establishment of a retention fund to avoid such events, but to no avail. Such a scheme would give subcontractors a measure of security and provide more security in the industry and I hope that it will soon be established, forming, as it would, a fitting tribute to a fine man and a good friend to so many.
Baroness Berridge (Con)
My Lords, I thank noble Lords for their contributions to this debate today and will endeavour to answer many of the questions that have been raised. First, I join the noble Lord in his tribute to the noble Lord, Lord O’Neill, recognising his contribution to the sector. I extend my sympathies.
The noble Lord, Lord Addington, asked how we are encouraging people into this industry, specifically those with special educational needs. I thank the noble Lord for the question. The industry training boards exist in specific industries and are mainly funded by statutory levies on employers in their sectors. Employment in the engineering construction sector is linked to the project life cycle, which means that there is a high number of temporary workers and a lot of movement between employers. As a result, the need for high-level skills is not necessarily met in the training on a particular job, so the cost can be high for employers. Many of the core engineering skills are transferrable in the sector. I will unfortunately have to repeat this to the noble Lord, Lord Addington, as he will be in receipt of a second letter this afternoon from the chair of the ECITB on these specific issues. The ECITB is bound by the equality duties, so it is under an obligation to ensure that a diversity of people is recruited into the sector.
My noble friend Lord Bourne asked whether the ECITB is of another world. It is not. It has shown itself to be valuable, as was demonstrated when it was reviewed in 2017, when the decision was made to retain it. Other options were looked at, but it was seen that the payment of the levy was still supported and was dealing with an issue across the sector. The Covid pandemic poses particular challenges for employers and learners across the sector, so we would argue that the levy is more important than ever in ensuring resilience and the entry into and retainment of people in the sector. We know that the ECITB is firmly committed to doing all that it can to ensure that vital skills are retained in the sector, despite the ups and downs of particular projects.
On apprenticeships, I assure my noble friend Lord Bourne that a redundancy service has been launched, as we recognise that the Covid pandemic has affected them. He will be aware that specific funding of £1,500 per apprenticeship and £2,000 for any apprenticeship for people under 24 has been announced by the Government to try to ensure that new entrants are coming into the sector. As the Minister responsible for school capital, I am sure that he will also be aware of the build, build, build process, in which engineering construction will be vital.
I saved the concession for the noble Lord, Lord Hain. There is a recognition that there has been a market failure. It is addressed by a collective action, ensuring that across the sector there are appropriate training opportunities for people. That is part of the reason for the collective role of the board, which is distinctive. Apprenticeships are often employer-based, so this is a particular issue. The levy supports the industry well and has industry support. It is developing with working practices—hence we see the change in the percentage being asked for for offsite workers. As we have all seen in the Covid pandemic, there has been a recognition in many sectors other than engineering construction of the ability to work remotely—for example, if you are working on a nuclear plant or in a chemical works. The board and the levy are showing themselves fit for the developing world we live in, particularly post this epidemic.
Noble Lords will be aware that the Secretary of State for Education has talked about further education, further education, further education. The lack of parity sometimes between higher education and further education has meant a lack of investment in the skills that industries such as this need. We will soon be announcing details of the £2 million kickstart scheme for young people.
I want to move on to the points raised by the noble Baroness, Lady Garden of Frognal, about the apprenticeship levy and the potential difficulties for those who now pay both levies. She also commented on construction training qualifications. First, let me be clear that the ECITB levy and the apprenticeship levy fund different activities. Funding from the apprenticeship levy supports apprentices across all sectors and occupations, whereas the ECITB is specifically for the engineering construction industry, using levy funds to provide direct grants to employers to train staff or to develop the skills of their existing workforce. As I said, it is collective rather than employer based. It funds more than apprenticeships, although I recognise that apprenticeships are offered at various different levels. That sector-specific support may and does support apprentices within engineering construction in addition to the apprenticeship levy support. It is true that some organisations are in the scope of both levies. Even so, the sector has shown strong support for the ECITB levy. I reiterate that 75% of all levy payers, who between them are likely to pay 87% of the levy, voted in favour of the proposal that your Lordships’ House is discussing today.
I take this opportunity to emphasise that the levy order under debate is for the ECITB. Engineering construction is a specialised industry that underpins delivery, maintenance and decommissioning of the UK’s critical infrastructure. It is different from an industrial training board supporting skills in the broader construction sector, which is not for discussion today.
Regardless of the specific sector, I reassure noble Lords that training and qualifications are at the forefront of the Government’s plans for recovery. We are scaling up the National Careers Service and investing more money in offering 30,000 traineeships, as well as providing the additional funding for apprenticeships that I have outlined.
The ECITB recognises the need for diversity. I also have the pleasure of being the Minister for Women; I hosted a remote round table when it was International Women in Engineering Day, where I believe I had before me the only female BAME structural engineer working on the big sewage tunnel under London. I look forward to the day when I will be able to visit her on site. Therefore, there is a focus on that, and the industry recognises—the Government have various initiatives on this as well—that we need to increase the number of women studying STEM subjects, which is often a precursor to entering engineering and construction. However, there will be a focus on and the launch of the new T-levels. Although the Government support and recognise the value of vocational qualifications, there is too much complexity within them. There has been a review to ensure that good qualifications are maintained and offered clearly to young people—as clearly as the routes to higher education are outlined.
I thank the noble Lord, Lord Watson, for his questions. First, on whether the ECITB intends to return or retain levies paid this year or reduce levy payments in 2021, it does not have the legal power to issue levy rebates. It derives its powers to collect a levy through the Industrial Training Act 1982, the 2017 levy order and, once it is made, this order. This legislation would need to be amended to allow the ECITB to give rebates. Therefore, it does not intend to reduce levy payments in 2021. Given the impact of Covid-19, it is more important than ever that the ECITB is able to support employers to retain workers both immediately and in the longer term.
In response to the challenges created by Covid, the ECITB has introduced a package of measures to help industry, including: a Train to Retain scheme to help employers retain apprentices and graduates, which I outlined; a new scholarship scheme to support trainees embarking on engineering construction careers; and increased investment in digital training and assessment tools. Furthermore, the ECITB uses levy funds to strengthen the industry in the long term. By supporting employers to make sustainable investment in training to maintain vital skills and to create a pipeline of skilled workers, this helps to future-proof the industry. Without that investment, there would be a shortage of skilled workers to deliver infrastructure projects that will form part of this country’s recovery.
On the noble Lord’s question about the reasons for employers opposing the levy, the ECITB does not ask employers to document their reasons. However, I point out that of the 25% that the noble Lord outlined in his speech, 10% of levy-paying employers did not support the proposal, and 15% just did not respond.
The noble Lord also asked me to explain the reason for the phased increase in the levy rate for offsite employees over the three-year levy period. The offsite workforce consists of everyone who is working at a geographical distance from the site, and, as we can anticipate, the size of that offsite workforce is increasing; currently it represents 53% of the overall industry workforce. I should point out that while the offsite levy rate is increasing, it will remain significantly lower than the site levy rate. In the first year during which the levy will have an impact, it will increase by only 0.06%. Of the 129 employers who pay the offsite levy and were eligible to vote, 78% voted in favour of the levy.
Noble Lords will be aware from previous debates that the ECITB exists because of the support it receives from employers and employer interest groups in the engineering construction sector. It continues to be the collective view of industry that training should be funded through a statutory levy system to secure a sufficient pool of skilled labour and the future of the sector. There is a firm belief that without the levy, there would be a serious deterioration in the quality and quantity of training in this sector that would create particular challenges in the current economic climate, as such training is vital for meeting various infrastructure projects, including those relating to the environmental challenge of reducing the UK’s carbon emissions to zero. I commend the order to the Committee.
The Deputy Chairman of Committees (Lord Bates) (Con)
I remind Members to sanitise their desks and chairs before leaving the Room. The Committee stands adjourned until 3.45 pm.
Arrangement of Business
(4 years, 2 months ago)
Grand CommitteeRead Full debate Read Hansard Text
The Deputy Chairman of Committees (Lord Bates) (Con)
My Lords, Hybrid Grand Committee will now resume. Some Members are here in person, respecting social distancing, others are participating remotely, but all Members will be treated equally. I must ask Members in the room to wear a face covering, except when seated at their desk, to speak sitting down and to wipe down their desk, chair and other touch points before and after use. If the capacity of the Committee Room is exceeded or other safety requirements are breached, I will immediately adjourn the Committee. If there is a Division in the House the Committee will adjourn for five minutes.
Equivalence Determinations for Financial Services (Amendment etc.) (EU Exit) Regulations 2020
(4 years, 2 months ago)
Grand CommitteeRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Lord Agnew of Oulton
That the Grand Committee do consider the Equivalence Determinations for Financial Services (Amendment etc.) (EU Exit) Regulations 2020
Relevant document: 21st Report from the Secondary Legislation Scrutiny Committee
The Minister of State, Cabinet Office and the Treasury (Lord Agnew of Oulton) (Con)
My Lords, the Treasury has been undertaking a programme of legislation to ensure that after the end of the transition period there continues to be a functioning legal and regulatory regime for financial services in the UK. The Treasury is laying SIs under the European Union (Withdrawal) Act 2018 to deliver this legislative programme and the majority of these SIs have already been approved in this place and in the House of Commons.
As part of this financial services legislative programme before exit day the Treasury laid the Equivalence Determinations for Financial Services and Miscellaneous Provisions (Amendment etc) (EU Exit) Regulations 2019, commonly known as the Equivalence Regulations 2019. Those regulations were designed to ensure that if the UK left the EU without a transition period, the UK would have a fully functioning equivalence framework from exit day. The additional time afforded by the transition period has provided us with the opportunity to put in place supplementary measures in the Equivalence Regulations 2019 to ensure that the UK continues to have a robust and functioning equivalence framework for financial services, both during and after the end of the transition period.
The measures in the instrument being debated today complement the Equivalence Regulations 2019 by creating additional stand-alone powers in this instrument for the UK-relevant financial services regulators—the Bank of England and the Financial Conduct Authority in this case—which are appropriate for those regulators in the transition period. They also make minor amendments to the earlier 2019 regulations, again as appropriate for the transition period. This SI will, finally, make minor amendments to add to the powers available to the regulators after the end of the transition period and to correct errors in earlier financial services EU exit legislation.
I am grateful that this SI was raised as an instrument of interest by the Lords Secondary Legislation Scrutiny Committee in its July report and for the question that the committee raised. I intend to address the question now and in the course of the debate.
The instrument being debated concerns the UK’s future regime for equivalence, a process to determine that another country’s regulatory and supervisory regime is equivalent to the UK’s corresponding regulatory framework. Recognising the regulatory equivalence of third countries is a key component of financial services regulation. Equivalence of determinations can help to reduce regulatory burdens on firms and can facilitate cross-border market access. This may lead to increased competition that can benefit both UK firms and consumers by engendering healthy market incentives to lower prices and offer innovative products.
At present, equivalence functions are performed by the European Commission and the European supervisory authorities. At the end of the transition period, these functions will be transferred to HM Treasury and the UK regulators as provisions in retained EU law. During the transition period, equivalence determinations can be made for EEA states via powers within the 2019 equivalence regulations. This instrument provides a UK equivalence framework that is appropriate for use during the transition period in relation to the EU’s existing framework. It allows the UK financial services regulators to complete the associated actions that mean that HM Treasury equivalence determinations taken during the transition period can take full effect at the end of that period.
This is a technical SI that provides for the UK’s transition to its new position outside the EU. I will turn now to the main categories of fixes that are being introduced here. The first three changes provide UK regulators with the appropriate powers to complete the associated actions to ensure that HM Treasury equivalence determinations can take effect fully at the end of the transition period. Currently, the 2019 equivalence regulations allow HM Treasury to make equivalence determinations by direction during the transition period for EEA states where these directions would not enter into force until the end of the transition period. As part of the equivalence process, almost all equivalence provisions in retained EU law will require UK financial services regulators to conclude co-operation agreements with the relevant regulatory authority or authorities for that EEA state before the determination can take effect.
There is currently no mechanism to allow regulators to undertake this during the transition period. Where the Treasury has made an equivalence determination by direction, this SI will make transitional provision for UK financial services regulators to have the power to enter into relevant co-operation agreements with the appropriate EEA regulatory authorities before the end of the transition period. These co-operation agreements would come into effect at the end of the transition period for the necessary provisions in retained EU law.
In addition, as part of the direction-making process, almost all equivalence provisions require regulators to issue recognition or registration decisions for non-UK firms. Where the Treasury has made an equivalence determination by direction during the transition period, this instrument puts in place a regime for firms to make an application to the appropriate regulator, and for that application to be processed. It will therefore ensure that regulators have the power to process applications and issue recognition and registration decisions during the transition period to come into effect at the end of that period for the necessary provisions in retained EU law.
This SI will also give regulators the power to request fees from applicants for such regulatory decisions. I appreciate that the House of Lords Secondary Legislation Scrutiny Committee questioned whether there is enough time for UK regulators to establish co-operation agreements with EEA regulators once an equivalence determination is made and then process applications made by EEA firms. I am pleased to say that regulators have a period of one year to process applications from EEA firms once the required co-operation agreements have been established. Both the Treasury and the regulators consider this to be ample time for the regulators to decide any applications.
Secondly, this SI will amend the Credit Rating Agencies (Amendment etc.) (EU Exit) Regulations 2019, which in turn make provision for the onshoring of the EU credit rating agencies regulation. The amendments will onshore powers to enter into co-operation arrangements currently held by the European Securities and Markets Authority, such that in the future they will be held by the FCA. The amendments also make provision for existing EU equivalence determinations that will form part of retained EU law by operation of Section 3 of the European Union (Withdrawal) Act 2018.
Finally, two minor but necessary amendments are made to the Central Securities Depositories (Amendment) (EU Exit) Regulations 2018. The first relates to a provision which stipulates that equivalence may be granted only to states that have a regime for the recognition of central securities depositories authorised in other states. The amendment ensures that the UK is one of these states. The second amendment ensures that the Bank of England has the appropriate timescales to make recognition decisions for central securities depositories.
In summary, the Government believe that the proposed instrument is necessary to ensure that there is an appropriate equivalence framework for financial services during the transition period and to complement that already put in place by the 2019 equivalence regulations. I hope that colleagues will join me in supporting these regulations, and I commend them to the Committee.
Lord Ashton of Hyde (Con)
My Lords, we have no room for manoeuvre on time for this debate, so I would be grateful if Peers could keep to time and ideally go slightly short.
Baroness Bowles of Berkhamsted (LD) [V]
My Lords, I refer to my interest set out in the register as a director of the London Stock Exchange.
I thank the Minister for introducing the regulations, but I admit that I got off to a bad start when looking at them. Helpful though it is to have tables in the schedule, I found it very awkward to have the regulations themselves drafted as an adjunct to a table that requires simultaneous viewing on different pages. I thought that I was in a puzzle book and having to take a cheat peek at the answers at the back.
First, I must consult the Schedule 1 list in the 2019 SI, and then I must cross-reference to table 1 in Schedule 1 of this SI—although it is unclear from reading Regulation 3 whether this refers to Schedule 1 of the 2019 instrument, as has just been referenced, or, as happens to be the case, Schedule 1 of this SI. I can find that out by discovering that Schedule 1 of the 2019 SI does not have a table. I must then repeatedly consult the table and look at each column to find out which paragraph of Schedules 2 and 3 and Schedule 1 of the 2019 SI are relevant. All of these instructions distract greatly from the clarity of Schedules 2 and 3, which really did not need all this obfuscation.
Aside from the structure, the SI seems to do what is necessary—although I reckon that it should have been part of the 2019 regulations to give regulators clarity. Unfortunately, this is all part of a patchwork that replicates, and makes even more confusing, the already tangled web of EU equivalence provisions that has evolved over time.
I hope that one day soon an overarching policy will be outlined on how the UK will balance openness, competitiveness, security and public interest in our future equivalence regime. This must reflect the needs not just of financial service companies in large countries but also the real economy companies that they serve, and encompass issues such as enabling trade at reasonable cost for the less developed countries. There can be a lot more to equivalence than first meets the eye, as was eventually realised with EMIR. At times, the benefits of equivalence may be needed within the country giving equivalence rather than the country gaining equivalence.
A similar point can be found in one of the fixes in today’s SI, which creates equivalence-determining powers so that where EU legislation says a third country has to have a recognition regime, we have one that qualifies. For us, this is fine, but the subtext of the EU requirement is a reciprocity requirement, and it is the sort of provision that needs care before imposing in any generic way, should that idea arise in the future.
It has been discussed previously, and in the context of authorisations, that regulators have been busy making various co-operation arrangements with third-country regulators where they did not already exist. It would be good to have an update on the progress of those agreements and how complete they are, including the business volume covered and the countries or instances where requirements are being waived.
Finally, a lot of energy and time has been expended researching, debating and hoping for a broad equivalence deal with the EU on financial services. Maybe that kept some in the City sweet and had to be heard and tried, but it has always been my informed view that that was unrealistic. Taken collectively, and in practice, equivalence for the EU is not really a matter of co-operation; it is yielded only when essential or aimed at promoting EU regulatory prevalence. Both those tendencies meant that resisting giving the UK equivalence was always going to be tested to destruction. It is what rises from the destruction that will be interesting, but it is not a sit-and-wait game.
Viscount Trenchard (Con)
My Lords, I thank my noble friend the Minister for introducing the debate today. It is good news to know that the Government are taking the necessary steps to ensure that a coherent and functioning financial services equivalence framework continues in the UK after the end of the transition period.
The position is complicated by the fact that the EU’s single market in financial services is only partly developed. It is therefore necessary for the Treasury to determine whether or not each member state has an equivalent regulatory regime for a particular firm or product to that which applies in the UK.
There are several problems with this approach. First, does it mean that arrangements similar to the EU passport system for particular individual firms are to be continued? Secondly, the products referred to in the SI seem to conform to the categories of products—or, rather, services—covered in individual European regulations. Would it not be simpler for the UK to set out its own regulatory regime based on equivalence of outcomes, and to allow all regulated service providers in a particular category to operate in the UK subject to satisfactory co-operation arrangements being established between the relevant member state or EEA country regulator and the FCA or the Bank of England?
Presumably, ESMA also needs to be involved, because it has taken over many powers from the member state regulators and will doubtless continue to expand its area of control. It may not be just ESMA: perhaps the EBA or EIOPA is the relevant European regulator for the firm or product concerned.
The SI does its job in avoiding a cliff edge and providing stability and continuity for financial companies and markets in the UK after the end of the implementation period. However, is it sensible to continue to grant equivalence on the basis of single European regulations? Going forward, do we want a regulatory system that is a clone of the EU system? How are we going to make equivalence decisions in respect of financial firms from third countries such as the United States, Japan and Australia, and others whose regulatory systems are not based on prescriptive EU-style legislation?
Many smaller British firms have been forced out of business or to merge by the cumbersome rules and excessive costs forced on them by European directives such as the AIFMD and MiFID II. To ensure that the City of London will preserve and further consolidate its position as the world’s leading and most competitive financial centre, does it not need to move away from the cumbersome European system and adopt a simpler, rules-based proportionate system which would allow innovative new products and markets to develop?
Does my noble friend the Minister not agree that the Government cannot legislate only for continuity EU-UK arrangements but must do more to set out their stall and attract financial services companies from third countries as we again take responsibility for our own regulatory policy and framework, and as we start to play a bigger part, commensurate with the size of our markets and the skills of our practitioners, in the development of common international regulations through IOSCO and other bodies?
Baroness Wheatcroft (Non-Afl) [V]
My Lords, I refer to my role as a director of a financial services company, as listed in the register.
We all know the importance of financial services to our economy: it is the highest exporting sector that we have. However, as this legislation indicates, we risk jeopardising its success. There is no denying the need for this legislation, but we are already into September: if a comprehensive deal is not agreed soon with the EU—and the omens do not look good—then the financial services industry risks being badly damaged.
I listened to the noble Viscount, Lord Trenchard, talk about how much we could innovate and so on if we were free of EU regulations. But innovation in financial services is rarely a benefit; in fact, I am hard-pressed to think of an innovation since the invention of the hole-in-the-wall that has actually been beneficial.
Equivalence in regulation is imperative for trade with the EU to continue, and recognition of that equivalence has to be in place for transactions to continue. The Minister sounded confident that that will be the case within the required timescale. Can he explain why he is so confident that equivalence will be granted in the EU?
The political declaration sounded optimistic about the prospects for equivalence, with the implicit intention that cross-border service provision would continue. But can we now be assured that this is a view shared by both parties? The direction that the negotiations have been taking appears to be diverging somewhat drastically, and certainly progress is not being made.
More specifically, do the UK regulators have the capacity required to make the decisions on equivalence that they will be asked to make? Has a decision been taken on the level of charges that they can implement and whether this will be sufficient to cover the extra costs involved?
Finally, I point out that one of the major assets of the UK financial services sector will not be impacted at all by any success on the equivalence front: the supply of talented Europeans who have played such an important part in making a success of the financial services industry in the UK. They have already been leaving in large numbers, and it is highly unlikely that they will return once freedom of movement has been turned off. The UK has been a star in the global financial services market; we are now deliberately risking dimming that star.
Baroness Altmann (Con)
My Lords, I thank my noble friend for moving this necessary SI and I support the measures it contains. However, I have a number of questions—I will try to be brief, as requested.
Clearly, there is an assumption that a 12-month transition period is sufficient to reach the agreement necessary, but can my noble friend tell me what provision might be made should it not prove sufficient, as many of us are concerned about? Perhaps 12 months seemed to be enough at the time, but will it be?
I also ask my noble friend—I declare my interests as set out in the register—what impact there might be on defined benefit pension schemes in a no-deal scenario, regardless of these measures, which I assume and hope we will approve today, with respect to financial derivatives and remittance of payments, including assessment of the risk that clearing or margin requirements could be triggered, and what provisions the Government may be able to make in changes to derivatives documentation entered into by those funds.
Another important area is the third-country requirements for the purposes of EMIR and whether this might mean that counterparty risks from EU banks may no longer rely on the exemptions under EMIR when entering into derivatives with UK entities such as defined benefit pension schemes. I note that the FCA, the Bank of England and the PRA are involved and would be grateful to know whether there have been any discussions with the Pensions Regulator in this regard. That is particularly relevant here for UK pension schemes if their bank counterparty in the EU is relying on exemptions available to pension schemes under EMIR’s mandatory clearing obligation.
Finally, when the UK’s asset management industry enters into intragroup transactions with EU group companies, should it consider whether those EU companies will continue to be able to rely on the exemptions under EMIR and what impact this SI or other government plans may have on those entities?
Lord Bruce of Bennachie (LD) [V]
My Lords, this instrument raises many more questions than it answers, as is increasingly the case with government business.
First, what does paragraph 7.2 of the Explanatory Memorandum mean when it states:
“The UK has now left the EU with a deal”?
Is that not at best disingenuous, if not downright deceitful? We have an agreement to leave; we do not have a deal.
At the end of June, M Barnier said that the political declaration committed us to use best endeavours to finalise our respective assessments by the end of June. The Commission sent 28 questionnaires to the UK covering the areas where equivalence is possible. At that time, only four had been returned. Where are we now? Are we not empowering ourselves to set out our terms for equivalence to third parties? This is of course necessary to enable us to deal with the world and to negotiate with the EU, but when will the industry get any clarity as to what equivalence will be agreed with the EU? Is there any prospect—which always seemed unlikely, and is much less so given the current mood music—that the EU will agree to any longer time for ending equivalence unilaterally than its current 30-day rule?
I turn to the impact of the changes in Scotland, which is the UK’s largest financial centre outside London. It is estimated that financial and related professional services account for 9.4% of the Scottish economy, something the Scottish National Party sometimes seems unaware of. According to Scottish Enterprise, there are 28,865 companies in the sector in Scotland, employing 247,000 people directly or indirectly and generating around £16.7 billion. UK in a Changing Europe also highlights the importance of financial services to Scotland. In Edinburgh, a conservative estimate of employment in financial services stands at 10.7% of the workforce. Indeed, Edinburgh employs a larger proportion of people in financial services than anywhere in the UK outside the square mile and Tower Hamlets, and significant numbers also work in financial services in Glasgow and West Dunbartonshire. Edinburgh has now risen 12 places in the 2020 global financial centres index to be ranked as the 17th most important financial centre in the world. It is home to the global headquarters of the Royal Bank of Scotland and Scottish Widows, and CYBG, which owns the Clydesdale Bank, Virgin Money and Yorkshire Bank, has its European headquarters in Glasgow.
Financial services are Scotland’s largest service export, with the EU being a significant component of our exports. The EU single market is an important export market for Scotland’s financial services. Some 18% of Edinburgh’s total services exports are financial services to the EU, which is higher than the comparable figure for London, at 15%. This suggests that, proportionately, Scotland’s financial services are slightly more dependent on the EU. There are now signs that Scottish financial firms, as elsewhere in the UK, are planning a future outside the UK. For example, Scottish Widows transferred its European portfolio to a new legal entity in March 2019, Standard Life Aberdeen has opened a portfolio management and distribution service in Dublin to service the EU 27 and Royal Bank Of Scotland began operating a banking entity in the Netherlands in March 2019 to serve non-UK EEA customers.
In the financial crash, the impact of the changes was more severe outside London, so it is important to monitor how the changes we face impact on the Scottish economy in terms of jobs and access to finance, and on other areas of the UK outside London.
Big companies will do whatever it takes to develop their business, and that may not be in the interests of the UK. They will put their business before the UK national interest. There are a lot of small businesses in financial services. They might not find it so easy. Valid as this legislation is, what is lacking is any sense of political direction or certainty on which such businesses can be planned.
Baroness McIntosh of Pickering (Con) [V]
My Lords, I am grateful to my noble friend the Minister for setting out so clearly the ramifications of these technical regulations, as he describes them. I have just a couple of questions, which are not dissimilar to those raised by other noble Lords. On page 1 of the Explanatory Memorandum, paragraph 2.3 states:
“At present equivalence functions are performed by the European Commission and the European Securities and Markets Authority ... At the end of the Transition Period these functions will be transferred to HM Treasury and the UK regulators as provisions in retained EU law.”
Clearly, they will be the regulators and will apply the equivalence regime but, in the event of an alleged breach being raised by a financial services company in the UK, which body will provide a remedy? My understanding is that currently, the EU Commission is the watchdog and recourse can be had to the European Court of Justice. Which body do the Government imagine will provide an appeal and a remedy in the event of the regulations being breached?
My second question relates to my noble friend’s clear statement that the regulation before us today deals with retained EU law. As other noble Lords, not least the noble Lord, Lord Bruce, have said, the current regime is a matter of ongoing interest in the EU Commission. Concerns were raised in the Financial Times in the middle of August that it may take longer for firms based in London to gain access after Brexit. My final question to the Minister is: what will be the position on 1 January 2021 for any future changes to the equivalence regime in Brussels? Will firms based in the UK—any part of the UK, either Edinburgh or London—have blanket access to the whole of the European Union or will the Commission insist that negotiations take place on a country-by-country basis? The noble Lord, Lord Bruce, accurately stated that only a small number of questionnaires have been returned. They will obviously take some time to complete fully and accurately.
Finally, I say on a note of disappointment that, while it is excellent that we have the equivalence regime under retained EU law, it will not provide anything like the prosperity and excellence that has made the City of London the most successful global financial centre.
Baroness Kramer (LD) [V]
My Lords, this statutory instrument is clearly necessary to enable an equivalence regime for financial services to be in place following the transition period.
We all know that financial services are critical to this country’s GDP and tax base. Historically, the sector has provided more than 2 million jobs in the UK and more than £76 billion a year in tax revenue but, in the past, one-third of the sector has relied on EU clients, nearly half of whose business has been lost due to Brexit. I note with concern that, reflecting this shift, London, according to the think tank Z/Yen, which manages the index, has lost its position as the global number one financial centre to New York.
Even more concerning, both New York and London have been losing position, although London is losing it faster than New York. The rising locations are in Asia and the EU 27. One expert described these centres, especially the EU ones, as small black holes, growing rapidly as they sweep in new and transferred operations. We cannot afford to lose any more business. Equivalence matters. My party therefore supports the passage of this SI. We note that, like all the SIs dealing with equivalence, this one represents unilateral action by the UK, without which EEA firms could not continue to access the London markets. However, to deny that access would be extreme self-harm as we would be the losers. Essentially, this SI attempts to retain some parts of the status quo.
However, I want to confirm that the arrangements in Schedule 3, which relate to benchmarks, allow Libor to be replaced by risk-free reference rates set by the eurozone and non-eurozone EEA countries. The UK equivalent will be SONIA, the sterling overnight index average. Your Lordships will know that Libor has been a disgraced benchmark since American journalists exposed that it had been corrupted and manipulated for decades under the noses of the UK Government and regulators, who were blinded by their philosophy of light-touch regulation.
I also want to use this opportunity to ask the Minister to give the Committee an update on the status of the equivalence negotiations with the EU. Can the Government confirm that they are no longer seeking mutual recognition? Quite a number of members of the Tory party—we heard some of this again today—and the regulators have indicated that they expect and want divergence to be a significant feature of future financial services regulation. Is that correct? What will be the underpinning philosophy of divergence, since I assume that light-touch regulation remains disgraced? Are the Government making any progress on finding a mutually agreed mechanism with the EU to resolve any dispute on divergence and equivalence? Is there any progress on getting a notice period for cancellation longer than the current norm of 30 days? Without a notice period of at least two years for equivalence cancellation, firms that use London will be living with disturbing uncertainty.
How are other issues that could lead to the cancellation of equivalence to be resolved? Perhaps the most obvious issue is that of financial stability related to the supervision in the UK of central counterparties clearing trillions of euros in derivatives. Actions to protect the UK economy in a crisis could cause havoc for the euro and the EU without some mechanism for co-operation and mutual support.
The expectation of the financial services industry is not that London will collapse as a global financial centre the day after the end of the transition period but that it will be in the EU’s interest to pull business into the 27 salami slice by salami slice as capacity expands, which is at least a 10-year strategy. New York has been reasserting its dominance in dollar-based financial business. China and India, as rising economic stars, have made it clear that they have no intention of ceding control of their key financial markets to any foreign country. The UK remains a major global player only so long as it dominates European financial services. How this Government deal with equivalence will essentially determine the future of this key sector of our economy.
Lord Tunnicliffe (Lab) [V]
My Lords, I thank the Minister for presenting this SI. As he knows, the Opposition will not oppose it as it would create a constitutional crisis. Nevertheless, it is the duty of Her Majesty’s loyal Opposition to scrutinise the instrument.
As we have discussed on previous occasions, the volume of and interplay between the Treasury’s EU exit SIs makes keeping track of the changes somewhat difficult. The intricacies of this instrument, which simultaneously amends and supplements a 2019 measure, is a case in point. I thank Vanessa McKay, the designated Treasury contact, for helping me to achieve a limited understanding of the regulation and the equivalence framework in which it fits.
I conclude that the instrument is technical in nature and complements the actions taken under the authority of the equivalence regulations of 2019 and 2020. The instrument provides for subsequent co-operation arrangements and regulatory decisions. I do not believe that it introduces any significant new policy. I would value an assurance from the Minister on that point.
Nevertheless, having previously met the Commons Minister on this issue, I am dissatisfied with the level of understanding that I was able to achieve on first reading the supporting documentation. It may be inevitable that the instrument is written in impenetrable language but surely the Explanatory Memorandum is supposed to overcome this barrier. In January 2020, the Secondary Legislation Scrutiny Committee published guidance for departments on statutory instruments. I quote from paragraph 4 of Part 2:
“The purpose of an EM is to provide the Houses and the public with a plain English, free-standing, explanation of the effect of an instrument and how it is intended to operate. It is not meant for lawyers. Legal explanations of the changes are given in the Explanatory Note that forms part of an SI and should not be duplicated.”
This Explanatory Memorandum clearly fails this test. Perhaps it is what comes of reading such documents during Recess, but I fear that if somebody like myself who has dealt with 50 of these instruments has difficulties in following the commentary, an interested citizen without prior knowledge stands no chance. For example, paragraph 2.2 of the Explanatory Memorandum contains a circa 100-word, nine-line sentence. I understand that there are more Treasury SIs to come. I hope that Her Majesty’s Treasury will prioritise EMs that are easier to read, set the SI in context and require less prior knowledge. I would be happy to discuss this matter with the Minister and his officials if they feel this would be of use.
The essence of today’s debate is equivalence for financial services. The guidance in this area is provided in paragraphs 35, 36 and 37 of the political declaration. It envisages concluding,
“these assessments before the end of June 2020.”
I understand that that deadline was missed. What are the implications of this in terms of the trade negotiations and the preparedness of financial services firms? Does the Minister have an estimate of when the process will be completed?
John Glen, Economic Secretary to the Treasury, said in a letter of 27 May 2020 to the noble Lord, Lord Sharkey, chair of the EU Financial Affairs Sub-Committee:
“Successfully concluding equivalence assessment and delivering comprehensive positive findings will be in the UK and EU’s mutual interest and we can see no reason why the UK and EU will not be able to find each other equivalent across all existing equivalence regimes. As you will be aware, equivalence assessments are unilateral processes and thus not part of the ongoing negotiations on the future EU/UK partnership.”
Further, the concluding sentence of paragraph 2.1 of the EM says:
“This statutory instrument … is not linked to the ongoing UK-EU negotiations on a free trade agreement.”
These statements imply that the determination of equivalence is independent of the free trade negotiations. Does this not display heroic optimism and naivety in the light of the Swiss experience? Switzerland lost its equivalence recognition over a lack of progress in an unrelated negotiation.
Further, what is the Minister’s view of the recent statement by Mr Dombrovskis, an executive vice-president of the European Commission? The Financial Times reports him as saying that Brussels would not be ready in the coming months to assess whether Britain qualifies for some pan-EU access rights, known as equivalence provisions, because the bloc’s own regulations are in flux.
If an equivalence ruling is not given, or at least not in a timely manner, what is the Minister’s assessment of the impact on cross-border financial services trade between the UK and the EU? Is he concerned about a financial stability impact if access is withdrawn suddenly after 31 December? What assessment has he made of London’s attractiveness as a place from which financial services firms operate if their ability to sell services into the EU on the basis of equivalence is withdrawn?
Lord Agnew of Oulton (Con)
My Lords, I thank noble Lords for their questions and for the important points raised in this debate. I will try to answer as many as I can in the time available, and, where I am not able to, I will ensure that we write to noble Lords.
The noble Baroness, Lady Bowles, asked about progress on co-operation agreements. That is an ongoing process, and we will of course keep this House updated on that process of engagement over the next few months. My noble friend Lord Trenchard asked whether we should continue with a policy of holding to equivalence with the EU regime. That is certainly our policy at the moment, because that is how the City has worked over the past 40 or so years. However, by being in control of our own regulatory policy, we will have the opportunity in the coming years to keep reviewing that. The noble Baroness, Lady Kramer, made the important point that the growth is now in Asia. By having our own regulatory regime, we will have the flexibility to consider those opportunities.
My noble friend Lady Wheatcroft raised a number of questions. Possibly the most important one was whether the EU will grant equivalence. We are of course at the tail end of these negotiations, a time at which things will be most fraught. It would certainly be absolutely in the interests of the EU to grant equivalence, but I cannot prejudge the outcome of the discussions over the next few weeks.
On the capacity of our regulators to take on these decisions, we have engaged in depth on this issue and we are assured that they have this resource. Fees will be a matter for individual regulators in order to recover their costs in processing any applications.
My noble friend Lady Altmann asked what provision should be made beyond the 12-month period to process these applications. Certainly, that was the period of time that was considered reasonable. My noble friend made a perfectly reasonable point that the transition period has seemed tight, but we have had the worst pandemic in nearly at 100 years in the middle of it, so I am confident that we can deliver on that. She raised one or two other technical questions on defined benefits, and I will write to her in an attempt to answer them.
The noble Lord, Lord Bruce, made one or two points on paragraph 7.2 which states,
“The UK has now left the EU with a deal.”
While decisions on equivalence are autonomous and unilateral in many areas of financial services, it is essential to understand the approach of the other party when deciding how to approach an area of cross-border activity. While the UK has undertaken an assessment of the EU, we will not be making equivalence decisions at this stage; we will make decisions where and when we determine that it is in the UK’s interest. Our ambition is to achieve a reciprocal equivalence, supported by the effective regulatory co-operation of an ambitious FTA, and we continue to work towards that goal. We continue to believe that comprehensive mutual findings of equivalence between the UK and the EU are in the best interests of both countries. However, as I said in relation to earlier questions, it will be a very rough few months. We must be perfectly realistic about that.
My noble friend Lady McIntosh asked about the handling of a breach. The normal rules of public law will apply, and, after the transition period, equivalence will be covered by provisions in retained EU law, as amended under the European Union (Withdrawal) Act 2018.
The noble Baroness, Lady Kramer, asked about the status of the negotiations. We have completed round 7. We have been clear in discussions throughout that this intensified process continues to be constructive, but there are still significant differences. Our preference is to leave with an FTA as long as it guarantees our political and economic independence, and these are tricky issues.
On plans for divergence, as I mentioned on an earlier question, we are committed to regulatory autonomy but at this stage to providing as much equivalence as we can. We are committed to the highest standards of regulation and the appropriate levels of supervisory oversight. In many areas we already go beyond what the EU rules require. Where we make changes, they will be for good reasons, but our starting point will be what is right for the UK, our economy and to ensure financial stability.
The noble Lord, Lord Tunnicliffe, raised a number of questions. He was worried about the quality of the guidance documents and felt that they were not in a spirit of providing clarity. That is a fair criticism, and I will certainly encourage officials to try to provide a more accessible guidance for future SIs, which I expect we will have over the next few weeks and months.
The noble Lord asked whether the instrument, which provides for subsequent co-operation agreements and regulatory decisions, introduces any significant new policy. I can confirm that that is correct; the provisions in this SI complement existing provisions and make minor amendments to earlier EU exit instruments and retained EU law but do not alter the policy of the earlier instruments or introduce any new policy.
The noble Lords, Lord Tunnicliffe and Lord Bruce, asked about the progress on the questionnaires, which have a deadline of the end of June of this year, and about the implications of not having met that deadline. We returned all 17 questionnaires received from the EU as part of its assessment process. The returns totalled some 2,500 pages. We received the first questionnaire only in late March, and the last 250 pages of questions reached us only at the end of May. The equivalence assessments are a technical process which each side is carrying out separately and are not linked to the UK-EU trade negotiations. Many, if not most, of the questions relate to explaining the details of the rules and regulations in the UK and the rules and regulations that we share with the EU. We have made sure that the EU has the information it requires to make a positive decision for the UK for all regimes, and we have always been clear that as the UK and EU start from a position of having very similar financial services regulations, that should be a straightforward process. We continue firmly to believe that comprehensive mutual findings of equivalence between the UK and the EU are in the best interests of both parties.
The noble Lord, Lord Tunnicliffe, asked about statements from my colleague the Economic Secretary, which he believes are optimistic. Equivalence is a unilateral autonomous process that is distinct from the FTA negotiations, and the politicisation of the financial services sector is not in anyone’s interest. The financial stability that underpins our economy and the EU’s economy depends on trust and predictability in relation to regulatory matters. A thriving financial services sector is clearly important to our economy but also to the EU’s economy. The UK is a global financial hub. Among other things, it channels investment into Europe cost effectively and manages the assets of millions of EU firms and consumers. Fragmentation of that market would be costly and disruptive and, given the shock of the pandemic over the past few months, it would be an odd decision for the EU to make that more difficult for its member states.
The noble Lord asked what is my assessment of the impact on cross-border financial services trade between the EU and the UK if the equivalent ruling is not given, or at least not in a timely manner. We continue firmly to believe that comprehensive mutual filings of equivalence between the UK and the EU are in the interests of both parties. We remain open and committed to continuing the dialogue with the EU about its intentions on this. The financial stability that underpins our economy and that of the EU depends on trust and predictability in relation to regulatory matters.
This SI is needed to ensure that the UK continues to have a robust and functioning equivalence framework for financial services in the UK during and after the end of the transition period. The SI will also make minor amendments to modify the errors in onshore legislation. I hope that the Committee has found this afternoon’s sitting informative. I will write on technical questions that I have not been able to answer. I hope that noble Lords will join me in supporting these regulations.
Arrangement of Business
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The Deputy Chairman of Committees (Lord Russell of Liverpool) (CB)
My Lords, Hybrid Grand Committee will now resume. Some Members are here in person, respecting social distancing, others are participating remotely, but all Members will be treated equally. I must ask Members in the room to wear a face covering, except when seated at their desk, to speak sitting down and to wipe down their desk, chair and any other touch points before and after use. If the capacity of the Committee Room is exceeded or other safety requirements are breached, I will immediately adjourn the Committee. If there is a Division in the House, the Committee will adjourn for five minutes.
Immigration (Persons Designated under Sanctions Regulations) (EU Exit) Regulations 2020
(4 years, 2 months ago)
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Baroness Williams of Trafford
That the Grand Committee do consider the Immigration (Persons Designated under Sanctions Regulations) (EU Exit) Regulations 2020
The Minister of State, Home Office (Baroness Williams of Trafford) (Con)
My Lords, this instrument is a technical one; unusually it does not create any new powers, but simply relates to the immigration consequences for someone who is designated or sanctioned for immigration purposes under the Sanctions and Anti-Money Laundering Act 2018, which I will refer to as SAMLA from now on.
I will first set out some background to international sanctions, particularly travel bans, with which these regulations are concerned. Under current arrangements, travel bans can be imposed by a resolution of the UN Security Council or by a decision of the Council of the European Union. In the vast majority of cases, they are imposed on individuals who are outside the UK and who have no connection with the UK. However, in the unlikely event that a travel ban is imposed on a person who is in the UK, then this would, as a matter of domestic law, have consequences for their immigration status in the UK as they will lose the right to remain here and will be subject to removal.
A person who is affected in this way may argue that removal would be an interference with their rights under the European Convention on Human Rights, or that it would be contrary to our obligations under the refugee convention. As a result, they may make a human rights or humanitarian protection claim to prevent their removal. These claims can give rise to a right of appeal before the Immigration and Asylum Chamber of the First-tier Tribunal, where a well-developed machinery has grown up to ensure that it is both fair and effective and that it complies with our international obligations.
Now that the UK is leaving the European Union and we have the ability to create autonomous domestic sanctions regimes, a similar situation may arise. A human rights or protection claim may be made against the immigration consequences of a travel ban imposed under SAMLA. Again, this is most likely to arise where an individual is in the UK and would lose their right to remain here as a result of being sanctioned.
I turn to the purpose of the regulations. Noble Lords will recall the issue of interface between challenges to sanctions and challenges to the immigration effect of sanctions being raised during the passage of SAMLA through this House. SAMLA has established an administrative assessment process for sanctions and a court review process in the High Court, or, in Scotland, the Court of Session. This is new; no such mechanism has been needed until now because challenges to UN or EU sanctions are made to them directly.
Now that the UK is creating its own domestic sanctions regimes, we could have a situation where someone wishes to challenge their travel ban in the civil courts, but at the same time also lodges an appeal to the Immigration and Asylum Chamber against the immigration effect of the travel ban—that is to say, the refusal of their human rights or protection claim against removal from the UK. Cases of this kind are likely to be extremely limited in number, but the Government consider it important to ensure that such claims are handled appropriately.
We do not want domestic sanctions to unjustifiably interfere with fundamental rights or run contrary to our obligations under the Refugee Convention. However, at the same time it is also important that the effectiveness of our domestic sanctions regime is not compromised by becoming muddled with immigration claims. The Government have therefore considered how to address this and have concluded that, as a starting point, we should seek to maintain the status quo, so that the Immigration and Asylum Chamber should remain the appropriate decision maker for appeals against the refusal of a human rights or protection claim. Both the Home Office and the tribunal are vastly experienced in this area, having disposing of 53,179 appeals in 2019.
I am sure noble Lords will agree that it is right for this to continue, but we need to manage situations where there would otherwise be the possibility of the High Court and the tribunal considering the same issue. To illustrate the point, whereas the tribunal would be best placed to determine an appeal of an immigration decision, determining the lawfulness of a ban on entry to the UK is a decision that is better suited to the High Court. These regulations ensure that each jurisdiction does not consider matters which are properly the remit of the other, that we continue to comply with our international obligations and that the effectiveness of our domestic sanctions regime is not compromised. I commend these regulations to the Committee. I beg to move.
The Deputy Chairman of Committees (Lord Russell of Liverpool) (CB)
Before I call the first speaker, all speakers should note that the speaking time for everybody is eight minutes, not six minutes, just so there is no confusion.
Lord Cormack (Con)
My Lords, I begin by saying that I do not think that I shall need eight minutes.
I congratulate my noble friend on the way she introduced this non-controversial statutory instrument, but I am concerned about the aftermath of leaving the European Union in one particular context. It is something I raised when I was a member of the Home Affairs Sub-Committee of the European Union Committee of your Lordships’ House and that I have raised on the Floor of the House as well.
I deeply regret the fact that, unless there has been some dramatic change in negotiations, we are not going to be able to take advantage of the European arrest warrant, nor are we going to be a member of Europol. As we are essentially dealing with potentially dangerous people who could, economically or in other ways, be a profound danger to our country, our society and our way of life, it is crucial that we maintain the closest possible co-operation with our friends and neighbours in the European Union as we leave Europol and move out of the European arrest warrant. I would be grateful if the Minister will reassure me on that point when she winds up. I know that it is an issue that troubles a number of people, and it is one that certainly troubles me.
Lord Singh of Wimbledon (CB) [V]
My Lords, I wholly concur with the sentiment that the human rights of individuals should be no less at the end of transition than they were under the European Convention on Human Rights and the refugee convention. It is said that there are some 2,000 individuals and entities involved. Given the sad state of human rights in the world, the number itself is not surprising.
Do the regulations also include those involved in international cybercrime designed to thwart the democratic process? All cases should be speedily investigated and the right of residence of those clearly involved should be speedily terminated. Equally, the right of residence of those found to be without fault should be fully protected.
My main concern is about the effectiveness and morality of targeted sanctions; that is sanctions against individuals and entities, rather than against countries that are sponsoring or supporting them in illegal activities that involve the abuse of human rights. The Magnitsky case, in which a Russian accountant exposed massive government fraud and died in a Moscow prison, illustrates my concern. Those who sent him to prison bear a greater share of the blame for his death than the prison authorities.
In the same way, those that order state-sponsored torture and murder are more guilty than those they hire to carry it out. We are told that those involved in the brutal murder and dismemberment of the Saudi journalist Khashoggi are subject to such restrictions. My question is: what about those who ordered his brutal murder? Will MBS—Mohammed bin Salman—be included in the sanctions?
Targeting hired assassins or a couple of generals from countries guilty of gross human rights abuses can easily become tokenism, giving a false impression of action and commitment simply designed to protect trade with rogue countries. My fears are underlined by the recent statement of a Conservative Minister, who said that when we talk trade with China, we should not mention human rights. I have never been a great fan of Brexit, but we can take it as an opportunity to give the world a new direction on human rights.
The Deputy Speaker (Lord Russell of Liverpool) (CB)
I call the next speaker, the noble Lord, Lord Randall of Uxbridge. Lord Randall?
Lord Randall of Uxbridge (Con) [V]
Yes, I am here. I was not able to hear the Minister or my noble friend Lord Cormack very clearly, so if I repeat anything that they have asked or said, I apologise.
I have just a few questions about this. I echo a lot of what the noble Lord, Lord Singh, has just said. I would like to know whether, as a result of this instrument, the UK will have the power to sanction different persons or entities—or possibly states, although this may not be within this particular instrument—than those already on the UN or EU lists. Will we have to automatically sanction those that are on lists from the UN or the EU?
I also hope that this instrument will make sure that there is no possibility of loopholes and that those who are sanctioned elsewhere will not find succour and refuge in the United Kingdom. Those are the only comments that I have, and I look forward to hearing my noble friend’s answers.
Baroness Hamwee (LD) [V]
I thank the Minister for her explanation of the instrument. I was able to hear her, though I regret I was not able to hear the noble Lord, Lord Cormack.
We on the Liberal Democrat Benches are certainly not opposing the regulations. Sanctions are an important tool to protect both security and human rights; the noble Lord, Lord Singh, in particular has focused on this. UN sanctions seem in the main to relate to security, though I would argue that human rights are both intrinsically important and very closely bound up with security issues. Liberal Democrats are far from alone in having called for more sanctions against those responsible for human rights abuses in Hong Kong—which we must not allow to go off the agenda—and abuses against the Uighurs, which take the meaning of the term “abuse” to an extreme.
Immigration sanctions are not the only sanctions which can be applied against individuals. Financial sanctions can be very telling, though in both cases the impact on people in this country, and on the families of those people, can be very considerable—something that we might come back to in the Counter-Terrorism and Sentencing Bill. Judicial oversight is a necessity, and I will come back to that this afternoon.
Can the Minister explain whether the travel bans under these regulations will have corresponding financial sanctions, or are the two entirely different but possibly parallel streams? One would be very keen to know that we can make more difficulty for some people, not only over shopping trips to Harrods but regarding the acquisition of residential properties whose vacancy is, at best, offensive.
These travel bans carry with them the right to large human rights law protection claims. I trust that the lawyers who undertake that work will not be attacked as “activist lawyers” by the Home Office, though I have to say for myself that I would be proud to be an activist lawyer. Indeed, I hope that all parliamentarians find it possible from time to time to be activists in the law-making process. Where would Parliament be, having made the laws, without lawyers enabling people to exercise rights under them?
I am going to take the opportunity to make the point about the importance of the European Convention on Human Rights and its place in our domestic law. I pay tribute to Lord Lester, my noble friend who died very recently, for his work on human rights and the creation of the Human Rights Act.
I emphasise the importance of judicial review. It may be called on more often and more extensively than was the case some years ago, which is not actually surprising when individual rights are threatened by the state. Judicial review is often portrayed as something pursued by tedious lefty lawyers, but I see it as having a very important function.
I have some more specific questions for the Minister. Will the claimant be able to make a human rights claim and appeal against a refusal of the claim in-country, or will he be required to apply from abroad? I suspect, in the light of Section 92 of SAMLA, that it is mostly going to be the latter, something to which we have often expressed opposition.
The instrument extends beyond the UK to jurisdictions that we are told in the Explanatory Memorandum have not been consulted. The fact that a territory has no competence does not mean it is not affected, and it may well have something to say on the issue. Most specifically, presumably the Channel Islands, the Isle of Man and the British Overseas Territories are going to have to enforce the bans. Is that the case, or is enforcement a matter for the UK courts? Can the Minister explain how that is going to work?
I confess I am stumped by paragraph 7 of the regulations. Nothing in subsection (4) of the section that it refers to permits the tribunal to consider the validity of a decision to make or vary, or to refuse to revoke or vary, the immigration designation of an appellant. Can the Minister help us by approaching it the other way around and telling us what it can do?
I assume that the term “notification” does not necessarily mean that the notice has actually been received. I guess that would be something for other provisions.
Paragraph 3 applies the instrument to a person lawfully within the UK. What if that person is here unlawfully? Does one just go straight to immigration enforcement? What if the person has made an asylum claim that has not yet been determined? I should say that I do not regard that as being here unlawfully, but which claim will be determined first?
I think the Minister said that the Home Office intends to start with this arrangement, which suggests that there will be a review. Can she tell us when that is likely to take place and anything more about the review?
Lord Kennedy of Southwark (Lab Co-op)
My Lords, I thank the Minister for setting out clearly the purpose of the regulations. As other noble Lords have said, this matter is technical but important. I do not intend to speak for very long.
It is important that we recognise that the current process for considering a human rights or protection claim is retained for those new individuals who are subject to these travel bans, and that it is not conflated with the review and challenge mechanism for the sanctions. It is important that we delineate and set out the boundaries clearly so that we keep separate the routes for appeal, the immigration consequences of the sanction and the challenge to the sanction.
My only question concerns powers and how the Government intend to ensure that the system works as it devised to work. I know that the idea is to keep the system as it is at present, but this would not be the first time that things have gone wrong, that there have been unintended consequences or that people have unintentionally been treated unfairly or unlawfully—or, on the other hand, are able to avail themselves of something incorrectly. I very much agree with the comments that the noble Lord, Lord Cormack, made in connection with our friends and colleagues in the European Union. We need to ensure that, although we are outside the European Union, we still work closely with it. Should we not keep people safe?
I see this as two sides of the same coin. It is about treating people fairly and justly while at the same time dealing effectively with those who are alleged to have committed serious offences in terms of their movements being restricted and action being taken against them. I am looking for assurance from the Minister that this has been thought about and will continue to be thought about as we move forward.
The noble Lord, Lord Randall, talked about loopholes. It is important that we focus on them. They are not the subject of these regulations but I am of course reminded of them; indeed, we are regularly reminded of them in the Chamber. One appeal mentioned property. We often talk about the fact that, allegedly, a lot of property in London and elsewhere in the UK is owned by questionable people or organisations with no problem whatever; there is no issue at all. It is almost as if illegal or dodgy money is put into a safe jurisdiction because the criminals want to keep their money safe—and they come here. That is bad. I know that they are not part of these regulations as such, but that issue is of concern. We are lucky to live in a safe jurisdiction but equally, it should not be safe for criminals and people who want to act badly. It would be useful if the Minister could address that point to ensure that, where people have done wrong, they are dealt with and restricted properly while at the same time ensuring that people who have not are treated fairly and properly.
I will leave it there. Noble Lords have asked a number of questions. I look forward to the Minister’s response.
Baroness Williams of Trafford (Con)
I thank noble Lords for their contributions.
The noble Baroness, Lady Hamwee, asked about the different types of sanctions that might be imposed. First, they can be used to fulfil a range of purposes, including supporting foreign policy and national security objectives, maintaining international peace and security and preventing terrorism. They do not operate or succeed in a vacuum. The noble Lords, Lord Singh and Lord Randall, alluded to the fact that this is not just about people. It can be about states and how those who are sanctioned elsewhere—we can think of some very obvious cases—can find succour in the UK. That is absolutely right. Think about the extradition process: a judge will look into whether any extradition request has been made maliciously or whether there would be a threat to a person’s life if they were extradited to a country where they would certainly face torture and, in some cases, death.
I will go through some recent asset freezes and travel bans to illustrate the point. Some 25 Russian nationals involved in the mistreatment and subsequent death of Sergei Magnitsky were subject to them, as were 20 Saudi nationals involved in the murder of Jamal Khashoggi. So were two high-ranking Myanmar military generals involved in the systematic and brutal violence against the Rohingya population and other minorities by the Myanmar armed forces, and two organisations involved in forced labour, torture and murder in North Korea’s gulags. Those are just some examples of the types of organisations and people that we have imposed asset freezes and travels bans on.
Several noble Lords, including the noble Lord, Lord Kennedy, and, I think, the noble Lord, Lord Cormack —although I cannot be sure—talked about the almost hiding in plain sight of assets that sit in our capital city, which may or may not be the product of dirty money, for want of a better expression. Of course, they will also have shared the experience of taking through legislation the year before last on how we can get hold of assets that people have attempted to hide and how we ensure that proceeds of crime are uncovered.
The noble Lord, Lord Singh, asked if these sorts of sanctions would cover cybercrime. Yes, they very well could do given some of the effects that cybercrime can have. The noble Baroness, Lady Hamwee, asked whether someone can appeal from abroad. The answer is yes. What if someone is here unlawfully? Obviously, there are two things to untangle: first, someone’s immigration application or, indeed, asylum appeal, and then a sanction, if indeed one is necessary.
On Crown dependencies, a revised Explanatory Memorandum was laid today and the Crown dependencies confirm that they do not need regulations extended to their jurisdiction. However, we do not ignore our international obligations. Those who claim fear of persecution or a breach of their fundamental rights still have a statutory right of appeal against a decision to refuse those claims.
I reiterate that these regulations do not change the status quo and, on that note, I ask that the Motion be approved.
The Deputy Chairman of Committees (Lord Lexden) (Con)
I remind Members to wipe their desks and chairs before leaving the Room. The Committee stands adjourned until 6.15 pm.
Arrangement of Business
(4 years, 2 months ago)
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The Deputy Chairman of Committees (Lord Lexden) (Con)
My Lords, Hybrid Grand Committee will now resume. Some Members are here in person, respecting social distancing, others are participating remotely, but all Members will be treated equally. I must ask Members in the room to wear a face covering, except when seated at their desk, to speak sitting down, and to wipe down their desk, chair and any other surfaces they have touched. If the capacity of the Committee Room is exceeded or other safety requirements are breached, I will immediately adjourn the Committee.
Investigatory Powers (Communications Data) (Relevant Public Authorities and Designated Senior Officers) Regulations 2020
(4 years, 2 months ago)
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Baroness Williams of Trafford
That the Grand Committee do consider the Investigatory Powers (Communications Data) (Relevant Public Authorities and Designated Senior Officers) Regulations 2020
Relevant document: Special attention drawn to the instrument by the Secondary Legislation Scrutiny Committee, 13th Report
The Minister of State, Home Office (Baroness Williams of Trafford) (Con)
My Lords, these regulations, and the Functions of the Investigatory Powers Commissioner (Oversight of the Data Access Agreement between the United Kingdom and the United States of America and of functions exercisable under the Crime (Overseas Production Orders) Act 2019) Regulations 2020, are both made under the Investigatory Powers Act 2016. That legislation brought together powers available to our public authorities to obtain communications and data about communications, powers that are vitally important to their efforts to tackle crime and protect our citizens. It also created extensive and world-leading safeguards, including a powerful new Investigatory Powers Commissioner who provides independent oversight and authorisation of the use of these powers.
As the operational requirements of our public authorities continually evolve, it is vital that the use of the investigatory powers can adapt in response, within the strict parameters that Parliament agreed during the passing of the Investigatory Powers Act. When we do adapt the use of the investigatory powers, it is equally important that the appropriate safeguards can be applied. The regulations we are debating today collectively represent this adaptation in action.
I turn first to the Functions of the Investigatory Powers Commissioner (Oversight of the Data Access Agreement between the United Kingdom and the United States of America and of functions exercisable under the Crime (Overseas Production Orders) Act 2019) Regulations 2020. As I have previously informed the House, the agreement will allow UK public authorities, with the appropriate legal authorisation, to obtain data directly from US-based telecommunications operators for the purposes of preventing, detecting, investigating and prosecuting serious crime.
It is a requirement of the agreement to ensure an appropriate level of audit and oversight of its use. Given that the agreement has been designated under the Investigatory Powers Act 2016 and that almost all the authorities using the agreement fall under the Investigatory Powers Commissioner’s remit for aspects of their work already, it was decided that the commissioner and his team should oversee the UK’s use of the agreement.
The commissioner will, in accordance with the agreement, keep under review the compliance of UK public authorities with its terms. This will include the ex post facto review, by a judicial commissioner, of communications data authorisations and certain modifications to targeted interception warrants that would not otherwise be specifically subject to a commissioner’s review. This ex post facto review must be conducted as soon as is reasonably practicable, and no later than three months from when the authorisation is given.
In addition to the Investigatory Powers Act 2016, the agreement has been designated under the Crime (Overseas Production Orders) Act 2019. These regulations therefore amend the Investigatory Powers Act to provide the statutory basis for the commissioner to perform his role in relation to the agreement and to oversee the use of overseas production orders under the agreement. The commissioner is supportive of this and his team have recruited additional resources in preparation for the agreement coming into use. Although, as I have described, these regulations require the commissioner to perform his review of public authorities’ compliance in accordance with the agreement, the commissioner, as an independent officeholder, will continue to discharge his functions of inspection, investigation and audit as he sees fit.
The Government remain resolutely committed to the independence of the Investigatory Powers Commissioner. The Investigatory Powers Communications Data (Relevant Public Authorities and Designated Senior Officers) Regulations 2020 amend Schedule 4 to the Investigatory Powers Act to add five public authorities to the list of bodies which can legally obtain communications data, and they make minor amendments to bring certain role titles and organisation names into line with the current terminology.
Communications data includes the “who, when, where and how” of a communication but not the content: the “what” was said or written. It includes the method and way in which one person or thing communicates with another person or thing. Access to this data is a crucial investigative tool for a variety of law enforcement bodies and has a range of operational uses.
The five public authorities that we propose to add to Schedule 4 by these regulations have each demonstrated through extensive consultation with the Home Office and the Investigatory Powers Commissioner’s Office that access to the data is now necessary and proportionate to their operational requirements and statutory duties. The authorities are the Civil Nuclear Constabulary, which requires these powers to investigate threats to the most sensitive nuclear sites in the UK; the Environment Agency, in order to tackle serious organised waste crime; the Insolvency Service, in order to investigate and prosecute criminal wrongdoing connected to personal and company insolvencies; the National Authority for Counter Eavesdropping, in order to protect the Government from technical espionage attack from hostile state actors; and the Pensions Regulator, in order to investigate serious crimes associated with workplace pension schemes, including fraud and money laundering.
In short, without communications data access, these public authorities often cannot carry out their role of investigating crime effectively. By adding them to Schedule 4, they will be subject to the stringent safeguards that already govern the use of communications data. These include the independent authorisation of most requests by the Office for Communications Data Authorisations, a serious crime threshold for requiring certain types of communications data and inspections conducted by the Investigatory Powers Commissioner’s Office. The oversight, together with the communications data code of practice, ensures that requests for communications data are necessary and proportionate. Where it is no longer necessary and proportionate for a public authority to acquire communications data, the entry in Schedule 4 will be removed. Noble Lords will see that in the recent removal of the fire and rescue service.
In summary, the regulations we are debating relate to provisions already set out in the Investigatory Powers Act 2016. They will allow the use of investigatory powers by our public authorities to adapt to changes in their operational requirements as they respond to an evolving threat picture, while ensuring that the appropriate safeguards can continue to apply. I beg to move.
Lord Blunkett (Lab)
My Lords, the Minister is aware that I am very supportive of the updating of measures that, necessarily, take account of enormous and rapid change taking place around us and the need, therefore, to adapt and adopt processes commensurate with that challenge. I particularly welcome the decision to change the formula so that we do not have to rely on mutual legal assistance, which was the most time-consuming and bureaucratic way of operating. The measures also deal with the relationship with the United States.
I am also very aware of mission creep from the original investigatory powers Act of 20 years ago. I came in as Home Secretary in 2001, inheriting the primary legislation but not having the orders laid. It has rent on my heart, because my second son, who had just qualified as a computer analyst, got in touch with me to say that the order that we laid under the Act was so wide-ranging on the agencies and institutions that had the ability to draw down and use the powers under RIPA that a storm was going on in what was then the embryo of social media. Having examined it, I discovered that they were right: we had allowed too many agencies and institutions access to the powers. A great deal has been learned over the 20 years about how to avoid that, and the Minister referred to the updated Investigatory Powers Act of five years ago.
I just want to test this out this evening. There is an agency with which I do not think that many people will be familiar—in fact, I will go as far as to say on public record that I was completely unaware of the necessary but obscure UK National Agency for Counter Eavesdropping. I should be grateful if the Minister could say a word or two about it when winding up. I am very strongly in favour of avoiding eavesdropping, whether it is by state actors on our Government and economy or on private enterprise, individuals and families. I have suffered myself in the past from gross intrusion on those around me, and I am very interested to know the extent of the powers of this counter-eavesdropping agency and the role of the commissioner in overseeing it, and in particular what powers it might possess.
I will not delay the Grand Committee any longer, because I think that, on the whole, we are all in favour of the two orders and the changes being made, but it is interesting what you find out by being in the House of Lords.
Lord Naseby (Con)
My Lords, I have read the papers in front of us this afternoon and should like to highlight a couple of things. I note from paragraph 7.2 that there has been a
“rapid escalation of organised crime”
in recent years of fly-tipping and so on. It seems to me, as one who has been using the tidy tip in Biggleswade in Bedfordshire by appointment, that there is no provision for small businesses or small builders to get rid of their bits and pieces of rubbish. Although it is not absolutely covered by the order, I wonder whether it is not time to look at the fly-tipping challenge that we are facing in this country.
My other point concerns paragraph 7.3 and the Department of Health and Social Care. Am I right in thinking that that is to do with the purchasing done by the department? If not, what else does it cover?
Moving on, I note that 10 departments are now involved. One asks who is co-ordinating those 10 to ensure that they are consistent in their approach to what they think is fraud.
I declare an interest as a trustee of the parliamentary pension fund. We all know that small businesses have, quite rightly, been brought into the national pension scheme since 2012. Why, at this point, eight years on, is it felt for the first time that the Pensions Regulator should be given powers? Previously, it was not given powers, because they were not up to scratch. Any of us who are involved in that world know that it is hugely complicated at the moment; it is not easy, particularly for the millions of small businesses, to keep up to date with the changes that are being made. I am sure that mistakes are made, but I do not think that, at this point in time, this particular edition of the Pensions Regulator is proportionate to the problems in that area.
Moving on to the second order, those of us who have worked with or alongside the United States will be well aware that there are six states, Delaware being the leading one, that do not co-operate with the US Government very much at all in declaring who has moved money in and out of a state. We have had instances in the past on the Public Accounts Committee where it was clear that that particular state—and five others, I think—just does not co-operate. This all sounds fine here, but what will happen in relation to those states that do not co-operate with the US Government as a whole?
Secondly, what is the position of our overseas territories? I declare an interest: I have family in the Cayman Islands. In my judgment and, I think, in that of Her Majesty’s Government, those islands have been highly co-operative in trying to find a modus vivendi in the illegal movement of funds. Other parts of the overseas territories have not been quite so co-operative. It is not clear to me whether this agreement with the US is limited to just the UK and, as far as the States is concerned, probably does not touch those six states—I have mentioned only the leading one. I am not sure whether this measure covers the overseas territories. I do not think that it does, but I would be grateful for elucidation on that point.
Are we in a position to say okay, we have got the States, but there are other countries that we believe we should have a similar agreement with? If that is private and confidential, I do not expect it to be indicated this evening, but it would be helpful for the Committee to know the key parties—that is, countries—that we would like to have agreements with.
Paragraph 7.5 of the Explanatory Memorandum says that
“the Parties shall engage in a review of each Party’s compliance with the terms of this Agreement”.
One wonders how often. I happened to notice that tomorrow we will deal with a separate SI in which reviews will occur every three years. In other places, it is eight years. There does not seem to be too much consistency in government.
Paragraph 7.6 states:
“The IPA is included in this list, but the COPO Act is not, because it did not exist when the IPA was drafted. Consequently, the IPC is currently unable to keep under review any Agreement-related activity exercisable by virtue of the COPO Act, such as the use of OPOs.”
Is this not a loophole? Since we are doing this now—this measure must have been prepared some time ago—what are we doing to close that loophole?
The Deputy Chairman of Committees (Lord Lexden) (Con)
I call the noble and learned Lord, Lord Morris of Aberavon, Lord Morris? I think we have to move on, so I call the noble Baroness, Lady Jones of Moulsecoomb.
Baroness Jones of Moulsecoomb (GP)
My Lords, the Investigatory Powers Act was a landmark piece of repressive legislation passed by this Parliament, granting unprecedented powers to gather information on the public at large. It is so bad that even the Chinese Communist Party has pointed to the UK’s law to justify its own intrusive surveillance of the Chinese people. Many of us who are concerned about state surveillance and government overreach raised the alarm at the time, but Parliament continued regardless.
However, I am happy to see that the Investigatory Powers Act that exists today is a very different beast from the one passed by Parliament only four years ago. The European Court of Justice did not take long to rule that some of the worst parts of the Act, including the Orwellian hoovering up of information about everyone’s internet usage, was plain illegal. A second court case saw the High Court rule, again, that parts of the Act were unlawful and must be replaced. That forced the Government into retreat, with powers now being deployed only against serious crime.
At a time when the Government are seeking to curtail judicial review, we should remember that the courts have acted as a beacon of our freedoms and liberties when Parliament has failed properly to scrutinise the Investigatory Powers Act. That is one example of so many reasons why we must fight against the Government’s attack on the constitutional role of the judiciary to hold the executive power to account. This is an important context which I am happy to have the opportunity to set out, with an unusually long speaking time by recent standards. This context colours the two regulations before your Lordship’s Grand Committee today.
These two regulations are relatively benign precisely because campaigners beat the Government in the court 2-0. The regulations are restricted in their scope and power, applying only to serious crime and with judicial safeguards in place. They are a world apart from the draconian, dystopian legislation dreamed up by the then Home Secretary Theresa May.
I have a specific query for the Minister, and the noble Lord, Lord Naseby, has referred to some of this. The functions of the investigatory powers order implements part of the agreement between the UK and the USA on access to electronic data for the purpose of countering serious crime. Article 12 of that agreement requires a review within 12 months of the agreement coming into force of
“each Party’s compliance with the terms”
of the agreement, and
“a review of … handling of data acquired”
under the agreement. Can the Minister say whether that review has taken place? Am I to understand from her opening remarks that it has not happened yet? When will it take place, and will your Lordships’ House have a copy of that review so that we can see it and discuss it? In particular, I seek assurances that President Trump is not using powers in this agreement against his political enemies in the USA, who seem to be growing in number. He is ruling over what looks like a totalitarian state apparatus purely for his own personal interests, and I very much hope that our Government do not go the same way.
The Deputy Chairman of Committees (Lord Lexden) (Con)
I call again the noble and learned Lord, Lord Morris of Aberavon, and ask him to unmute so that we will be able to hear him. There is still no response, so I call the noble Lord, Lord Foulkes of Cumnock.
Lord Foulkes of Cumnock (Lab Co-op)
My Lords, may I say that it is a great pleasure to be here in person? For one thing, you do not have the problems that my noble and learned friend Lord Morris is experiencing. However, it was said on the way in that I would not be able to cause as much mischief as I normally do in Grand Committee as we are a bit like battery hens in here. I hope that it does not affect our behaviour in that way.
This is a very important issue. I was a member of the Intelligence and Security Committee for three years between 2007 and 2010, so I have a little inside information about what some of the countries that are not our best friends get up to. This is very important in relation to that, and I will come back to it in a minute.
First, the report of the Secondary Legislation Scrutiny Committee quite rightly points out that the Civil Nuclear Constabulary, the Environment Agency and the Pensions Regulator were removed and now they are being put back in again. There is a sort of explanation under paragraph 5, but it is not really a very satisfactory one.
I suspect—the noble Lord, Lord Paddick, is shaking his head; perhaps he can answer on this—that they were taken out by the coalition because of pressure from the Liberal Democrats and the Conservatives, now that they are ruling on their own, have put them back in again. For once, I agree that they should be in and that that is right—let us find out—but it represents yet another U-turn. We have had lots of them in the last few weeks, have we not? Let us add this one to the list—if anyone is keeping one.
Going back to the Intelligence and Security Committee, there was an astonishing U-turn there, mind you. Chris Grayling was so enthusiastic that he wanted to chair the committee; now he finds that he does not have enough time or enough interest even to be a member. Very strange things are going on there, but I do not think that the Minister, however good she is—and she is a good Minister—would be able to answer on that. Once Chris Grayling had dipped his toe in the water, it was not just right for him, as I think Goldilocks said.
The memorandum for the regulations relating to communications data and relevant public authorities states that the regulations
“have been subject to a successful 12-week consultation period with the Investigatory Powers Commissioner and the public authorities to which the modifications relate as required by … the IPA.”
However, given the role that the ISC had—as I know very well—in scrutinising the original Investigatory Powers Bill before it became law in 2016 and the critical recommendations it made in the 2016 report, can the Minister tell us whether the ISC itself was consulted on these regulations? If so, what did it say? If not, why not?
Similarly, I would be interested to know what scrutiny, involvement or consultation the ISC has had in the overseas production order regulations relating to UK and US communications data sharing.
Finally, these regulations come after the introduction of temporary powers—so many of them were brought into effect by the Coronavirus Act 2020—enabling the Secretary of State to grant the Investigatory Powers Commissioner powers to appoint temporary commissioners with powers to sign warrants to allow authorities to access communications data. That was in anticipation of staff shortages due to coronavirus. The time limit on seeking retrospective warrants was also expanded. As with all temporary regulations put in place because of the epidemic, can the Minister say how long she intends to keep these temporary powers in place?
I have just two or three questions to which I would like answers. Otherwise, although it might not seem it from some of my demeanour, I support the Motion.
Lord Paddick (LD)
My Lords, I thank the Minister for outlining these draft statutory instruments to the Committee. I find it a little disconcerting being back in London, having been away for such a long time.
Bearing in mind the comments of the noble Lords who have spoken before me, I was beginning to wonder whether I had read the wrong statutory instruments; perhaps that is all to do with my disorientation. However, the noble Lord, Lord Foulkes of Cumnock, was reassuringly in line with some of my concerns. I am also grateful to the Secondary Legislation Scrutiny Committee for drawing to the special attention of the Committee the first of the statutory instruments in its 13th report. If the Minister will bear with me, I will take the statutory instruments in the order in which they are on the Order Paper rather than in the order that she spoke to them.
As noble Lords will remember, the Investigatory Powers Act was controversial—not going quite as far as the noble Baroness, Lady Jones of Moulsecoomb—when it passed through your Lordships’ House. One of the few reassuring aspects of the legislation was the fact that a number of public authorities, most notably local authorities, had their power to access communications data revoked. It is therefore somewhat concerning that three public authorities that had their authority to access communications data removed under the 2016 Act have now had that power reinstated. My understanding is that was at the time that these public authorities had their authority removed, rather than anything to do with the coalition; I think it was post coalition.
Even more concerning is the fact that the Home Office have agreed to add these and other public authorities on the basis of new business cases, changes in circumstances and work with local police forces that the Home Office has evaluated and that it has decided to grant the powers to. I accept that the Home Office has provided a memorandum explaining the purpose and effect of the regulations, but there is only one brief paragraph on each provision. Again, the Minister was very brief in explaining why there had been a U-turn on three of these public authorities and the basis for granting the powers to the others, including this eavesdropping body—nobody has heard of it, although when I Google searched it, there it was.
These regulations are laid under the enhanced affirmative procedure of Section 268 of the 2016 Act, and yet the detailed reasoning for adding these public authorities, including the three that were previously moved, has not been made available to us. How is Parliament to properly assess whether these public authorities have made a sufficient case, so that the grant of these powers is “necessary and proportionate”? Where is the parliamentary oversight?
Can the Minister explain how many public authorities in total have sought these powers under the Investigatory Powers Act? What proportion of requests made to the Home Office have actually been granted, and how many of them have been turned down? Can the Minister explain the process for evaluating such requests, and what consultation takes place with the Investigatory Powers Commissioner before such requests are agreed to?
I understand that the complexity of crimes these public authorities investigate may have increased, and that their specific expertise and experience often make them a better place to investigate crimes in the first instance, before handing over to local police forces. However, what is to stop joint investigations with local police forces applying for the communications data required, rather than separately authorising these organisations? These are significant powers to access sensitive personal information, and the case for each public authority to access them should be made out in more than a few-line summary.
The second statutory instrument relates to the Crime (Overseas Production Orders) Act 2019—another controversial piece of legislation—and the controversial data access agreement between the United Kingdom and the United States of America. I will not rehearse the concerns expressed in your Lordships’ House about data being provided by UK communications service providers to US law enforcement agencies, under this agreement, which could result in the accused being convicted in a US court and sentenced to death.
However, can the Minister remind the Committee what the effect of Article 8(4) of the agreement is in practice? It looks to me like a case-by-case provision rather than a death penalty assurance. Are the Government reviewing this part of the agreement in light of recent Supreme Court cases?
I am reassured that the Investigatory Powers Commissioner has been involved in the drafting of this statutory instrument, but what additional resources are being given to the Investigatory Powers Commissioner to ensure proper compliance with the agreement and the periodic review of each party’s compliance with the terms of the agreement, as set out in Article 12(1)? I look forward to the Minister’s response.
Lord Rosser (Lab) [V]
We are not opposed to either of these two draft orders. The first of the two draft orders we are debating adds a further five additional public authorities to the list that are now deemed to have a “necessary and proportionate” requirement to obtain communications data, which is, of course, information about communications rather than what was said or written.
This power to obtain communications data is, according to an extra government factsheet memorandum explaining the purpose and effect of the draft instrument, on the basis that these five public authorities
“are increasingly unable to rely on local police forces to investigate crimes on their behalf”.
The five additional public authorities are the Civil Nuclear Constabulary, the Environment Agency, the Insolvency Service, the UK National Authority for Counter Eavesdropping and the Pensions Regulator. Can the Minister explain why it is that, in the light of cuts in police numbers since 2010, each of these five additional public authorities
“are increasingly unable to rely on local police forces to investigate crimes on their behalf”?
Could the Minister say whether this inability to investigate these crimes applies across all local police forces or only to some police forces, and if the latter, which ones?
We will support measures that cut crime and deal effectively and meaningfully with offenders. Can the Minister explain why the remedy is not to increase the capacity of local police forces so that they can investigate these crimes, rather than give powers to obtain communications data to civilians within these five public authorities? On the latter point about civilians, can the Government give a categorical assurance that this draft instrument does not lower the rank or seniority of designated officers and that there is no widening of the authority to exercise the powers here within the organisations covered by this or by previous orders?
The Explanatory Memorandum states that in deciding whether to grant these powers to the public authorities concerned, the Government consider the seriousness of the offences they investigate and the number of requests for data the public authorities each estimate they will make. Can these powers be used only in respect of serious offences or can they be used in respect of any offence? Can the Minister also say how many such requests for communications data each of the five additional authorities have estimated they will make and how that compares with the number being made currently by local police forces investigating crimes on their behalf? How do the estimates of the number of requests each of the five public authorities have said they will make compare with the number of requests being made by broadly comparable public authorities that already have these powers?
Currently, the public authorities that can obtain communications data under the provisions of the 2016 IP Act include, among others, intelligence agencies, law enforcement agencies, the Food Standards Agency, the Gambling Commission, the Prison and Probation Service, and the NHS Counter Fraud Authority. Can the Minister give details of which public authorities have already been given powers in relation to investigating crimes because increasingly they too cannot rely on local police forces being able to investigate crimes on their behalf? Can she also say if any public authorities for whom powers to obtain communications data have been sought have had that request declined by the Government? This point was raised by the noble Lord, Lord Paddick.
The IP Act sets out the circumstances in which various investigatory powers may be used and the safeguards that apply in relation to ensuring that any interference with privacy is strictly necessary, proportionate, authorised and accountable. Since the Government are not required to report on the operation of the Act until five and a half years from Royal Assent, what assurances can the Government provide now that the statutory safeguards in relation to interference with privacy are proving to be effective and are delivering in line with the intentions of Parliament? What views did the Investigatory Powers Commissioner express about the addition to the list of these five further public authorities, and did the commissioner have any reservations or other comments?
The second draft instrument provides the statutory basis for the Investigatory Powers Commissioner to have the required oversight of compliance by UK public authorities on access to electronic data in relation to serious crime, as provided for in the 2019 international agreement between the UK and USA and exercisable under the Crime (Overseas Production Orders) Act 2019 and the IP Act 2016. According to the Explanatory Memorandum, this arrangement, which presumably relates to the IPC providing independent oversight of UK activity under the agreement with the USA, has been agreed with the US Department of Justice. However, to avoid any misunderstanding, can the Minister place on record in her response exactly what it is that has been agreed with the US Department of Justice? Can she also place on record in her response what arrangements the US Department of Justice has agreed with the UK in relation to independent oversight of USA activity under the agreement, since presumably there is reciprocity when it comes to agreeing each other’s arrangements?
Can the Minister also say if any UK public authorities have yet sought to obtain data directly from US-based telecommunications operators under the terms of the 2019 COPOA Act using an overseas production order? If so, on how many occasions? Likewise, have any US public authorities sought to obtain data from UK-based service providers under the same, or similar, arrangements? If so, on how many occasions? Have assurances been given in relation to the non-use of the death penalty, and has protection been given to journalistic sources and material? Finally, is the Investigatory Powers Commissioner likely to be using statutory oversight and compliance powers in relation to agreements between the UK and any other countries apart from the US?
Baroness Williams of Trafford (Con)
I thank all noble Lords who have taken part in the debate and the noble Lord, Lord Morris of Aberavon, for his brief appearance. I could not keep up with the questions from the noble Lord, Lord Rosser, so I have missed some bits out. I hope to pick them up in the answers to other questions, but I will write to him if not.
I was very pleased to hear the opening remarks from the noble Lord, Lord Blunkett; I thought he would be supportive. He admitted to never having heard of the UK National Authority for Counter Eavesdropping. I join him in that: neither have I. It is the national authority for technical security and counter-eavesdropping. It helps the Government on technical espionage attacks by hostile state actors. Its capabilities and purpose are distinct and focus on countering close-access technical operations that could ultimately damage national security.
As he will know only too well, hostile state actors currently have the desire and the means to gain access to or otherwise compromise the integrity of highly classified communications systems and secure facilities. They are known to be able to carry out close-attack technical attacks, as demonstrated by the attack on the Organisation for the Prohibition of Chemical Weapons in The Hague by the Russian intelligence services in 2018. In that case, the Dutch authorities were able to detect and apprehend the agents involved, along with a car full of equipment.
We assessed that Russia and other hostile state actors, particularly China, will continue to attempt to disrupt, attack and commit espionage in the UK. I do not think any noble Lords in the Committee would disagree with that. The Intelligence and Security Committee’s recent report into the interference by Russia in UK democracy demonstrates intent, capability and, indeed, tenacity.
There is also the insider threat to consider, whereby an individual in an organisation may place a device for eavesdropping purposes. Insider threats can be from corrupt, compromised, disgruntled staff or from contractors. They can be among the hardest threats to identify. In order to fulfil its role, the UK National Authority for Counter Eavesdropping needs to be able to identify illicit and covert eavesdropping devices that may be present in sensitive and classified areas and then identify the user behind the device using communications data. We are now all experts in that particular agency.
There were a number of questions, particularly from the noble Lords, Lord Paddick and Lord Foulkes, about agencies being added and taken away, about why that happens and about the purposes of the various agencies that have been added. For clarity, the authorities we are talking about are the Pensions Regulator, the Civil Nuclear Constabulary, the Environment Agency and the Insolvency Service. It was right that those powers were removed in 2015, just as it is right for them to be reinstated now. We cannot foresee how operational requirements will evolve in response to the crimes that public authorities are investigating. We need to have the option to add and remove authorities depending on the necessity of the powers; the noble Lord, Lord Paddick, was right that it is nothing to do with the coalition. This is precisely why the IPA included the power to add and remove bodies from Schedule 4.
These authorities have all demonstrated a strong necessity and proportionality case against similar criteria that the Home Office applied when removing powers in 2015. Those criteria were: the statutory responsibilities of the authorities with access; the seriousness of the offences that they investigate; and the number of requests that they made. As is demonstrated by the case of the Civil Nuclear Constabulary in particular, which does not expect to use the powers often, assessing the volume of applications made is perhaps not the most effective of criteria for deciding which bodies should be listed in Schedule 4. The risk here is just too high to ignore. A public authority can make infrequent use of powers, yet still lead on investigations where communications data is critical.
I congratulate my noble friend Lord Naseby on celebrating his diamond wedding anniversary today.
Baroness Williams of Trafford (Con)
In fact, I think I ought to congratulate his wife more than him on enduring 60 years of marital bliss with my noble friend.
My noble friend talked about local fly-tipping. That is precisely the type of thing for which the Environment Agency might wish to use its communications data powers to protect the natural environment. Its statutory duties include the protection of the environment, natural resources and, of course, human health, which fly-tipping affects. It prosecutes offences that create serious risks of harm to people and the environment, such as illegal landfills and hazardous waste disposal—that might come under my noble friend’s question—and treatment and shipments. Its remit encompasses more than 400 different offences and it encounters some 40,000 suspected offences each year. Of course, we know that waste crime costs the economy in excess of £600 million a year.
Back in 2018, the Secretary of State for the Environment announced an independent review into waste crime, which published the report Independent Review into Serious and Organised Crime in the Waste Sector. That report recommended that the Home Office grant communications data powers under Part 3 of the Investigatory Powers Act. We have a duty to respond to that recommendation.
My noble friend asked about the DHSC. Its inclusion has nothing to do with financial matters; it is purely because its name has changed. He also talked about the Pensions Regulator. It is sad to say so, but criminality in pensions is not only a present threat but a growing one. It is recognised as a risk by the Pensions Regulator and its supporting regulatory partners, including the Serious Fraud Office, the National Crime Agency and HMRC. Having previously referred cases to law enforcement partners to prosecute, the Pensions Regulator now actively leads on these types of investigations and the prosecution of offenders. As my noble friend will appreciate, communications data will be a vital tool in assisting these investigations.
The Pensions Regulator took ownership of Project Bloom from the NCA in 2016. Bloom is a multiagency approach to pension scams and fraud. The Pensions Regulator can evidence £500 million-worth of scams in its regulatory remit, which is quite significant. It estimates that the ongoing threat runs into several billion pounds. Through Project Bloom, the Pensions Regulator has been running a communications campaign with the FCA featuring national television advertising campaigns, which noble Lords may well have seen.
The noble Lord also asked about states, such as Delaware, that do not co-operate. It is to companies rather than states that these requests will be made. That is an important point. Overseas territories do not use it.
The noble Baroness, Lady Jones of Moulsecoomb, asked about the review. It has not yet appeared because the agreement is not yet in force. I am sure that when it is the review will be forthcoming.
The noble Lord, Lord Foulkes of Cumnock, asked about temporary powers. Those statutory powers will last for one year. He asked about the IPCO’s role in all this. It will cover its role in the agreement and in the annual report, which is publicly available.
The noble Lord, Lord Paddick, rightly asked about the business cases, which I did not go into at great length because they are sensitive and extremely lengthy. Reflecting on that thought, I am very happy to organise a private session to go through the business cases for interested noble Lords. The noble Lord also asked about the consultation period under the Investigatory Powers Act. A 12-week period is required for consultation with relevant public authorities and the IPCO on Schedule 4 changes.
The noble Lords, Lord Paddick and Lord Rosser, asked how many organisations have applied and been turned down. I do not know the answer to that question, but I can find out. They also covered the death penalty assurances, which they know are being sought. It was interesting that we have received assurances from the US that should the UK accede to the 2015 MLA request by transferring evidence, the death penalty will not be sought or imposed in any prosecution in the recent case of Kotey and Elsheikh. I hope noble Lords will understand—I know they will—that it would not be appropriate to comment any further while legal challenges are ongoing in that case.
The noble Lords, Lord Rosser and Lord Paddick, talked about additional resources. They are well-versed in our ambitions for 20,000 police officers. The noble Lord, Lord Rosser, also asked about lowering the rank. Quite simply, no lowering of the rank is required. On the ISC, it is not a requirement in the legislation already using the enhanced procedure—laid for 40 days and debated in both Houses—but I fundamentally agree with the noble Lords that engagement with the ISC is an important factor.
The final question to which I have an answer is about safeguards, raised by the noble Lord, Lord Rosser. I am sure the IPCO will lay out any concerns the commissioner has in his annual report, particularly on any safeguarding issues around the whole regime.
I will leave it there for now. I will attempt to answer any questions I have not answered in writing.
Motion agreed.
Functions of the Investigatory Powers Commissioner (Oversight of the Data Access Agreement between the United Kingdom and the United States of America and of functions exercisable under the Crime (Overseas Production Orders) Act 2019) Regulations 2020
(4 years, 2 months ago)
Grand CommitteeRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Baroness Williams of Trafford
That the Grand Committee do consider the Functions of the Investigatory Powers Commissioner (Oversight of the Data Access Agreement between the United Kingdom and the United States of America and of functions exercisable under the Crime (Overseas Production Orders) Act 2019) Regulations 2020.
Relevant documents: 23rd Report from the Secondary Legislation Scrutiny Committee
The Deputy Chairman of Committees (Lord Lexden) (Con)
My Lords, that completes the business before the Grand Committee today. I remind Members to wipe their desks and chairs before leaving the room.