Grand Committee
Arrangement of Business
The Deputy Chairman of Committees (Lord Faulkner of Worcester) (Lab)
My Lords, Members are encouraged to leave some distance between themselves and others and to wear face coverings when not speaking. If there is a Division in the Chamber, which I am not expecting, the Committee will adjourn when the Division Bells are rung, and resume after 10 minutes.
Social Security Benefits Up-rating Order 2022
(2 years, 9 months ago)
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Baroness Stedman-Scott
That the Grand Committee do consider the Social Security Benefits Up-rating Order 2022.
The Parliamentary Under-Secretary of State, Foreign, Commonwealth and Development Office and Department for Work and Pensions (Baroness Stedman-Scott) (Con)
My Lords, I am required to confirm that the draft Social Security Benefits Up-rating Order 2022 and the draft Guaranteed Minimum Pensions Increase Order 2022 are compatible with the European Convention on Human Rights and I am happy so to do.
The Social Security Benefits Up-rating Order increases state pensions and benefits by 3.1% from April 2022, in line with the increase in the consumer prices index in the year to September 2021. This represents an additional £4 billion of expenditure on benefits for pensioners and £2.6 billion on benefits for people below state pension age in 2022-23. In November 2021, Parliament passed the Social Security (Up-rating of Benefits) Act, which made amendments to the Social Security Administration Act 1992, setting aside the earnings link in the state pension triple lock for the year 2022-23. This was in response to exceptional circumstances caused by the distorting effects of the pandemic on the earnings statistics used in the triple lock formula. Setting aside the earnings element is temporary, only for one year. We are committed to reapplying the triple lock in the usual way from next year and for the remainder of the Parliament.
From April 2022, the basic state pension will rise to £141.85 a week for a single person. This means that the basic state pension will be over £2,300 per year higher in cash terms than in April 2010. The full rate of the new state pension will increase to £185.15 a week and additional state pensions and protected payments in the new state pension will also increase by 3.1%. The pension credit standard minimum guarantee for a single pensioner will rise to £182.60 a week and the rate for a couple will rise to £278.70 a week. The personal and standard allowances in jobseeker’s allowance, employment and support allowance, income support and universal credit will increase by 3.1%. Certain elements linked to tax credits and child benefit will be increased in line with those payments. The monthly amounts of universal credit work allowances will also increase in April to £344 and £573.
Benefits for unpaid carers and those who have additional costs as a result of a disability or health condition will increase by 3.1%. These benefits include disability living allowance; attendance allowance; carer’s allowance; incapacity benefit; personal independence payment; the carer and disability-related amounts in pension credit and other means-tested benefits; the employment and support allowance support group component; and the limited capability for work and work-related activity element of universal credit.
I am aware that the noble Lord, Lord Davies of Brixton, has tabled a regret Motion against the uprating order and I respect his position on the matter. The regret Motion will be debated at a later date, but today we must agree the uprating order to ensure that my department can introduce the new rates of benefits and pensions from 11 April.
The Guaranteed Minimum Pensions Increase Order provides a degree of inflation protection for members of formerly contracted-out defined benefit occupational pension schemes. It requires schemes to increase guaranteed minimum pensions built up from April 1988 to April 1997. As set out in primary legislation, a guaranteed minimum pension in payment must be increased in line with the increase in the general level of prices as at September 2021, which was 3.1%, or 3%, whichever is less.
To conclude, with the Social Security Benefits Up-rating Order, the Government propose to spend an extra £6.6 million in 2022-23 on increasing benefit and pension rates. Furthermore, the Guaranteed Minimum Pensions Increase Order increases the guaranteed minimum pension by 3% in line with primary legislation. I beg to move.
Baroness Lister of Burtersett (Lab)
My Lords, it was tempting to do no more than recite the contributions from the Conservative MPs who spoke on the social security order in the Commons, as they said much of what needs saying about this shamefully low increase in social security benefits in the face of forecast inflation of 6% to 7.25% this April, which will go even higher later this year following the horrifying assault on Ukraine. It does not take a mathematician to work out how a 3.1% increase will mean a significant cut in benefits’ real value, without even taking account of the differential impact of inflation on people on low incomes, who spend a disproportionate amount of their income on the basics of fuel and food.
The Government’s answer to the cost-of-living crisis has been widely criticised as inadequate and poorly targeted towards those who will suffer most, including by the Conservative MP Peter Aldous in the Commons debate on the order. A huge increase in fuel poverty is now predicted, despite the measures taken. Why have the Government ignored the calls from a wide range of organisations, including the Institute for Fiscal Studies, the Resolution Foundation, Citizens Advice and the Joseph Rowntree Foundation, to raise benefits by 6%, 7% or even 8% in line with the anticipated inflation rate? At the relaunch of the book by the noble Lord, Lord Freud, Neil Couling of the DWP said that it would be technically feasible to do so for universal credit. Even if it is not possible to do this for other benefits immediately, recipients could presumably be given a delayed uprating or a lump sum grant in lieu.
Had the Government listened to us in the autumn when we debated the triple lock Bill, this would of course have been less of an issue, though at that point we had not anticipated inflation going quite so high. It is clear that the current uprating mechanism, based on inflation around half a year earlier, is not fit for purpose, as the Resolution Foundation, the IFS and Nigel Mills MP, in the Commons debate, have argued. Will the Minister undertake to take back the message that there needs to be a review of the uprating procedure?
To return to the immediate crisis, in order to understand just how damaging this uprating will be, we need to put it into context, as the noble Lord, Lord Freud, made clear in the debates on the triple lock Bill. It is a context in which benefits have been cut or frozen for much of the period since 2010. Families with children have been particularly badly hit, thanks to the two-child limit and benefit cap, described by the noble Lord as “excrescences” that should be got rid of. It is worth noting here that, according to the Child Poverty Action Group, of which I am honorary president, 180,000 families will see no benefit increase next month because of the cap, which has not been uprated at all since it was set in 2016.
Moreover, the withdrawal of the welcome £20 uplift means that the Government will have been responsible for two cuts in the real value of benefits in under six months, as pointed out by the JRF. It estimates that 400,000 people could be pulled into poverty by the April cut. However, the underlying issue is the inadequacy of benefits to meet people’s needs. I quote the Tory MP, Nigel Mills, who is a member of the Work and Pensions Committee:
“I genuinely fear that many of the benefits we have are now lower than people need, so a lower than inflation rise for benefits that are already too low leaves people in an impossible position … It should not be a big challenge or a contentious point of debate to want to ensure that the benefits we are giving the poorest in society are enough for them to live on”.—[Official Report, Commons, 7/2/22; cols. 723-24.]
There is plenty of research that shows that all too often they are not. It was a recurrent theme in the Covid Realities research, conducted by a number of universities in association with the CPAG. It underlined that inadequate benefits contribute to the insecurity that many people living on benefits feel. One participant, when asked how she felt about the withdrawal of the £20, answered that she was “terrified”. She explained:
“We only started to claim universal credit in the middle of the pandemic due to my husband being made redundant, so up until recently I had no idea we were in receipt of any ‘uplift’ … To be told that now all of a sudden £86 per month will be taken is horrifying.”
Another participant commented:
“I’d like people to think about why it was necessary to introduce a £20 uplift … Surely this is an acknowledgement in itself that the support given to low-income households just isn’t enough for them to live on.”
Evidence about the inadequacy of the benefits received by disabled people can be found in the NatCen report on the uses of health and disability benefits that the DWP tried to suppress but which was eventually published in an unprecedented move by an exasperated Work and Pensions Committee, although a whistleblower revealed that some references to “unmet need” had already been excised following pressure from the department. While overall the ability to meet needs depended on the extent to which recipients had other sources of income, those of limited financial resources reported often not being able to meet not only health-related needs but also essential day-to-day living needs such as heating their house or buying food.
The Minister in the Commons, Chloe Smith, disputed such a reading of the research, arguing that it showed that
“health and disability benefits … help to meet almost all identified areas of additional need.”—[Official Report, Commons, 7/2/22; col. 666.]
But helping to meet needs is not the same as being sufficient to meet them. The health and disability Green Paper made no mention of the question of benefits adequacy. As Minister with responsibility for research in the DWP, will the noble Baroness give us an assurance that the White Paper will do so, taking account of this research which was commissioned by the DWP? Will she take back the message that we need a proper review of the adequacy of social security benefits more generally?
In conclusion, the Minister in the Commons tried to reassure MPs that there was nothing to worry about because of the smoothing effect, which meant that this April’s inflation rate would be reflected in next year’s uprating. However, Torsten Bell of the Resolution Foundation dubbed it more of a “rollercoaster” on yesterday’s “Today” programme—anything but smooth. The Minister demonstrated his complete lack of understanding of what it is like to struggle on a low income. If you are already facing difficulties feeding your children adequately and keeping your home warm, it is no help or comfort to know that today’s rocketing inflation rate will be smoothed out in benefit rates in a year’s time. Indeed, some of those affected might not even be claiming some of those benefits in a year’s time, so they will, in effect, have been cheated of what is arguably rightfully theirs. I urge the Minister not to use the smoothing argument in her response because, frankly, it is cruel when parents and others on benefits are worried sick about how they are going to manage and she is not a cruel woman.
Lord Jones (Lab)
My Lords, it is good to follow an informed speech. The uninitiated may find, as I do, these many details in so many pages difficult to follow. One finds on page 34 of the order, in Schedule 5, that Regulation 20(9)(c) refers to an enhanced disability premium of £25.35 concerning polygamous marriage. My reference is not an objection but an instance of facts buried in the necessary but challenging minutiae. But it is heartening to read of increases, for example, in adoption, maternity, bereavement and disability benefits. The late Lord McKenzie—Bill—is surely watching over this Committee. All this was made for the late, lamented Bill. He always mastered regulatory detail.
Lord Shipley (LD)
My Lords, I thank the Minister for introducing this uprating order. The problem is that the combination of rising inflation and tax rises is creating a cost-of-living crisis that will affect practically every household in the UK but will be especially difficult for those on low incomes who make use of welfare payments.
Before the crisis in Ukraine, the Resolution Foundation reported that an average family will see household budgets reduced by £1,200 a year through a combination of soaring energy prices, the freezing of the income tax personal allowance and the rises in national insurance and council tax. Those on low incomes will find it hardest to make ends meet, because the major benefits are due to go up in line with a lagged measure of inflation. The September CPI rate had it at 3.1%, whereas the Bank of England expects inflation to peak at 7.25% in April and to average around 6.2% in the course of 2022—and all that is before the impact of the crisis in Ukraine is taken into account. Many commentators are forecasting an inflation rate for the UK of more than 10% later this year.
The Government really must not allow a situation to develop that means a deep cut in benefits year on year for people less able to withstand the impact of the rising cost of living. For example, those who must use meters to pay for their gas and electricity will be put under even greater financial strain because of their high cost compared with other methods of payment.
Even before the impact of the Ukraine crisis on the cost of living, this policy would have led to a £290 real fall in benefit income year on year for the 10 million households in receipt of these benefits. That would be an unacceptable cut in the incomes of millions of people who are already among the most vulnerable. The Spring Statement later this month provides an opportunity for the Chancellor to do something about this crisis, which was unnecessarily deepened by the removal of the £20 per week boost to universal credit.
Paragraph 12.1 of the Explanatory Memorandum on impact is hopelessly out of date. The assertion that the
“impact on business, charities or voluntary bodies is negligible”
is flawed. The impact will be very great, particularly on charities and voluntary bodies, which will see a huge increase in demand for their help as prices rise steeply and real incomes decline for millions of households.
I hope that the Minister will agree that this uprating order is out of date and that the Spring Statement needs to bring proper solutions to the deepening crisis in our cost of living and its impact on those with low incomes.
Baroness Sherlock (Lab)
My Lords, I thank the Minister for introducing these orders and all noble Lords who have spoken. I agree with my noble friend Lord Jones that it would have been preferable had the uprating order been taken in the Chamber. Many of the orders that we deal with are technical; this one affects the incomes of some 20 million people at a time when we have never seen a cost-of-living crisis like this. Had it been taken in the Chamber, we perhaps would not have had a regret Motion, but here we are.
I thank my noble friend for mentioning my late and much-lamented noble friend Lord McKenzie. Every time we gather here, we miss him very much. I just wanted to read his name into the record.
First, a word on the guaranteed minimum pensions order, which is rather more technical. I have raised the question of equalisation in most previous years, but we have had a new development. A new Private Member’s Bill has just arrived in the Lords from the other place that aims to address the legal uncertainty that the current legislative situation can pose when a pension scheme tries to adopt a process for addressing GMP equalisation. The Government smiled on it at the other end. At Second Reading in the Commons, the Pensions Minister, Guy Opperman, accepted that what the Bill does is key because it
“gives the Government the ability to set out in regulations the details of how survivor benefits will work for surviving spouses or civil partners of people with guaranteed minimum pensions.”
He also made the point that the Bill
“gives the Government the ability to set out in regulations details about who must consent to the conversion of guaranteed minimum benefits.”—[Official Report, Commons, 26/11/21; col. 627.]
The Minister confirmed, at col. 628, that the Government backed the Bill. However, when the Commons got to Third Reading on 25 February—a long gap—he said:
“The reality is that there is no real way for my hon. Friend’s Bill to get through this House and the House of Lords in the time allowed”.—[Official Report, Commons, 25/2/22; col. 659.]
The Government have accepted that there are problems to be addressed on the matter of GMP equalisation, so can the Minister assure the Committee that if that Private Member’s Bill fails to get through, the Government will none the less speedily moved to address the outstanding issues?
I turn to the Social Security Benefits Up-rating Order, which we gather to debate every year, except of course during the years of shame, when the Government refused to update social security benefits as they should have done. I cannot remember a year when the context was so worrying for so many people. The cost of living is rising so fast that even those on middle incomes are struggling and it is a catastrophe for those on lower incomes. People are genuinely frightened about how they are going to manage. Demand for help from food banks is already skyrocketing, as it is for financial advice and debt support. The noble Lord, Lord Shipley, made a good point that the Explanatory Memorandum had not taken account of the impact on those organisations.
Baroness Stedman-Scott (Con)
My Lords, I start with an apology. In my opening comments, I said the Government propose to spend an extra £6.6 million in the uprating order; it is actually £6.6 billion. Forgive me.
I thank all noble Lords who took part in today’s debate. I am not a bit surprised by the points that have been raised and completely agree with all noble Lords that we are in a difficult position. People are struggling and it is not nice to see.
The noble Baroness, Lady Lister, gave me my homework to take back to the department. I give her my word that I will take back every issue and make sure that people understand the sense of injustice that the noble Baroness and others feel. She and other noble Lords mentioned the cost of living. We have begun our recovery from the pandemic, but things have been exacerbated by the ongoing conflict in Ukraine, which is putting an additional strain on households. We are coming out of the pandemic and trying to work on that but have been further hammered by that position.
We have taken steps to ease financial pressures. The noble Baronesses, and the noble Lords, Lord Jones and Lord Shipley, will tell me that we have not done enough, but we have not done nothing. We have raised the national living wage, reduced the universal credit taper rate, increased work allowances and provided £140 million a year in discretionary housing payments and cold weather payments of £25 a week to up to 4 million people. These will have made a difference, but there is clearly more to do in the current situation.
The noble Baroness, Lady Lister, raised the point about the justification for using the September CPI figure. The Secretary of State undertakes an annual review of benefits and pensions, and the consumer prices index for the year to September is the latest figure the Secretary of State can use to allow sufficient time for the required legislative and operational changes before new rates can be introduced at the start of the next financial year. All benefit uprating since April 1987 has been based on the increase in the relevant price inflation index in the 12 months to the previous September.
As noble Lords have already said, uprating affects over 20 million customers and there are interdependencies across government. The DWP needs all benefit rates to be confirmed by the end of November, plus all the subcomponents of those benefits, so that the first IT system can be uprated in December. Any deviation will have significant implications for citizens, potentially resulting in underpayments or no payments being made. Given the volumes involved, the technical and legislative requirements and the interdependencies across government, it is not possible to undertake the uprating exercise any later than currently timetabled.
Baroness Lister of Burtersett (Lab)
If that is the case, how come it was possible to add £20 to universal credit at such short notice? If such a long lead-in time is needed, and I recognise that a longer time is needed for legacy benefits—but not necessarily that long—how come it was possible to uprate universal credit by £20 in a matter of weeks during the pandemic? As I said, according to Mr Couling of the DWP, universal credit can be uprated at very short notice. As my noble friend said, that is supposed to be part of its agility. There is growing pressure on the department to look again. I quite understand that it has been like this for X number of years, but we now have more powerful computers and so forth. I really think that the DWP should look at it and see what might be possible, because we may well be going into a longer period of volatile inflation.
Baroness Stedman-Scott (Con)
I think that the noble Baroness appreciates that the UC system is more modern and able to do things, but her point about the £20 uplift is already on my list to take back to the department. I will write to the noble Baroness and place a copy of the response in the Library.
The noble Baroness, Lady Lister, the noble Lord, Lord Shipley, and others raised the issue of inflation and anticipating peaks. Benefits are paid over the course of the year and looking at the peak alone is a little misleading. Any move to implement a mechanism to anticipate peaks would require a mechanism to do the same to account for troughs. DWP believes that this kind of complex adjustment mechanism is not appropriate. For shorter-term shocks such as the current energy price increases, the Government have other responses which do not permanently commit the taxpayer to fund higher benefits.
The noble Baroness, Lady Lister, mentioned disability benefits. The department is considering contributions to the Green Paper and it would not be right for me to prejudge now what might be in the White Paper later this year. I shall talk to the Minister for Disabled People, Chloe Smith, and pass on the points.
The noble Lord, Lord Jones, as ever, took us on focused journey to Wales. It is a wonderful country—I am sure that my noble friend Lady Bloomfield, who is no longer in her place, would agree. I would get myself into a lot of trouble, which I know the noble Lord would not want, if I started talking about devolution and what might happen.
Lord Jones (Lab)
So as to avoid trouble, would the Minister undertake to write as best she might on the points that I have raised, having put on the record not only points about devolution?
Baroness Stedman-Scott (Con)
I shall certainly write about the points raised by the noble Lord in relation to the uprating order, but I shall also try to do a little better and write to DLUHC and ask it to answer those points, if that is all right with him.
The noble Lord, Lord Jones, made a valid point about people not getting by. While I cannot promise anything—I can promise only to talk to colleagues—I am absolutely confident that the Secretary of State and others realise the difficulties that people are in. More than that I cannot say because I do not know, but the point will be made.
I say to the noble Lord, Lord Shipley, that the impact assessment refers to direct costs to charities and private sector organisations as employers. The order brings direct costs to the Exchequer but not to employers. The noble Lord spoke about people who use meters, the keys and how much more expensive that system is. I know that people are fully aware of that. It is not ideal.
Baroness Sherlock (Lab)
I thank the Minister; I definitely have not had that answer before. In her mind, then, what is the point of this debate?
Baroness Stedman-Scott (Con)
The point of the debate is to approve the order. Here we go.
Baroness Sherlock (Lab)
Perhaps the Lord Chairman will allow me a little licence. I understand why the Minister said that, but I want to get to the bottom of what it is we think we are doing here. So the computers are changed in December and, if either House rejects this order, the increase goes ahead anyway; it just does not have any legal underpinning. Perhaps I have been spoiled, but I am accustomed to thinking that, when the House is asked to take a decision, that has a consequence: if we say yes, something happens; if we say no, something does not happen. This is the first time that I have been aware of being asked to take a decision and being told that, if we said no, it would not make any difference. Does the Minister not think that that is a little unusual?
Baroness Stedman-Scott (Con)
Further information: if the House votes the order down, that is a sign that the Government must change the process.
Baroness Sherlock (Lab)
May I suggest a pay rise for whichever member of the cavalry sent a note in her direction? To be clear, we will not oppose the order. I just wanted that point to be clear and I thank her very much.
Baroness Stedman-Scott (Con)
I am not giving pay rises, I can assure the noble Baroness.
Lord Shipley (LD)
Before the Minister sits down, she raised two matters in response to what I said. Perhaps she would arrange to write about the high cost of meters. That might be able to be adjusted in the interests of those who are paying higher costs. It is the kind of thing that would sit very nicely in the Spring Statement. Secondly, I take up the issue of the impact on businesses, charities and voluntary bodies. Paragraph 12.1 of the Explanatory Memorandum states that it is negligible, but of course all those organisations will have to employ more staff to deal with the huge rise in queries that they will get.
Baroness Stedman-Scott (Con)
As I said, I fully appreciate the issue of people who use keys to pay their energy costs, which are higher. Let me take that back as a special project. I will speak to the Secretary of State, who I will see tomorrow, and she may well have a thought on that. When it comes to the Spring Statement, all noble Lords tell me to speak to the Treasury. I have nothing to tell your Lordships about the Spring Statement; we will have to wait to see what, if anything, comes out in relation to this. I take the point of the noble Lord, Lord Shipley, about charities, but that is an indirect effect, if it happens. I cannot add more than that at this stage.
The noble Baroness, Lady Sherlock, talked about poverty, a subject that we have discussed many times. The Government are committed to a sustainable long-term approach to tackling poverty, and to supporting people on lower incomes. We will spend £110 billion on welfare support for people of working age in 2021-22. With around 1.29 million vacancies across the UK, our focus is firmly to support people to progress into work as the best way to substantially reduce the risks of poverty.
I know that there are people who cannot work, and I know the passion with which the noble Baronesses, Lady Lister and Lady Sherlock, and others talk about us wanting to help that group. Our multi-billion-pound plan for jobs, which has been expanded by £500 million, is helping people across the country into work. I know that our new Way to Work programme has raised some issues. As I have said before, when I opened the jobcentre in Hastings, the staff were alive with the freedom that it would give them to do more, and in more detail, to help people at the lowest point of their lives. I trust those work coaches implicitly to do what they can and, more importantly, to feed back if something is not working so that we can fix it.
The noble Baroness, Lady Sherlock, asked whether I still believed a Statement that I made. Perhaps she can write to me, as I did not quite catch the context. I will be very happy to write back.
Baroness Sherlock (Lab)
If the Minister reads Hansard, that might cut out a stage.
Baroness Stedman-Scott (Con)
I shall do so. The noble Baroness also raised the benefit cap not being increased. Again, there is a statutory duty to review the levels of the cap at least once in each Parliament. I am advised that this will happen at the appropriate time.
Baroness Lister of Burtersett (Lab)
Given that we have asked about the benefit cap a few times during this Parliament, can the Minister tell us what the “appropriate time” will be?
Baroness Stedman-Scott (Con)
I am afraid that I cannot. I am sorry.
On support for people affected by the benefit cap, as I have said, our work coaches are cognisant of all these things, and I am sure they will try to find people work that helps them and alleviates some of the impact of the cap. Claimants can also apply to their local authority for a discretionary housing payment if they need help to meet rental costs.
The noble Baroness, Lady Sherlock, talked about the Private Member’s Bill. The Government continue to support this Bill and hope that it achieves Royal Assent in due course. I thank all noble Lords for their contributions.
Guaranteed Minimum Pensions Increase Order 2022
(2 years, 9 months ago)
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Baroness Stedman-Scott
That the Grand Committee do consider the Guaranteed Minimum Pensions Increase Order 2022.
Goods Vehicles (Licensing of Operators) (Amendment) Regulations 2022
(2 years, 9 months ago)
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Baroness Vere of Norbiton
That the Grand Committee do consider the Goods Vehicles (Licensing of Operators) (Amendment) Regulations 2022.
Relevant document: 29th Report from the Secondary Legislation Scrutiny Committee
The Parliamentary Under-Secretary of State, Department for Transport (Baroness Vere of Norbiton) (Con)
My Lords, I beg to move that these regulations be considered. This instrument amends legislation governing the goods vehicle operator licensing regimes in Great Britain and Northern Ireland. The changes must be implemented, as they are commitments included in the EU-UK Trade and Cooperation Agreement, or TCA, which come into effect during 2022. The changes contained in this SI reflect new requirements for transporting goods to, through or within Europe. These changes will also come into force for EU member states by May 2022. They ensure continued and reciprocal access for goods transport between the UK and the EU.
The primary objective of this instrument is the extension of the goods vehicle operator licensing regime to include some light goods vehicles, or LGVs, such as vans or pickup trucks. The vehicles involved weigh between 2.5 and 3.5 tonnes in maximum laden weight, either alone or as combined weight when used with a trailer, and operate internationally for hire or reward. These regulations also introduce minor changes to the wider goods vehicle operator licensing regime, affecting operators of heavy goods vehicles, or HGVs.
There are three principal areas of change within the instrument. First, these regulations will potentially bring an estimated 21,000 LGVs, spread across 4,200 operators, into the scope of the operator licensing regime. From 21 May 2022, if these vehicles are used to transport goods to, through or within the EU, including Ireland, they will need to be listed on an operator licence. However, to be clear, these changes do not affect vehicles used domestically. Furthermore, they will affect only commercial hire or reward goods transport and not, for example, moving equipment or materials used by an individual or organisation in the ordinary course of business internationally using a van.
Secondly, these regulations will create a distinction in the existing operator licensing regime between a heavy goods vehicle operator licence and a light goods vehicle operator licence. To avoid imposing a disproportionate burden, we have chosen to extend to LGVs only those aspects of the HGV regime required by the TCA. However, taking this approach has meant that the instrument is long—perhaps longer than might be expected
Thirdly, the regulations will introduce changes relating to the role of a transport manager, which is a requirement of operator licensing. This will be required for the new LGV operator licences. To reduce this immediate burden, we are allowing a temporary exemption from the requirement to hold a transport manager certificate of professional competence for those who can show that they had been managing light goods vehicle fleets continuously for 10 years in the period up to 20 August 2020, as specified in the TCA. For those who qualify, the application service is already open and is intended to close in May 2024.
Once granted, these “acquired rights” will be valid for up to three years, expiring on 20 May 2025. The exemption is time-limited to ensure that standards of professionalism within the industry are maintained, while also allowing a transition period to enable qualifications to be undertaken. The limits applicable to external transport managers for HGVs, namely a maximum of 50 vehicles between up to four operators, will also apply to LGVs. Transport managers must also reside in the jurisdiction, UK or EU, where the fleet they are managing is based, as per the TCA. There is a transitionary provision ensuring that those who live and work in different jurisdictions can continue in their current jobs.
At this point, I draw the Committee’s attention to an error in these regulations, leading to a disconnection between the policy intention and the legislation as laid. While the instrument is correct in so far as it is legally effective, it goes beyond the policy intentions. The SI was intended to apply only to the operation of goods vehicles, but one provision inadvertently also applies to the operation of passenger vehicles. In doing so, it disrupts the Public Passenger Vehicles Act 1981, making the regulation of the industry more complex. As a result, we laid a second, correcting instrument using the draft negative procedure on 25 February. This is of course subject to the views of the sifting committees and, while I hope it will not be necessary, the correcting instrument may need to be debated if it is decided that the affirmative procedure should be followed.
Baroness McIntosh of Pickering (Con)
My Lords, perhaps I could ask for a point of clarification. I am here for the next business; I was not intending to speak. My noble friend the Minister eloquently moved the regulations, for which I am grateful. If we are going further than was originally intended, does this put us out of kilter with the flow of traffic across to the EU or is it neutral in that regard? That is my only question.
Baroness Randerson (LD)
My Lords, I start by thanking the Minister for her explanation, including of the error. I am happy to accept that it will be corrected in due course.
The Government are going to some lengths here to comply with the terms of the TCA—but only just. This SI certainly follows the letter of our obligations under the TCA but does the absolute minimum required to do so, and in doing that, actually creates a more complex situation. As with so much associated with the post-Brexit legislation, it makes life more difficult and complex for small businesses.
The new EU regulations are tightening road safety requirements—that is obviously the intention of all this—by applying licensing to heavy goods vehicles that are less heavy than was previously the case. The Secondary Legislation Scrutiny Committee notes that this will apply to around 4,200 goods vehicle operators. It also notes that the legislation applies to Northern Ireland, too. In the case of Northern Ireland, the realities of the situation include, of course, not just the protocol but the fact that, in practice, goods vehicles cross and re-cross the border all the time, and can do so even if, for example, they start out in Northern Ireland to deliver goods to Northern Ireland, going east to west and west to east; the route can take them across the border several times. That is the way the road runs. So this could be a requirement for Northern Ireland operators a great deal more often than it will be in GB as a whole. So my question to the Minister is: am I right to assume that the vast majority of operators in Northern Ireland will have to adopt these new licences, at least as a precautionary principle?
In Britain as a whole, people will not need the licence for passenger vehicles—or they will not once the Minister has corrected the legislation. That seems simple enough, but it will also not be needed if the vehicle is not to be used internationally for hire or reward. That is a more complex issue. It is quite obvious if the vehicle you are running is a passenger vehicle, but it is less obvious if it is going to travel abroad. If you are running a Tesco delivery vehicle, you will know that it is not going abroad. But suppose you do small-scale removal of domestic equipment; you might operate for months or years without ever going abroad, then suddenly get a job that involves doing so. For a long time, you would have assumed that you do not need this licence, but that might prove a mistake and you might need to get it. That is why transport managers are so important. As the people responsible for licensing and insurance, it is their job to make sure that that sort of error does not happen, but there are some very small companies in which this kind of role might be overlooked.
The SI allows for a period of exemption so that companies and their managers can gain the required certificates. The Explanatory Memorandum says that efforts have been made to do this in time to allow companies to prepare, but in fact it comes into force on 21 May, which is a very short time span. I accept that the Government will do their best on this from this day onwards, because it comes into force tomorrow, but it is not long for people to prepare.
I welcome the limitation on who can take up acquired rights based on their previous experience. From paragraph 7.18 of the Explanatory Memorandum, it is obvious that training for transport managers increases safe working practices. I welcome the much more stringent requirement for transport managers generally, such as the limitation on the number of vehicles they can supervise, but it is illogical that they can operate an unlimited number of domestic vehicles. If you run a company with hundreds of vehicles, you will have little time to deal with the relatively small number of vehicles that are used internationally. My question to the Minister is: does the nation have a ready supply of properly qualified and experienced people for the role of transport manager, as it will obviously become more complex? Will the lack of transport managers be yet another hurdle for the freight industry to face this year?
I have a question to the Minister about paragraph 7.30 of the Explanatory Memorandum, which says that there will not be local advertising of the need for the new licences. So how will the industry know about them? What are the Government doing to inform freight operators in general, especially small companies? The big companies will know, but the small companies will need help.
I have another question for the Minister, about the enhanced role for traffic commissioners that comes from this legislation. They clearly have an important regulatory role, but what additional resources are they being allocated for this important additional work?
Finally, paragraph 7.35 sets out a new requirement for operators to try to prevent “bogus operations”. This is clearly informed by bitter experience of the past. I do not think it is necessary for the Minister to explain it to us here, but there is clearly a problem. As this is obviously a significant and specific problem that is being dealt with in this legislation, can the Minister tell us how such activities will be inspected to ensure that the requirement in paragraph 7.35 is as effective as the Government clearly hope it will be?
Lord Rosser (Lab)
I too thank the Minister for her explanation of the content and purpose of these regulations. I take the same view as the noble Baroness, Lady Randerson, does about the error. I thought I heard the Minister say that a wider review of the SI process is taking place. The only comment I would make is that this is not the first time we have had an error in a Department for Transport SI. I am sure that is much to the Minister’s frustration. Perhaps it is understandable that a wider review of the process is going on. I do not wish to say any more about that subject than that.
I noticed that the Explanatory Memorandum says, under the heading “Purpose of the instrument”:
“The UK is obliged to implement these changes following commitments included in the … Trade and Cooperation Agreement”.
I suppose that is an effort by the Government to make it clear that they are not really doing it willingly; it is because they have to. But some of us thought, perhaps incorrectly, that the trade and co-operation agreement had been freely entered into—in the way that the Northern Ireland protocol was freely entered into—and that the Government thought it was a good agreement. Judging by the Prime Minister’s comments at the time, he thought that was a pretty good deal. I only make the comment—I think this is something the noble Baroness, Lady Randerson, alluded to—that whenever we come across anything to do with the EU there is always wording that makes it fairly clear that if the Government had their way they would not be doing anything along the lines of that particular instrument, which is perhaps unfortunate.
As I understand it, the Government are not introducing environmental requirements for HGV operators that stem from UK law. In the Commons, the Minister said that these
“are not required by the TCA.”
Is that now the test when it comes to environmental requirements: it is not whether they are desirable or needed, but simply whether they are “required”? Should environmental issues not be looked at on the basis of whether they are desirable or needed, rather than whether you are required to do it in some agreement or another? Perhaps I misunderstood the point that appears to have been made.
As has been said, these requirements apply only to LGVs on international trips, primarily to the EU. They do not apply domestically in the UK market. It is clear that the UK Government have no plans to regulate further, yet I think I am right in saying that the Minister in the Commons said that the operator licensing system
“continues to be vital to properly manage the use of large vehicles within the UK market.”—[Official Report, Commons, Second Delegated Legislation Committee, 28/2/22; col. 4.]
I am just interested to hear the response. Why do the Government think that the licensing system would not be needed for LGVs in the UK market? Which parts that are needed for LGVs for international trips are deemed unnecessary and bureaucratic to apply within the UK markets? I presume that that is the Government’s argument for them not wanting to apply in the UK markets, because the Government consider them bureaucratic but are obliged to apply them because of the trade and co-operation agreement, which the Government freely entered into.
Baroness Vere of Norbiton (Con)
My Lords, as ever, I thank the noble Lord, Lord Rosser, and the noble Baroness, Lady Randerson, for their contributions to this DfT SI. Once again, I express my regret that an error has occurred; as the noble Lord, Lord Rosser, pointed out, the department is very aware of recent errors. This SI was drafted long before the reform programme within the department was under way, and I shall do my absolute best to ensure that errors do not happen again in future.
I shall briefly cover some of the questions raised. My noble friend Lady McIntosh wanted reassurance that the flows of traffic would be maintained. Indeed, this is precisely what we are doing here—making sure that measures in the EU are reciprocated in the UK, so that there is a level playing field and international traffic can continue as we would expect.
The noble Lord, Lord Rosser, made quite a significant point about this being linked to the TCA, and the noble Baroness, Lady Randerson, said that it was the minimum required—doing what was set out in the TCA. The noble Lord asked whether we felt obliged to do only what is in the TCA. At this moment in time, to be honest, that is absolutely right. Standing here as a Transport Minister, I would not want to put this additional burden on the domestic industry knowing what is going on in the logistics sector, so we are in a situation whereby we are doing what we are required to do in the TCA to maintain the flow of international traffic. I am not considering extending this domestically; I do not think that the logistics sector needs it right now.
The noble Lord, Lord Rosser, said that some of the organisations which responded to the consultation wanted it. Some of them did indeed: a handful. I also note that there are 4,200 operators which operate internationally and of course many tens of thousands more which operate just domestically. I am not entirely sure that that is a representative sample of people who would want this sort of regulation extended domestically at what is a challenging time for our nation.
The noble Baroness, Lady Randerson, mentioned Northern Ireland. She is right that operators in Northern Ireland will need to be licensed. We have had many conversations with Ministers and their officials in the Department for Infrastructure in Northern Ireland and they have an entire communications strategy setting out how to make sure that their operators are fully aware of the requirement. However, the major courier companies in Northern Ireland and the Republic of Ireland tend to have separate distribution networks within each particular area. Therefore, parcels tend to be moved in bulk through the land border and then more localised distribution networks are used. But it is the case that anybody going across the border in Northern Ireland would need to have one of these new licences.
The noble Baroness, Lady Randerson, then talked about it being a much more complex situation and could people cope, et cetera. I do not see that as an issue because these international journeys are happening already and transport managers already exist. What we are doing is potentially formalising the role of those transport managers that already exist in the system. What is our alternative here? We could have done nothing and that would have stopped all the international journeys, which I am fairly sure no noble Lord would want to see happening.
I think we have reached the right balance here. I accept that transport managers who have many years of experience will now need to take their certificate of professional competence. That will be a cost, probably, to their business. The noble Lord, Lord Rosser, asked how much it costs. It depends on the sort of training one does: it can be online, materials or face to face. For an HGV transport manager, it goes up to about £1,300. We would have thought for LGVs it would be lower than that but, of course, this is an industry that will grow and develop as these transport manager qualifications come on stream. It is something that we will keep an eye on, but it is a one-off cost to train somebody in some skills to get a licence. It will be a burden on business, but not an insurmountable one, I think. The lack of qualified or potentially qualified people is not something that has been particularly raised by industry. I think the cost is a greater concern because people see that there is a cost of having the licences.
The noble Baroness asked how we are going to communicate with the industry. I have quite a lot of information about that because we have done a lot. We started communicating about this to make sure that we hit both the large and the smaller operators back in August last year. We have had advertising campaigns on Facebook, Instagram, Twitter and government channels—DVSA Direct has been doing industry updates—and obviously GOV.UK has set out exactly what is required. We employed a commercial agency and worked with partners such as Biffa, John Hudson Trailers and DAF Trucks and Moto, Roadchef and Welcome Break motorway services. I think they know. We have done everything we possibly can to make sure that people who operate LGVs internationally know that they will need a transport manager if they have a single journey or more.
Traffic commissioners are already well versed in the provision of licences, the maintenance of the fit and proper test, and taking to tribunal or equivalent those people who do not meet the fit and proper test. I am content that they are appropriately resourced to ensure not only that the licences can be issued in a timely fashion but that the licensees are fit and proper and are held to account if they are not. However, should it not be the case that licences are issued in time, we are looking at providing interim licences at a cost of £68, which will tide over whatever bow wave of applications comes through. I believe we have the right arrangements in place, but I would not want any operator to be held up because it does not have a licence, whether an interim licence or a full licence.
The noble Lord, Lord Rosser, mentioned environmental issues and of course we take them seriously, but we will look at them on their merits and at the right time. As I said, they will probably not be at the top of my inbox right now, but we are considering all manner of environmental interventions on vehicle standards. There will be more on that in due course.
One reason why there is no urgency to extend these regulations to LGVs domestically is that from an economic perspective it would not be brilliant, but another is because HGVs need a firm operating licensing system because the vehicles are far more dangerous. They have strict maintenance regimes. It is essential that those vehicles are in tip-top condition and are kept by fit and proper people. The LGV system is slightly lighter-touch in that, for example, the level of financial standing an operator must have is less than for HGVs. The system is slightly different from that for HGVs.
This is my last point, I promise. The noble Lord, Lord Rosser, said something about the SI not being in force and asked how many applications we have had so far. If he does not mind, I shall go back to Hansard to try to understand the point a bit better and will write. In the meantime, I commend these regulations to the Committee.
Baroness Randerson (LD)
One of the environmental aspects that are being disapplied by these regulations is the requirement to have an appropriate place to park vehicles. The Government have made great play in recent months of the importance of having good facilities for lorry drivers. Does the same argument not apply to the drivers of these vehicles, who might be part of the same workforce? Is this not cutting across the Government’s declared policy on improving conditions for drivers?
Baroness Vere of Norbiton (Con)
The noble Baroness is covering a point that I deleted from my briefing, sadly, because I did not think it would come up, and therefore it is not at the top of my mind. There are two issues here. One is where the vehicles are parked overnight in storage by the operator and the other is where they are parked when they are on the road and making journeys. I will write to the noble Baroness with more details on that because unfortunately I do not have them to hand.
Motion agreed.
Cumbria (Structural Changes) Order 2022
(2 years, 9 months ago)
Grand CommitteeRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Lord Greenhalgh
That the Grand Committee do consider the Cumbria (Structural Changes) Order 2022.
Relevant document: 29th Report from the Secondary Legislation Scrutiny Committee
The Minister of State, Home Office and Department for Levelling Up, Housing & Communities (Lord Greenhalgh) (Con)
My Lords, this order was laid before this House on 24 January 2022. The other place approved it on 1 March. If approved by this House and made it will implement a proposal submitted by Allerdale and Copeland councils for two new unitary councils on an east/west geography, covering the entirety of Cumbria, to be known as Cumberland council, and Westmorland and Furness council, respectively.
This order will establish for the people of Cumbria two new unitary councils. Implementing this proposal and establishing these unitary authorities will enable stronger leadership and engagement, at the strategic level and with communities at the most local level. It will pave the way, as envisaged in the levelling-up White Paper, for a significant devolution deal, involving a directly elected mayor for Cumbria, if that is an option which local leaders wish to pursue.
This locally led process for reform began on 9 October 2020, when the then Secretary of State, my right honourable friend the Member for Newark, Robert Jenrick, invited the principal councils in Cumbria to put forward, if they wished, proposals for replacing the current two-tier system of local government with single-tier local government. That invitation set out the criteria for unitarisation.
Unitary authorities will be established that are likely to improve local government and service delivery across the area of the proposal, giving greater value for money, generating savings, and providing stronger strategic and local leadership, and which will be more sustainable structures. They will command a good deal of local support as assessed in the round, and where the area of each unitary authority is a credible geography consisting of one or more existing local government areas with an aggregate population which is either within the range 300,000 to 600,000, or such other figure that, having regard to the circumstances of the authority, including local identity and geography, could be considered substantial.
Four locally led proposals for local government reorganisation in Cumbria were received in December 2020—one for a single unitary and three for two unitary councils. Before deciding how to proceed, the Government consulted widely. Around 3,200 responses were received by the Government in response to their statutory consultation on the Cumbria proposals. This consultation was launched on 22 February 2021 and ended on 19 April 2021. Of these responses, some 2,400—73% of the total responses—were from residents living in the area affected.
There was a very good deal of local support for local government reorganisation across the categories of respondents, from residents, local authorities, public sector providers, parish councils and the business sector. However, across these categories, there was a spread of responses in favour of each proposal. This meant that each proposal had some support. The east/west proposal had the support of local businesses, especially in relation to supporting the diverse nature of local economies better, particularly the advanced manufacturing base and supply chain around Sellafield. There was some resident support for the east/west proposal, with those in favour considering that the new authorities would be more accessible local organisations, better able to respond to local needs. Among local government organisations, there was a view that the geography of the east/west proposal would ensure equal levels of population density across the two proposed new council areas and that this would contribute to a balanced service delivery, including addressing deprivation, and credible geography.
Based on the consultation responses, the Secretary of State considered that, if implemented, the east/west proposal would command a good deal of local support, as assessed in the round overall across the whole area of the proposal, and that the criterion had been met. In considering the locally led unitary proposals against our long-standing assessment criteria, he concluded that the north/south proposal did not meet the credible geography criterion, that the bay proposal did not meet the improving local government and service delivery and credible geography criteria, and that while the county council’s proposal for a single unitary met the three criteria, the east/west proposal was more appropriate on grounds of geography.
Noble Lords will recall that my right honourable friend the then Secretary of State announced his decisions on the proposals. A Written Ministerial Statement was made on 21 July 2021, which I repeated in this House. In reaching this decision, my right honourable friend made a balanced judgment, assessing all the proposals against the three criteria to which I have referred and which were set out in the invitation on 9 October 2020. He also had regard to all representations received, including responses to the consultation, and to all other relevant information available to him. He concluded that the east/west unitary proposal for Cumbria met all three criteria.
The Government believe that there is a powerful case for implementing this locally led proposal for change. The east/west unitary proposal will improve local government for half a million people in Cumbria by enhancing social care and safeguarding services through closer connection with related services such as housing, leisure and benefits. It will also improve local government by offering opportunities for improved strategic decision-making in such areas as housing, planning and transport. It will provide improvements to local partnership working with other public sector bodies by aligning with arrangements in existing public sector partnerships.
The proposal will generate savings estimated by the Allerdale and Copeland councils in their unitary proposal of between £19.1 million and £31.6 million per annum; this is a wide spread, and the savings actually achieved will depend on the new councils. These are savings that can be reinvested for the improvement of local services; they are not cuts in service provision. It will also deliver proposals aimed at maintaining and strengthening local community identity, and integrate local services, while reflecting the challenges of rurality in the areas of both new unitary councils. If Parliament approves this order, there will be, from 1 April 2023, two unitary councils for Cumbria delivering the improvements I have just outlined.
In response to an issue raised previously by the noble Baroness, Lady Hayman of Ullock, and the noble Lord, Lord Campbell-Savours, I put on the record, categorically, for the avoidance of any scintilla of doubt, that if this order is approved and Carlisle City Council is abolished, the city status of Carlisle will be preserved. My officials are already working with the officers of Carlisle to ensure that we follow past precedents for maintaining city status. The arrangements for maintaining city status will be to establish charter trustees. The council has asked us to do this, and we have agreed.
We have prepared this order in discussion with all the councils concerned. I take this opportunity to thank everyone involved in this process, and for their work undertaken together constructively and collaboratively, notwithstanding the county council’s leader seeking a judicial review, for which the courts refused permission on 22 February.
Our discussions with the councils have included transitional and electoral arrangements. These are key to how the councils will drive forward implementation. Where there has been agreement between all the councils, we have adopted their preferred approach. Where there were different views as to the detailed way forward, the Secretary of State has considered all the differing views and reached a decision accordingly.
Turning to the detail of the order, I will highlight the key provisions. The order provides that on 1 April 2023 the districts of Allerdale, Barrow-in-Furness, Carlisle, Copeland, Eden, and South Lakeland, and the county of Cumbria, will be abolished. The councils of those districts and county will be wound up and dissolved. In their place, the functions will be transferred to the new unitary Cumberland council and Westmorland and Furness council. I add that the order ensures there is no change to the ceremonial county of Cumbria, and hence the roles and responsibilities of the lord-lieutenant and high sheriff of the county of Cumbria are unaltered.
The order also provides for appropriate transitional arrangements. These include that in May 2022 there will be elections for the new unitary councils, which will assume their full powers from 1 April 2023. These elections will be on the basis in Cumberland of a 46-member authority, with 46 single-member wards, and in Westmorland and Furness a 65-member authority with 33 wards of between one and three members. Subsequent elections to the unitary council will be in May 2027 and every four years thereafter. We expect that the Local Government Boundary Commission for England will undertake a full electoral review before the May 2027 elections. Parish council elections will remain unchanged. There will be a duty placed on all existing councils to co-operate during the transitional period until 1 April 2023.
There is also provision in the draft order relating to the establishment of a combined authority for Cumbria. I can make it clear that these are designed to be enabling powers for the shadow authorities to be able to do necessary preparatory work if they so wish. We thought that this was prudent, given that the establishment of a combined authority was mentioned in the unitary proposals. The inclusion of these provisions does not represent a requirement for the shadows to pursue arrangements for a combined authority.
If this order is approved and made, to support councils in the transitional period until 1 April 2023, we intend to use our powers under the Local Government and Public Involvement in Health Act 2007 to issue a direction. This direction would replace the voluntary arrangements which the Cumbria councils have already adopted about entering into contracts and the disposal of land during this transitional period. This is in line with the approach adopted in most previous unitarisations. This will ensure that the new unitary councils have appropriate oversight of the commitments that predecessor councils may enter into during the transitional period and which the new unitary councils will take on from 1 April 2023. Before issuing any such direction, we will invite councils’ views on a draft.
Finally, with sincere apologies, I must draw the Committee’s attention to the correction slip issued to correct a minor error in Part 2 of the Schedule of the draft order, which lists the existing wards that will go to make up the new wards of Westmorland and Furness council. This is to correct the name of an existing ward in the new High Furness ward, currently shown as “Dunnerdale-with-Seathwaite (Part)”. It should be shown as simply “Dunnerdale-with-Seathwaite”. We are very sorry indeed for this minor error in the original text of the draft order.
In conclusion, through this order, we are seeking to replace the existing local government structures in Cumbria, which were set up in 1974, with two new councils that will be able to deliver high-quality, sustainable local services for the people of Cumbria. These unitary councils will be able to provide stronger and more effective leadership at both the strategic and most local levels. This will open the way for a significant devolution deal if local leaders want this, as referred to in our levelling-up White Paper. I commend this order to the Committee.
Lord Henley (Con)
My Lords, I start by thanking my noble friend for the fact that he is going to preserve the city status of Carlisle. I think that will be welcomed on all sides. I was born there 60-something years ago, and am very grateful that its city status shall be continued. I also declare an interest, first, as a Cumbrian, but secondly, as an active member of Penrith and The Border Conservative Association. I refer to that because the Penrith and The Border constituency is the one constituency that will straddle the two new authorities—I think that is correct, but no doubt others will correct me if it is not. I want to ask my noble friend about the electoral arrangements we will face in May because, as he made quite clear, we will be electing the shadow authority, which will then take over as the substantive authority in April 2023. At some time after that, as my noble friend made clear, the boundary commission will get into action and produce new boundaries for the various wards or divisions—I am not sure how we shall refer to them—in both authorities. But for the elections, we are going to have to deal with rather arbitrary selected wards or divisions in both authorities.
I do not know what the numbers on the two councils will be in future, once the boundary commission has done its work. Initially, and for the first five years of the two shadow authorities, the western division, which will be referred to as Cumberland, will use the existing county council divisions. Therefore, as I understand and remember it, there will be 42 councillors, one for each division, in that authority.
Lord Liddle (Lab)
My Lords, I declare my interests in this matter. I was born in Carlisle and attended Carlisle Grammar School. I live in Cumbria now and have an interest on the present county council, as the councillor for Wigton.
I have three things to say at the start. First, I am delighted by what the Minister said about maintaining Carlisle’s city status. It means a lot to me. I remember, as a little boy in 1958, attending the 800th anniversary of the foundation of the city.
Secondly, I am glad to know that the lord-lieutenancy for Cumbria is being maintained; my wife, as deputy lord-lieutenant, will be very pleased by that. Thirdly, it is very good to have as a Minister someone with the great experience and success in local government of the noble Lord, Lord Greenhalgh, dealing with these questions. I hope he might listen carefully to what I have to say about the proposal, which I would oppose as it stands, but I know that is not the way the House proceeds and I shall obviously not do that. But I will make the case for why the Government should take the remaining opportunity to pause and think a bit about what they are doing in the case of Cumbria.
My starting point is simple. I am a passionate supporter of unitary authorities, and have been for a long time, but the proposal for Cumbria, splitting it in two, does two things. First, it removes the strategic role that the county council presently plays; secondly, it divides in two the services that the county council currently provides. These services are vast by comparison with what the districts provide. The county council’s net revenue budget, excluding the schools grant, is of the order of £400 million a year. The six district councils all together are little tiddlers: their spending together is less than £100 million. The order is, in effect, cutting in two the most effective bit of local government in Cumbria.
The justification that this makes for more local government does not stand up to serious examination. The new unitary authority of Westmorland and Furness embraces both the Barrow shipyard and the remote Pennine communities 60 or 70 miles to the north of it. They are as different as heaven and hell. I shall not say which I think is which, but they are totally different. As for the new county of Cumberland, Penrith, to which the noble Lord, Lord Henley, referred, is torn out of the historic county of Cumberland. I always remember Willie Whitelaw affectionately describing his constituency of Penrith as being a place of slumbering calm—we probably need more of that in our lives. That is removed, and for Cumberland, there is my home city of Carlisle, together with what is largely post-industrial west Cumbria. My forecast is that that will be a rather uneasy partnership. Cumbria is a county of great diversity: great beauty mixed with shocking deprivation; a very proud history, with all the problems of modernity.
What I and the majority of my colleagues on the county council think the Government should have done was to go for a single, strategic authority but then allow for maximum devolution to towns, with their rural hinterlands, for local access to services and the capacity for genuinely local decision-making over genuinely local matters. My town council in Wigton should certainly have been expanded and given a greater role.
Given the decision taken, the county council—rightly, in my view—sought to challenge the Government’s plan through a judicial review. After a very detailed consideration in a judgment that took Mr Justice Fordham, who is very eminent in this field, an hour and three-quarters to deliver, he refused leave for a judicial review. It is important to emphasise, however, that this is not an endorsement of the Government’s plan; it is only a legal judgment that the Minister had not overstepped his powers in ignoring his own criteria in deciding on the current plan.
We are now put in a very difficult position in Cumbria as a result of this split. The Minister referred to savings estimated by Allerdale and Copeland— goodness how they could calculate them, because they know nothing about the main services—of between £19 million and £30 million a year. We were expecting much bigger savings from having a unitary authority—as much as £40 million or £50 million a year. The truth is that we need those savings to reinvest in what are badly overstretched services, and we now will not be able to do that. That overstretch is apparent in all the main services one looks at. Our children’s services are under great pressure. For the last few years, they have overspent their budget every year. For social care, we were forced to put in an extra £10 million last autumn simply to keep a creaking system going so that the hospitals in Cumbria would not be completely clogged up with people who could not be given care in the community. Of course, the consequence of that would have been even longer waiting lists for patients.
People complain about highway maintenance in Cumbria—potholes are a big issue; I am always lobbied about them—but we have no extra money to spend on that. Indeed, the Government have this year cut the highway maintenance grant by some £10 million.
The situation is serious. At the same time, whereas the creation of a single unitary authority would have been a relatively simple matter, splitting the services in two is highly complex. The existing councils, and I hope that the people who support this scheme are prepared to defend this, have already had to put aside some £18 million to spend on management consultants to work out how the new authority will work. I suggest that the Minister inquires about this; a lot of money is being spent on trying to work out how to divide the services we have.
Supporters of the plan argue that we are being ridiculously pessimistic. They say that the two new authorities can form a mayoral combined authority that will deal with strategic planning, can negotiate a growth deal with the Government and could run county-wide services that it does not make sense to split—that is the argument. However, the truth is that the Government currently do not, as I understand it, have any power to force a mayoral combined authority on Cumbria. It all depends on the decision of the new authorities as to whether they want one. From what I know and from what I gather, particularly from my Liberal Democrat friends in Westmorland and Furness, there is no enthusiasm for establishing such a combined authority. Therefore, I think this is a bit of a fantasy.
However, in the House of Commons, when John Stevenson, the Conservative MP for Carlisle, whom I like a lot, asked Secretary of State Gove what the position was, the Secretary of State implied that the Government could force a mayoral combined authority on the new councils. Can the noble Lord, Lord Greenhalgh, clarify that very important point for us? I can send him chapter and verse on what was said in the House of Commons, and I would like to know what he thinks about what his boss said on that occasion.
Lord Liddle (Lab)
Okay. I am trying to explain that there are serious risks in what is now planned. A pause could well be necessary. I do not see any problem with the Government revising their plans. What will happen if it becomes clear that the current timetable is not workable? The Government need to form a judgment on this quite quickly. I am not advocating this for any personal reason, but they could keep the county council going for longer than another year so that there would be more time to plan for the division of services, which would then have some prospect of stability.
In the light of their Levelling Up White Paper, which came after this proposal was made, the Government could think about keeping a single unitary authority in Cumbria but doing a deal with that council that it will have an elected mayor. I am not against elected mayors in principle; I am actually rather in favour of them. I think they have worked quite well in metropolitan areas. In the Levelling Up White Paper, if you are going to get maximum devolution of power, you have to have an elected mayor to achieve that. Why not put that proposal to Cumberland, to a united Cumbria, and see whether it would be acceptable?
I am very worried about what is happening, not from a party-political point of view, but simply from the point of view of how all this is going to work in practice. I hope that the Minister might take away what I have said and have a think about it.
Lord Jopling (Con)
My Lords, there are good many issues on which I have sympathy with the noble Lord, Lord Liddle. I am bound to say, however, that I have played no part whatever in the evolution of this scheme and was intrigued to see the decision the Minister has come to. Like the noble Lord, Lord Liddle, I have always been an enthusiast for unitary authorities, and I am glad to see that that is coming to Cumbria.
I have a good deal of experience of Cumbria. I went to school there and represented Westmorland and then Westmorland and Lonsdale for 33 years, and like the noble Lord’s wife—perhaps she is not former—I am a former deputy lieutenant of Cumbria. Therefore, I believe I have some locus to speak in this debate.
I am bound to say that if we are going to split Cumbria in two, having a compartmentalisation of east and west seems logical. In the west of the county, the barrier from the coast to Dunmail Raise and Shap Fell is a very real barrier with the mountains. I can see the logic of that. The eastern part of Cumbria as it is now, with the M6 motorway, is much more accessible than the western part, therefore I can see the logic of an east/west divide.
What I really wanted to say is that I am delighted to see the proposal to reintroduce the name of Westmorland. I can remember my dismay when the county of Westmorland disappeared following the 1972 Act. In fact, one of the few things of Westmorland that continued was because of something that happened immediately after the 1972 Act. A celebrated historian from Appleby approached me and said: “Don’t you think that the tragedy of losing the name Westmorland could be revived by renaming Appleby as Appleby-in-Westmorland?” I remember putting an Early Day Motion down in another place and gathering a great many signatures around the bars and restaurants at the other end of this building. In the end, Peter Walker, who was then the Secretary of State, agreed that we should rename the ancient capital of Westmorland as it is now well known.
I have one or two queries over this. When he introduced this provision, the Minister said that there would be no change with regard to the lord-lieutenant. If we are going to have two county councils, and if it should become desirable to have two lords-lieutenant—and I cannot see why it should not—what is the procedure to create new lords-lieutenants? Can he tell us? He may not have it, although I see that he has just been handed a piece of paper. Clearly, Her Majesty has to come into this but, at the moment, there has been an informal convention in Cumbria, or there was one in my time, that the lieutenancy tended to alternate between north and south of Shap Fell. As the noble Lord, Lord Liddle, said, there is great diversity in Cumbria, and I have always noticed the diversity between those who live north and those who live south of Shap Fell. They are very different communities in all sorts of ways. Perhaps the Minister cannot tell me immediately what the procedure would be for allowing there to be a lord-lieutenant for each of the new counties.
Finally, I want to ask another question. When Peter Walker introduced the 1972 Act, which did away with the historic county of Westmorland, which was exactly what my old constituency used to be, there was a threat to some of the old traditions. I am thinking particularly of the mayoralty of Kendal, a historic borough with a mayor, historic connections to Catherine Parr and Henry VIII, a whole regalia and a number of things that surround the mayoralty. That was threatened and, again, a number of us who represented areas similar to the one that I had in Kendal formed up to Peter Walker and insisted that those old historic traditions would continue. I hope that the Minister can tell us that there will be no change whatever with regard to the mayoralty of Kendal. Of course, Kendal has been part of South Lakeland District Council for all those years, and that was really the way we got around it.
As I say, I have played no part in the arguments over the creation of these two new authorities, and I wish them well.
Lord Shipley (LD)
It has been very interesting to listen to the noble Lords, Lord Henley, Lord Liddle and Lord Jopling, giving to the Committee the benefit of their personal experience and opinion on what should happen. I shall try to avoid taking a perspective about Cumbria from my vantage point on the east of the Pennines. It suspect is a complicated matter. Cumbria is a very large county, geographically, and has a substantial population, and it has a diversity to which I think the noble Lord, Lord Jopling, referred, which is extremely important. I hope that when he replies, the Minister will give specific answers to the points raised by those noble Lords who reside in the county of Cumbria or have represented it and know it, and others will be following to talk about that.
Baroness Hayman of Ullock (Lab)
My Lords, I thank the Minister for introducing this statutory instrument, which is the first of three instruments on structural changes that we will discuss today. I have a particular interest in this instrument as it is about changes to the council structure in Cumbria, which is where I live. In fact, I live in the west, so I can vouch for its complete inaccessibility, as mentioned by the noble Lord, Lord Jopling. It is another issue that we should return to another day. I was a member of Cumbria County Council alongside my noble friend Lord Liddle.
I am sure that the Minister is aware that the Secondary Legislation Scrutiny Committee marked this and the two other draft statutory instruments we are going to discuss as instruments of interest, because some questions remain on the criteria for the approval of unitarisation. The Explanatory Memoranda set out the feedback received during consultation on the different proposals. The noble Lord, Lord Shipley, noted that according to the Government this should be locally led and command a good deal of local support. The Explanatory Memoranda show that not all chosen proposals received majority support from local residents during consultation. The noble Lord, Lord Henley, mentioned his concerns about the consultation on these proposals. Can the Minister confirm that the Government are properly applying the criteria when making decisions on new unitary authorities?
The area where concern has been expressed is about local support for the proposals. I am not particularly convinced that there has been genuine public enthusiasm for the proposals in Cumbria. My noble friend Lord Liddle eloquently expressed, in great detail, the concerns about splitting the county in two and the impact it will have on critical services such as education, social care, children’s services and highways, all of which are in need of greatly improved resources and support.
In his introduction, the Minister reminded noble Lords that the Government were presented with four proposals and eventually went with the east/west proposal we have been discussing, which creates two unitary authorities, one in the east and one in the west of the county. He also said that the east/west proposal received “some support”. But it did not receive support from the majority of respondents to the local consultation; only the proposal for the Bay did that. We have heard what that would do so I will not go into the details.
Basically, the residents did not believe that the east/west proposal offered a reasonable geography, which is one of the criteria for the creation of a unitary authority set out by the Government. The Government’s criteria also state that successful proposals need to deliver good public services and improve local governance, yet the residents who were consulted did not all believe that this was the right proposal for Cumbria in that regard. My noble friend Lord Liddle talked about the concerns around delivering public services well in Cumbria, after dividing the county into two unitaries.
The parish and town councils were also more in favour of the proposal for the Bay than others, with 28% saying that it would improve services. Even among local businesses that proposal was more highly favoured than the east/west proposal, because it was felt that it had the most credibility when it came to geography— another criterion that the Secretary of State looked at. So I ask the Minister: why was an option chosen that received less support and was not felt by a majority of local people to fulfil the Government’s criteria?
My noble friend Lord Liddle mentioned the fire service. This is particularly important when it comes to Cumbria because, unlike in most areas, fire and rescue services are still delivered by the county council. The Fire Brigades Union is particularly concerned about how this will affect the responsibilities of the fire and rescue service, and about funding pressures and the potential cuts the service might face due to restructuring, as it might have to be divided between the two new unitary authorities.
I know that DLUHC has said that further secondary legislation will be brought forward once a decision has been made on this. The Government have said that they intend to maintain the fire service on a county-wide basis, subject to local consultation. It would be really helpful if the Minister could expand on this and provide an update. If he does not have that now, it would be good if we could all be kept in touch with that as those proposals go forward. As noble Lords have said, there is not a lot of time. We are on a fairly tight timescale.
Before I talk briefly about the issue I discussed with the Minister earlier today, I say that I am particularly interested to hear his response to the different concerns raised by my noble friend Lord Liddle.
Finally, I discussed with the Minister earlier—and I thank him for his time and attention in this matter—the concerns that there is a significant omission in the order, in that it would mean that Carlisle would lose its city status. A similar order has been laid that abolishes the district and county councils in North Yorkshire and establishes the North Yorkshire unitary authority. My concern is that these have been set up differently. The former MP for Carlisle, Eric Martlew, drew this to our attention, and I thank him for that.
Carlisle has a rich history and has enjoyed the title of city since 1133. Its original charter was lost in 1292, when much of the city was destroyed by fire, but a new royal charter was granted in 1352 by Edward III. I am sure noble Lords can appreciate Carlisle’s rich history but, because it is an unparished area, there is no parish or town council for Carlisle’s charter to pass to when this legislation comes into force. So the options open to Carlisle are to either form a town council or create charter trustees, so that the city charter can pass to them and it does not lose that status.
I thank the Minister for confirming that charter trustees will be appointed and that Carlisle will not lose its city status. My concern with this, which I raised with the Minister earlier, is that where this issue arose with regard to the change order for North Yorkshire, and the rights and privileges held by Harrogate and Scarborough, to ensure that their charters remained, the structural changes order for North Yorkshire, which we will debate next, makes specific provision for charter trustees in the unparished areas of Harrogate and Scarborough, thereby ensuring that
“any historic rights and privileges associated with those local government areas which will be abolished can be maintained and vest in the Charter Trustees for the relevant area where there is no parish or town council.”
Again, I thank the Minister for his attention. Is the reason why they are different just an admin error? I am interested to know why they have been set up differently. I planned to ask for this statutory instrument to be withdrawn until this was corrected, but I am happy to take the Minister’s assurances at the Dispatch Box that Carlisle will not lose city status, which were extremely helpful. Can he also confirm that a confirmation order will be laid to set up the charter trustees, as he explained to me earlier? It is important that the historic rights and privileges of the city of Carlisle are maintained when the city council is abolished.
Lord Greenhalgh (Con)
My Lords, I am ashamed to say that in my time on this earth, I have not set foot in glorious Cumbria, so I have learned an awful lot. One thing that I will take away is that I must visit the place. I understand that it is very rural. It is quite interesting to note how the geography is such that there are natural divisions too. That was set out incredibly helpfully by my noble friend Lord Jopling.
I always enjoy the experiences that noble Lords bring to bear. I listened very carefully to the speech from the noble Lord, Lord Liddle. However, I am calculating, at 59 minutes and 38 seconds, and having had quite a late night the night before, when we are likely to finish these three statutory instruments. However, I will do my best to respond.
My understanding of the point around preserving the city status of Carlisle is that Cumbria simply did not ask for it, whereas North Yorkshire did. It is just a process of responding to the customer, rather than an intention not to do it. Therefore, the assurance is very sincere. We will produce whatever orders that we must. It has been written out, so we have that assurance that the process will go ahead irrespective of what we have set out in the order. It does not have to be done in the same way to get to the same end point. Noble Lords have had my assurance at the Dispatch Box. It is clear that the councils want that, so it is not a problem.
I have some experience in delivering council services, so I will respond directly to the central point made by the noble Lord, Lord Liddle. Philosophically I agree with him that where possible you build bridges rather than walls, and that with services such as adult social care, which is typically about a third of a council’s budget, you had better not split the overhead of commissioning the service, but it is very possible. For instance, when I was the leader of the council in Hammersmith and Fulham we had a voluntary arrangement with neighbouring councils to bring together the commissioning of adult social care across three London boroughs, but we had very different entry criteria into the social care system. You could save on the overhead by collaborating with other councils but have very different criteria. I am very proud that my council had the best entry criteria into the social care system, extending right through to people in greater moderate need, which is very rare in local government these days, particularly with the increasingly ageing population. Therefore, you can do both if you want to. That requires local leadership, above all, but there is nothing in this structure, east/west, that would stop that sort of arrangement taking place as a possible outcome, where you can create two different entry points but share the overhead of the delivery of the service.
I really appreciated the point made by my noble friend Lord Jopling. The reality is that the units of local government, if we think strategically, become awfully large. A stat that is not in my speaking notes but which really interests me is that the average unit of local government in Switzerland is 3,733. In the United States it is 8,333. In Germany, it is 7,454. In the United Kingdom, it is 155,000. Therefore, I have great sympathy with the point raised by the noble Lord, Lord Shipley, that we must ensure that we do not forget the tiers, the town and parish councils, and their contributions to their local areas, particularly more rural areas as opposed to cities. There is no intention of changing that structure from this order. I give that reassurance. It is about ensuring that the funding flows down through local government to the lowest tier. Sometimes it does, sometimes it does not, but we are not changing that structure in this order. I note the important contribution that parish and town councillors make to their local area.
I will respond directly to the noble Baroness, Lady Hayman, who speaks with great experience of Cumbria—I have admitted my own failings in that regard. I understand that the criterion is not about a majority: it is whether there is a good level of support. In this case, two proposals had a good level of support. It is not a referendum, where you win if you get more votes. That is essentially the answer to that question. In the round, there are three criteria and then you form a judgment. I tried to set that out as best I could in my speech. Any Government will take those three points and form a view. There are pluses and minuses for different routes, and the Secretary of State took a decision in the round on the three criteria that I set out in my speech.
I was worried by some of the comments about elections, but I assure noble Lords—and the noble Lord, Lord Shipley, in particular—that elections to the new unitary authorities will take place as scheduled in May 2022. The councils will be in shadow form until they take on their new, full powers on 1 April 2023, and they will serve until May 2027. We are on track to deliver that. In response to my noble friend Lord Henley and the noble Lord, Lord Shipley, the order provides for the returning officers for the May 2022 elections, so we can be confident about the administration of those elections. The May elections will go ahead; we are on track for that. That is very important, given that, presumably, candidates are out there pounding the streets already.
My noble friend Lord Henley asked why 65 and why the wards are as they are. The warding arrangements are a local choice, and councils in both areas made their choices. It has been very much a bottom-up process. These arrangements are for the 2022 elections only. As I know from my experience in local authorities, the Electoral Commission will review ward boundaries and so forth, and then there will be representations, but this has been very much a bottom-up process.
I now have a series of attempts to respond to the very many points raised by the noble Lord, Lord Liddle. Candidly, I am unlikely to succeed in answering every question. If he wants to approach me afterwards, I will do my best to get a full response.
I have addressed the central issue, which is that you can split into two councils but not necessarily split services. It is also fair to say that many of the services are area-based and they may be a smaller part of the budget. Sometimes it is better to recognise that fact. Universal services are often organised on area lines, and so forth; it depends on the service areas of the council.
The noble Lord, Lord Liddle, invited me to comment on something said in the other place by my current boss, rather than my previous one. We do not have that interpretation when he said the word “yes”, which has been interpreted as there being great support for a particular person, as opposed to imposing mayors on a particular place. It is all down to interpretation. Of course, you cannot impose a mayor on a particular area, but yes, there is support for a particular candidate—if there were a mayor.
Lord Liddle (Lab)
Since this has caused quite a lot of local confusion, I ask that the Minister writes a letter to that effect explaining what Secretary of State Gove meant.
Lord Greenhalgh (Con)
I think I have my “get out of jail free” card. I will write a very careful note responding to the point raised on the debate in the other place and ensure that I lay a copy in the Library.
I move on to a topic that I know a little bit better. I have spent just up to two years as Fire Minister now, which is actually quite a long time to survive as a Fire Minister for England, which includes Cumbria. We are about to launch a White Paper looking at reforming fire and rescue services. I assure people that we have thought very carefully about governance models that enable a move from the scrutiny-based arrangements we have typically seen to a more executive-based arrangement. That provides a county council model, as well as a PCC and mayoral model where appropriate. You can get single-person leadership and accountability through different governance models.
The PCC is currently consulting on fire going to the PCC. He needs to consult. Local people will have their say on that. Time will tell where we end up there, but that is the status at this time. We recognise the need to continue investing in our fire and rescue services to ensure that response times are effective and that we continue to see the downward trend in fires, as well as investment in capability, because they do so much more than that as a fire and rescue service, dealing with flooding and other events of considerable concern to the people of Cumbria.
I move on to the ceremonial points raised by my noble friend Lord Jopling. Everyone seems to have a special interest in the lord-lieutenancy, or the deputy lord-lieutenancy, whether current or past. We leave that alone with this order, so the current arrangements remain as they are. It is a matter for the Crown if it wishes to change the arrangements to reflect the new east/west divide. I am delighted that one of the benefits is to reinstate the proud status of Westmorland, as my noble friend raised. That is a matter for the Crown rather than the state, if you like, but it could come to pass. This order does not push that one way or the other.
Just for completeness—this will be my last point—in response to my noble friend Lord Jopling, the Kendal mayor is the mayor of Kendal Town Council. There will be no change to this town council or any other existing town council, as I said in response to the noble Lord, Lord Shipley.
This order seeks to respond to the local area. I say to people of clear Cumbrian heritage, who have served the people of Cumbria, that in essence the order will largely restore a structure that local people will recognise, which will provide much benefit and, I hope, stand the test of time.
North Yorkshire (Structural Changes) Order 2022
(2 years, 9 months ago)
Grand CommitteeRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Lord Greenhalgh
That the Grand Committee do consider the North Yorkshire (Structural Changes) Order 2022.
Relevant document: 29th Report from the Secondary Legislation Scrutiny Committee
The Minister of State, Home Office and Department for Levelling Up, Housing & Communities (Lord Greenhalgh) (Con)
My Lords, this order was laid before this House on 24 January 2022. The other place approved it on 22 February 2022. If approved by this House and made, it will implement a locally led proposal submitted by North Yorkshire County Council for a single unitary council for the whole of North Yorkshire county.
In my introductory words for the Cumbria order, I set out the Government’s views on the benefits of strong local leadership. The order will establish for the people of North Yorkshire a new single unitary council. Implementing this proposal and establishing this unitary authority will enable stronger leadership and far greater engagement both at the strategic level and with its communities at the most local level. The order will also pave the way, as envisaged in the levelling-up White Paper, for a significant devolution deal involving a directly elected mayor for North Yorkshire together with York.
I set out the full detail of the process for all three areas undergoing unitarisation in my previous speech regarding Cumbria. I will not repeat the detail of the invitation, the criteria or the dates of the statutory consultation here, but will highlight the matters specific to North Yorkshire. When issuing the invitation to the principal councils to submit proposals for unitary local government, the then Secretary of State, my right honourable friend the Member for Newark, Robert Jenrick, invited City of York Council alongside North Yorkshire County Council and its seven district councils. Two locally led proposals for local government reorganisation in North Yorkshire were received, one for a single unitary council and one for two unitary councils.
Baroness McIntosh of Pickering (Con)
My Lords, I thank my noble friend for racing through the provisions of this order. I have sat through three SIs this afternoon and it is a matter of regret that each of them has had to have a minor correction. Perhaps if we spent a little longer preparing the SIs before we brought them before the House, we would save all departments some time.
I am possibly in a minority of one, but I am afraid that I am very wedded to the two-tier system. It has served extremely well. My connection to North Yorkshire goes back years. I grew up in an area that, until 1974, represented on my western flank North Yorkshire, on my eastern flank County Durham and, to the north-west, Cumberland. I think that people appreciated and felt wedded to those areas. I went to school in what was then Harrogate, West Yorkshire, and is now Harrogate, North Yorkshire. One begins to see how confusing it becomes with all these changes, and I believe that there is such a thing as voter fatigue.
I was very fortunate to be returned a number of times—I think, four. I served 18 years for two separate constituencies in North Yorkshire. I want to pay tribute to one of my predecessors, my noble friend Lord Jopling, who looked after me during one of the elections. I think we had some fun at the time, so I hope that continues in elections for constituencies. I also stood in Cumbria in 1987, where again my noble friend was my neighbour, took me under his wing and saved me from some of the errors that I might otherwise have made—which I hope he will not remember and repeat during this debate.
According to Wikipedia, there are 159 district council wards across North Yorkshire. That goes to the rurality of what is the largest, most rural and most sparsely populated county in the country. This has led me to believe that successive Governments—I cannot accuse one particular Government—have simply failed to understand how to deliver public services effectively in rural areas. I do some outside work with the Dispensing Doctors’ Association, as declared in the register of interests. Its headquarters is in Kirkbymoorside, which was in my constituency for the last five years that I was in the other place. Dispensing doctors come into their own particularly in rural areas where there is no community pharmacy. That shows to me the lack of understanding of one particular department of how difficult it is to deliver health services in this regard. We are building bigger hospitals that are further away and more difficult for patients to get to.
I turn to the subject of the orders presented to us by my noble friend. If I understand correctly, we are going to have a situation created from 2023 whereby we have a unitary authority for North Yorkshire. At some undetermined time in the future, it will then be possible to have a metro mayor—and I would like to understand whether the mayor will cover the city of York alone or is intended to cover the rural areas as well. I have great difficulty in understanding how a mayor for a rural area such as North Yorkshire can possibly do that work. I still live in North Yorkshire for a good deal of the time when I am not in London, and I think that it has definitely lost out in the stakes to, for example, the Tees Valley mayor. He is a very effective mayor and gets a lot of funding for a lot of infrastructure and other facilities.
My understanding is that we are going to be told in North Yorkshire that we simply will not get these funds if we then do not vote for a metro mayor. Travelling in what was my second consistency—my last constituency— of Thirsk, Malton and Filey, I was easily driving 200 miles a day. I was trying to co-ordinate the meetings as best I could in the particular corner of the constituency I wanted to be in that day, but it often meant that I could not do interviews on television, because they had to be miles away, in Leeds or, heaven forfend, Newcastle, because there were two different broadcasting areas for one constituency.
My first point is that there is a lack of understanding of how this will work in rural areas, yet great pressure will be put on metro mayors for rural areas such as North Yorkshire that, if we do not subscribe to them, we simply will not get the funds. There is also a misunderstanding. We are asking people to vote—and I have had a leaflet from one of the candidates already for the election this year, which I presume is for the county, yet we are told that the existing district councillors will remain in place until next year. Possibly that makes sense, but it is very confusing. I am told that I must vote for the candidate for unitary this year, but I am told that some of the responsibilities may be taken away and I do not quite understand what the timeframe for that would be. It would be helpful to know how long we expect the unitary to be in place before it is to be taken over by a metro mayor.
I would also like to understand what the consultation will be of local people, when they put their views forward. I am slightly concerned that paragraph 10.3 of the Explanatory Note says:
“The Government’s consultation was conducted online using ‘Citizen Space’, the department’s dedicated platform for consultations, with online capture of responses and an alternative option of email responses or post.”
We should bear in mind that we have probably the most woeful internet capability in many of the dales—in Rosedale, Bransdale and all the North Yorkshire moors, and I am sure that it is the same in the Yorkshire Dales. I hope that there was also a more traditional means, perhaps through newspaper advertisements, for people to respond. If there were only 4,297 responses on the two proposals for north Yorkshire, I draw the conclusion that the vast majority of people simply did not respond. I do not think that we can conclude that there is overwhelming satisfaction with the proposals before us.
I could go on, but I think I have made my point. There is no huge demand for this unitary authority. People work closely with their district council. In my experience, in my surgery appointments, most of what I was asked about, with it not being a big area of immigration and that sort of issue, was related to planning—and most of the planning, as we know, goes through the district council. With those few remarks, I look forward to hearing the response from my noble friend.
Lord Newby (LD)
My Lords, following earlier discussions about errors in statutory instruments, when I worked for Customs and Excise, there was a VAT instrument in which I had a passing interest which had one word wrong. The view was taken that the Under-Secretary whose responsibility it was would never be promoted again as a result. Sadly, he never was, although there may have been more fundamental reasons for that. I am sure that will not be the fate of the Minister.
My interest in this is that I am a resident of Ripon, which is affected by this change. From looking at the two orders we have so far discussed, the similarities and the differences strike me. North Yorkshire is bigger than Cumbria in every way. Cumbria has a population of 498,000; North Yorkshire’s population is 602,000. Cumbria is 60 miles long from north to south; Scarborough to Bentham is 108 miles or three hours’ drive. This is a big place and even some of the wards are huge. I draw the Minister’s attention to Upper Dales, which has Hawes, High Abbotside, Upper Swaledale, Lower Swaledale and Arkengarthdale, and is 20 miles long. It would take you at least 40 minutes to drive from one end to the other and for a fair bit of winter it is impassable, because you have to go over from Wensleydale to Swaledale. This is a very different type of country, as is Cumbria, to much of the rest of England and the rest of the United Kingdom.
As the noble Lord will be aware, whether this is the best proposal was the subject of a massive amount of in-fighting in his party, and a lack of consensus in my party and every other party, about which is the best way forward, because getting it right is extremely complex. I shall not argue the toss about whether there should be a division down the A1, which was highly supported in some places. There was also no effective consultation. People may have responded to an online petition but, having done some canvassing in Ripon, I know that nobody knows it is happening, and far less have they expressed a view.
Although this is nominally the creation of a unitary authority, it will work only if there are two tiers of local government, and the second tier is different from the district. It will be the local. At the moment, Ripon is part of Harrogate district and North Yorkshire county, and there is huge resentment to being part of Harrogate. I knocked on a door and a man answered who was not a natural Liberal Democrat. He made that clear by ripping up the leaflet that I was attempting to give him. I asked him who he was supporting and he said, “I am supporting UKIP because, if UKIP were in here, we would have had our independence from Harrogate by now.” This sort of parochialism is rampant in far-flung parts of North Yorkshire.
Unless there is an effective form of very local government, that feeling of distance will inevitably grow because of the increasing distance. Harrogate is just down the road compared with Northallerton if you live in Ripon, so that man and people generally who live in Ripon, who are fed up with what they see as their subordinate position to Harrogate, will be looking for Ripon, which already has a city council having a cathedral which celebrates its 1,350th anniversary this year, to take on more responsibilities, and that poses major problems.
At the moment, Ripon City Council is a modest affair when it comes to doing things. It is very good when it comes to appearing in the cathedral wearing gowns and being proceeded by the macebearer, but the issue which occupies more of the time of that city council at the moment is the provision of Christmas lights. This will not do in future. There needs to be much more devolution of small powers down to Ripon City Council so that the people of Ripon feel that they can have a real say about small things that matter a lot to them.
North Yorkshire has submitted to Ripon and more generally a list of 27 areas of responsibility, which it says it is prepared to discuss in principle with parish councils and town councils, with a view to devolving. They go from running car parks to providing dog wardens and library services and a whole raft of those sorts of minor things. I know there is an appetite in Ripon for those powers to be taken back, but there is no capacity to do it at the moment. The town hall is a wonderful building but there is no space to do it. The people who work for the city council are estimable, but they do not have the scope to take on many of these powers. I cite Knaresborough Council, which has taken the majority of powers that it can exercise under the current arrangements, as an example of already doing this well. It has a very detailed plan about how it can slowly take on more powers and reckons it will take over a decade to build up the capacity to take on all 27 powers that it could conceivably have. I think, having looked at it and talked to the council, that it is probably right.
I have two questions for the Minister. First, if a parish or town council is taking on a power with expenditure attached, can the Government give an assurance that the resources that come with that new devolved power will not be cut and will be the same as they are currently? Secondly, and more importantly, how do the Government plan to empower local parish and town councils to take on the responsibilities that will be essential if this scheme is going to retain public support?
At the moment, there is not the funding for staff, offices and expertise. It seems to me that this is a very big gap. North Yorkshire says positive things about undertaking this process of devolving things down but, in an area the size of North Yorkshire, you will need a lot of new organisations at very local level and even more resources put into existing ones to turn them from worthy but very limited bodies to ones that exercise real authority and responsibility for delivering the majority of those local services. Northallerton, 50 miles east or west, and the people who work in Northallerton are not going to be the best people to manage those 27 local responsibilities that I have discussed.
This is a challenge to everybody involved in politics in North Yorkshire and a real challenge to the Government because, unless they help, we simply will not get the kind of further devolution away from Northallerton that is essential if this new arrangement is to command popular support over the longer term.
Lord Jopling (Con)
My Lords, I was intrigued to listen to the noble Lord’s stories about Ripon in his speech. I was born in Ripon and have lived within 10 miles of it my entire life, so am familiar with many of the points that he raised. However, as I said in the previous debate about Cumbria, I have always been an enthusiast for the unitary arrangement and I say that in spite of being a former member of a rural district council at Thirsk.
I was lobbied some months back by Harrogate Borough Council, which asked me to support the east/west arrangement. I tried to look into it and make my own mind up. I came to the conclusion that the unitary body for the whole of North Yorkshire was the best way out, and that, in spite of the reservations of Harrogate and others, I would support what we are considering this evening.
It is a wide area—noble Lords only have to look at a map—but there is a difference between North Yorkshire and Cumbria. Largely it is with regard to the administrative centre. I have heard few, but not very many, complaints about the accessibility from Skipton to Northallerton, but that is in no way as difficult as the problems of travelling from Barrow-in-Furness to Carlisle, which is a much more serious problem of remoteness. Whereas I have heard a good many complaints about remoteness over my days in Cumbria, particularly by people who live on the Furness peninsula, I have heard few similar ones in North Yorkshire.
Now that this proposition has been made by the Government through the Minister, I am told that those early differences that I talked about have now largely been resolved and that all of North Yorkshire’s Members of Parliament support the scheme we are discussing. I am told that the preparations are going well. I have been talking to members of the county council about this, and have asked them particularly about how well it is going. I am told that it is going well, especially with regard to the staff who serve the various local authorities, some of whom are going and others of whom will be expanded.
I am particularly pleased that there will be area constituency committees based on parliamentary constituency boundaries. That seems a sensible and constructive idea. I hope this will remove accusations of remoteness and demonstrate that local concerns and problems are being heard and dealt with. I certainly welcome the way in which the various councils at the two levels are co-operating to create the new level. As I ended my remarks on the Cumbria discussion, I wish it well.
Baroness Pinnock (LD)
My Lords, I am in the happy position of agreeing totally with my noble friend Lord Newby—that is a good start, is it not—particularly with reference to the absolute importance of having a two-tier approach to local governance in all rural areas, but particularly in North Yorkshire. That obviously means that I agree with many of the comments made by the noble Baroness, Lady McIntosh, who put her cards on the table and said that she prefers a two-tier system.
I bring to the Committee’s attention my relevant interests as a member of Kirklees council and a vice-president of the Local Government Association.
Lord Jopling (Con)
The noble Baroness says she is concerned about the unitary arrangements. We are returning to my ministerial days, when Ministers were served with advice from behind them. I have had some advice on my email from the leader of North Yorkshire County Council, Councillor Les, which may be some consolation to the noble Baroness. I will briefly read what he said: “We do intend to introduce devolution to parish and town councils, where they want it, and we will help them to do it. All is possible in time”. That seems to be a helpful contribution to this debate.
Baroness Pinnock (LD)
I thank the noble Lord, Lord Jopling, because, as we heard from my noble friend, it will be very important for there to be devolution to parish and town councils—if they have the capacity to do so, which is one of the key challenges of this arrangement.
What concerns me about this statutory instrument, the previous one and the next one is that they are all about creating a convenient administrative unit. There is no mention in the instrument of the extent of the area covered, its population, its representation, nor a word about people, and we are talking about local government. People are at the heart of any local government: people who can have their voice heard, engage in influencing decisions, know their elected representative and can readily contact them. That is what local government is about, and there is no mention of it in the instrument.
For me, this is about creating efficient local government —whether it will be is a different matter. Whether it will be effective is a moot point. I know from long experience in local government that there is always pressure to make decisions at the expense of listening to the local voice, because that takes time and commitment, and can be difficult. That will be a challenge for North Yorkshire.
I understand that North Yorkshire and the local districts have considered the importance of devolving some decisions to the town councils, and to the area constituency committees being set up. That has been really good, compared with other reorganisations, and they are also setting up local networks to engage local businesses and other partners who deliver public services. That part of what is being done is positive, and I am pleased that where there are no town councils—Harrogate and Scarborough—we will have the chartered trustees referred to in the instrument.
I shall just mention Councillor Les. I worked with him years ago on Yorkshire matters, so he and I know each other, but I totally disagree with him about having a mayor for North Yorkshire. I do not think that will work, and the Government must think of a different way to devolve funding for strategic priorities to the unitary authorities they create such as this one.
The local government map is being reshaped in England bit by bit. There is a strategy somewhere that somebody in the department knows, because it is being eaten away gradually: getting rid of the district councils and replacing them with unitaries, whether they like it or not. The local is gradually being extinguished from local government in the name of getting an efficient—convenient, maybe—local administrative unit. In this case, I think a lot of thought has gone into how North Yorkshire might work, which I applaud. It will face huge challenges. I am not convinced that it will make for local government that listens to local voices and provides an effective response to what local people want for their area, but I hope it works, for the sake of the people who live in North Yorkshire.
Baroness Hayman of Ullock (Lab)
My Lords, I thank the Minister again for his introduction to this draft statutory instrument and other noble Lords for giving me so much in-depth information about North Yorkshire. It has been very interesting to listen to the debate.
I shall be brief and shall not repeat the questions that I asked earlier. As with the previously instrument, the Secondary Legislation Scrutiny Committee marked this one as being of interest, particularly around the concerns about the implementation of criteria in decision-making. The Minister went into that in his previous answer about Cumbria, and the noble Baroness, Lady Pinnock, has talked about it, so I shall not go into any more detail.
One thing that has been particularly interesting in the debate, which is important in Cumbria as well, is the issue around identity. People talked about Ripon, Scarborough and Harrogate, and how different parts of North Yorkshire are distinct areas. The thing that I am interested in is how we ensure that they continue to have a distinct ownership of place and locality, as well as services. How can they have a genuine say in what is happening going forward, to ensure that, as we move from one council set-up to the new unitary, there is no democratic deficit? The noble Lord, Lord Jopling, talked about constituency committees, but I imagine that those are quite large groups. Of course, the noble Baroness, Lady McIntosh of Pickering, drew our attention to the fact that there were 159 district wards. That is a lot—and I imagine that there are probably more parish councils within that. It is important that powers are not just devolved up to the new body but that there is strong interplay between local communities and the new council being set up. That is something that has come across very strongly to me in the debate—that this is important to local people. I am sure that the Minister will have taken it on board.
The noble Lord, Lord Newby, also talked about the importance of resources, which will obviously be critical, but I would also be interested to know whether there are any investments that need to be transferred or budget surpluses or debt that need to be consolidated. We know that local government has had serious cuts over the past decade, so there may well be debts that need to be resolved. I would be interested to hear about that from the Minister, and whether it is likely to cause any difficulties.
The noble Baroness, Lady McIntosh of Pickering, also raised concerns about what could happen if there was a metro mayor for the area, and her concerns around the pressures put on local authorities and people that this is the route that they have to go down to get the sufficient resources and funding that everyone has been talking about. Having lived in rural Cumbria, I totally appreciate that having a metro mayor for a large rural area is not the same as having one for an urban area, and that really needs to be taken into account. I would be very interested in the Minister’s reply on that as well.
Finally, the noble Lord, Lord Newby, seemed to imply that North Yorkshire was bigger than Cumbria in every way. I would just like to say that we have some rather large mountains. I am sure that, if we took all the area of the mountains into account, we would probably have more than North Yorkshire.
Lord Greenhalgh (Con)
My Lords, this debate has shown a humongous knowledge of North Yorkshire. I remember a school visit to Scarborough and many conferences in Harrogate, but I have a fleeting knowledge of some of the places mentioned by noble Lords. I thank my noble friend Lord Jopling. In these debates, I have never had covering fire as effective as that provided by him, and I wish that he turned up to every statutory instrument that I had to deliver. I would ask him to please be here more often, with his forensic knowledge of every single part and corner of this country, from Cumbria to North Yorkshire. It is stupendous in every respect.
Noble Lords very helpfully said that there was unanimity of support from MPs representing constituencies in North Yorkshire for this proposal, and it is tremendously helpful to know that. In response to the noble Baroness, Lady Hayman, it actually preserves the service delivery over a county-wide area and has an established local identity which is easily understood by residence. It maintains the brand of North Yorkshire. That is important as well, and I think it is recognised by the MPs who have been elected in constituencies within North Yorkshire. It also aligns with arrangements in existing public sector partnerships and will allow existing relationships and partnership working to be maintained without disruption.
Responding to my noble friend Lady McIntosh of Pickering, when we hear a number such as 4,300, those are not individuals. Very often they are small, medium and large-scale organisations responding to the consultation. Of course we can always make consultations more effective, but we need to see individual responses from groups, not just the individual citizens of North Yorkshire.
I thank the noble Baroness, Lady Pinnock, for reminding me on the criterion of size that I was leader for only 16 years of my life in a terribly small London borough. She is always tremendously helpful in pointing these things out. We have a population approaching the size of Bern in Switzerland, and it has its challenges, but none the less, I agree with her that it is far smaller than North Yorkshire. The whole of Yorkshire, in aggregate, seems to envelope the vast majority of the north of England. All I will say is that Lancashire has definitely lost the Wars of the Roses when it comes to geography and scale.
However, the criterion is not simply around numbers. The criterion makes a specific point that a credible geography can be outside the 300,000 to 600,000 range if its population is a figure which, having regard to the circumstances of the authority, including local identity and geography, could be considered substantial. I am happy to set that out in writing if the noble Baroness, Lady Pinnock, wants to understand the issues, but there is a tolerance around the 300,000 to 600,000 figure, in essence. I do not need to write that out.
I enjoyed most the speech by the noble Lord, Lord Newby, which pointed out the horrendous antagonism between Ripon and Harrogate. It is true. My father grew up in Derbyshire and pointed out that there is sometimes antagonism between Long Eaton and Ilkeston. That is just the reality of where we are. You can see it in any part of continental Europe as well; villages that abut each other are often big rivals. Dare I say that it was ever thus?
I thank again my noble friend Lord Jopling for his covering fire. He invoked the name of Councillor Carl Les, who I had not heard of, but I now know is leader of North Yorkshire County Council and is clearly known by the noble Baroness, Lady Pinnock. His assurance that there is an intention to have that strategic authority but to devolve power and responsibility to town councils is incredibly helpful because the unitary will send that funding flow down to the town. Not every leader should be held at the centre. He has strong decentralising and devolutionary instincts, and it is tremendously helpful to have that assurance.
My noble friend Lady Pickering let me know that she would ask about the mayoralty. This order, in and of itself, allows a mayoralty to happen but does not impose it. I assure her that the introduction of a mayoral combined authority and devolved powers requires local support, but it is understood that any such move would require a full public consultation run by the area. A summary would then be submitted to the Secretary of State, who must be satisfied that there has been adequate consultation, so there is that proviso.
Baroness McIntosh of Pickering (Con)
My Lords, what is the timeframe and is the public consultation more than just online, as in the unitary?
Lord Greenhalgh (Con)
Regarding how the consultation is conducted, I will have to respond to my noble friend in writing. Regarding timeframes, I think they will probably be indicative from other areas, but again it must come from the bottom up, as opposed to the top down. I understand that there is some strong support in the local area for potentially having a mayor, but I will set all that out in a letter.
The last question concerns assets and debts. Within the current structure, although the top layer does not change, all the assets and debts essentially transfer to the unitary. All the assets, liabilities and debts just transfer, so that is a very simple matter.
We have had a very interesting debate. I continue, lord-lieutenant or not, to become a more rounded exponent of the virtues of local government in different parts of the country. I thank noble Lords for their contributions.
Somerset (Structural Changes) Order 2022
(2 years, 9 months ago)
Grand CommitteeRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Lord Greenhalgh
That the Grand Committee do consider the Somerset (Structural Changes) Order 2022.
Relevant document: 29th Report from the Secondary Legislation Scrutiny Committee
The Minister of State, Home Office and Department for Levelling Up, Housing & Communities (Lord Greenhalgh) (Con)
My Lords, this order was laid before this House on 24 January 2022. The other place approved it on 28 February. If approved by this House and made, it will implement a proposal submitted by Somerset County Council for a single unitary for the whole of the Somerset County Council area.
In my introductory words for the Cumbria order, I set out the Government’s views on the benefits of strong local leadership. This order will establish for the people of Somerset a new single unitary council. Implementing this proposal and establishing this unitary authority will enable stronger leadership and far greater engagement at the strategic level and with its communities at the most local level. While Somerset is not among the areas for an early county deal, we will continue discussions with Somerset about a future devolution deal. The reform for which the order provides can help pave the way for such a deal.
I set out the full detail of the process for all three areas undergoing unitarisation in my speech regarding Cumbria. I will not repeat the detail of the invitation, criteria or dates of the statutory consultation here but will highlight the matters specific to Somerset. When issuing the invitation to the principal councils in Somerset to submit proposals for unitary local government, the then Secretary of State, my right honourable friend the Member for Newark, Robert Jenrick, also wrote to the neighbouring unitary councils of Bath and North East Somerset and North Somerset. Two locally-led proposals for local government reorganisation in Somerset were received in December 2020, one for a single unitary council and one for two unitary councils.
Turning now to the responses to the statutory consultation, we received almost 5,500 responses on the Somerset proposals. Of them, 5,167 responses, 94% of the total, were from residents living in the area affected. Both proposals received of a good deal of support. Some 3,000 residents, or 57% of those who responded, supported the two unitary councils option, while some 2,000 residents, or 35% of those who responded, supported the single unitary option. Some 72 % of respondents from the business sector supported the single unitary option and 88% of respondents from other public service providers also supported that option.
The district councils in Somerset ran a poll of residents about the unitary proposals. My right honourable friend had regard to the results of that poll and the representations he received about the way it was conducted. In essence, the poll showed similar levels of resident support as the consultation. Namely, there was a good deal of support for both proposals, with greater support from residents for the two unitary proposal.
However, I stress that the decision about the proposals is not a decision on the basis of any form of poll or referendum, nor is it on the basis of which proposal is most popular among a group of consultation respondents. It is a decision on the basis of the criteria to which I have referred and which were set out in the invitation of 9 October 2020.
Noble Lords will recall that my right honourable friend the then Secretary of State announced his decision on the proposals. A ministerial Statement setting this out was made on 21 July 2021, which I repeated in this House. In reaching this decision my right honourable friend made a balanced judgment assessing both proposals against the three criteria to which I have referred. He also had regard to all representations received, including responses to the consultation, and to all other relevant information available to him. He concluded that the two unitary proposal did not meet the criterion of improving local government and service delivery across the area. He also concluded that it did not meet the credible geography criterion. He concluded that the single unitary proposal for Somerset met all three of the criteria set out in the invitation of 9 October.
The Government believe that there is a powerful case for implementing this locally-led proposal for change. It will improve local government by enhancing social care and safeguarding services through closer connection with related services such as housing, leisure and benefits. It will improve local government by offering opportunities for improved strategic decision-making in areas such as housing, planning and transport. It will provide improvements to local partnership working with other public sector bodies and generate savings, estimated by the county council to be £52.6 million over five years. It will preserve service delivery over a county-wide area that has an established local identity and is easily understood by residents and provide a single point of contact so that residents, businesses and local communities will be able to access all council services from one place. If noble Lords approve this order, there will be, from 1 April 2023, a single unitary council for Somerset delivering the improvements I have just outlined.
We have prepared this order in constructive and collaborative discussion with all the councils concerned. I would like to take this opportunity to thank everyone involved in this process. Our discussions with the councils included the transitional and electoral arrangements. They are key to how the councils will drive forward implementation. Where there has been unanimous agreement between all the councils, we have adopted their preferred approach. Where there were different views about the detailed provisions, my right honourable friend the Secretary of State considered all differing views and reached a decision accordingly.
Turning now to the detail of the order, I shall highlight the key provisions. The order provides that on 1 April 2023 the districts of Mendip, Sedgemoor, Somerset West and Taunton and South Somerset will be abolished. The councils of those districts will be wound up and dissolved. In their place, their functions will transfer to the new unitary Somerset Council. The order also provides for appropriate transitional arrangements including that in May 2022 there will be elections for the new unitary council, which will assume its full powers from 1 April 2023. These elections will be on the basis of a 110-member authority with 55 two-member electoral divisions. Subsequent elections to the unitary council will be in May 2027 and every four years thereafter. We expect that the Local Government Boundary Commission for England will undertake a full electoral review before the May 2027 elections. Parish council elections due in May 2023 will be brought forward to May 2022 to align with the unitary council election cycle. A duty will be placed on existing councils to co-operate during the transitional period until 1 April 2023.
As I set out in the previous debates, we intend, if this order is approved and made, to issue a direction. This direction would ensure that the new unitary council has appropriate oversight of the commitments that predecessor councils may enter into during the transitional period and which the new unitary council will take on from 1 April 2023. Before issuing any such direction I will be inviting councils’ views on a draft.
In conclusion, through this order we seek to replace the existing local government structures that were set up in 1974 in Somerset with a new council that will be able to deliver high-quality, sustainable local services to the people of Somerset. This council will be able to provide effective leadership at the strategic and most local levels. All the existing councils have made clear they share these aims and are committed to the very best services for Somerset residents. This order delivers this, and on that basis, I commend this order to the Committee. I beg to move.
Baroness Pinnock (LD)
My Lords, I understood that we ought to be here at the outset of a debate. I do not want to cause an issue, but I would like clarification.
Baroness Bloomfield of Hinton Waldrist (Con)
I was just sending a text. Although the noble Lord was nearly four minutes late, as the only representative from Somerset here, I ask that he be allowed to speak.
Baroness Pinnock (LD)
I am very happy for the noble Lord speak. He has been here most of the evening waiting for this to come, but I was seeking clarification because we do not want to set a precedent for other issues.
Lord King of Bridgwater (Con)
The noble Baroness is of course right. I apologise to those present. The speed with which the Minister finished off North Yorkshire completely fooled me about when he was about to start on Somerset. I thank the Committee because as the only representative of Somerset here, and having represented a Somerset constituency in Parliament for 30 years, I would like to comment on the changes that are taking place without the Minister looking too worried that I am going to seek to overturn the proposals that he has made. He can relax on that.
In my earlier career, I was, among other long-forgotten things, Minister for Local Government for three and a half years and I was in the Department of the Environment, as it was then. My noble friend Lord Heseltine and I worked together in that field looking at the activities of local government.
Baroness Pinnock (LD)
My Lords, I start by adding an additional interest to the ones that I declared earlier, as I have a family member who is a councillor in Somerset, so I know a bit about what is going on. I am glad we have heard from the noble Lord, Lord King, because I agree with him about the danger of local government becoming remote from people, which is a comment I made earlier about North Yorkshire. It then loses the “local” out of the government. What you might gain in strategic oversight, you lose in terms of local voice and listening to local people. I think the Government would do well to listen to the points made by the noble Lord, Lord King. I think I will repeat some of the remarks I made earlier. It is a done deal. Everything is in train to create this unitary authority in Somerset. It is not necessarily something that I think is completely right—I agree with the comments that have been made.
One of the issues that arises with the Somerset local government reorganisation is that one of the three criteria that lead the Government to determine whether to have a one-or two-unitary council model is that it commands a good deal of local support. The Minister whizzed through what the Explanatory Memorandum says, but I will repeat some of the figures because they are important in this regard. The views of residents, where they have been asked, are very clear on this issue: 58% of those who live in the area support a two-council model. Some 67% of parish and town councils support a two-council model. The voluntary and community sector supported a two-council model by 53% to 20%. When the district councils set up the online poll, to which there was a huge response—100,000 people responded—65% supported the two-council model. Although there was the counterview from Somerset County Council, which stuck up for what it had already, the people wanted a two-council model. Unfortunately, that has been overridden by this decision.
This is the point at which I draw the Committee’s attention to the comments of the Secondary Legislation Scrutiny Committee, to which I would like the Minister to respond. It said:
“Given the Government’s commitment to unitarisation”—
horrible word—
“being ‘locally-led’ … it is not clear whether or how the three criteria are prioritised.”
What weight is given to each of them? The people of Somerset clearly said no to having one council, and the Government said, “Hard luck, you’re going to have it.” The Secondary Legislation Scrutiny Committee invited those of us debating this to ask the question. I am asking it, and I would like an answer.
I heard what the Minister said about credible geography being important in this case. Perhaps he can explain what that means, given that Taunton, as we heard from the noble Lord, Lord King, is in the bottom left-hand corner, if I can put it like that, so it is nowhere near the middle. It is at the south-west edge of the county, which is very rural. A consequence is poor connectivity and access to services that are to be administered miles away from the northern part of the county. To get to Taunton from the north—from Frome or somewhere such as that; that is a new town for the Minister to know—would take an hour and a half. There is no public transport to get there, so unless you drive you cannot get there. It should be a matter of concern that the administrative centre of a new council is not easily accessible for people who live in one part of the county.
As I said, what has really upset me about these instruments is that there is no mention of people in them. I do not want any further instruments to come here without mentioning people, who are at the heart of local government. There is no mention of them at all, except in the consultation. Somerset has a population of 500,000. It is very rural. As we heard from the noble Lord, Lord King, it is proposed that there will be 110 councillors for the initial interim council, but I have heard it suggested that 85 will be the maximum number once the local government boundary review is done.
Each councillor will represent 2,000 households in the interim council and probably 2,700 households when the Boundary Commission has spoken, which is a very significant cut in representation. It makes them quite large in terms of numbers of councillors per household. I take as a random choice the London Borough of Hammersmith and Fulham, just as a comparator. It has a population of 180,000 in 80,000 households, and there are 46 councillors, so each represents a mere 1,700 households—a mere nothing. My colleagues and I represent 9,000 households between us, by the way. On top of that, in London there are also Assembly members providing additional local representation—and you have a compact borough, with excellent connectivity. So what is the problem with Somerset having equivalent levels of representation at a local level?
I applaud what the council is doing about the local community networks; that is something to agree with—it is trying to get something done. But there is no coherent plan for devolution to local communities at all, as there was in North Yorkshire, and no devolution plan for parish and town councils or, as they have in North Yorkshire, area constituency committees. There is much to be concerned about.
Of course, residents understand that some decisions, such as on highways, are best made at a county-wide level. But what is less acceptable, particularly in this case, is for decisions on planning or bus services to be made in Taunton by a Cabinet of 10 members out of 110 who will not understand the practicalities. Those who live near and around the Somerset Levels, for instance, or live in the north of Somerset, in Shepton Mallet, Frome or Street or any of those small towns in the north, do not want their planning decisions to be made in Taunton. Currently, the plan is for planning not to be devolved to area committees, which is a huge mistake. I hope that those with influence in Somerset, such as the noble Lord, Lord King, will do their best out of this to get some devolution at a local level, because that is the only way that these vast unitary authorities will work.
Noble Lords can see that I am not enamoured by this plan, because that is what it is—we do not have a choice today. The focus and purpose of the change is being driven by administrative and financial demands. Local democracy has been steamrollered out of the equation; it is entirely about process and not people.
These big unitary authorities may be more efficient because they can take a strategic view of what is needed across the area. I have served a community on the edge of a big metropolitan authority of 450,000 people for 30 years, and I can tell you how difficult it can be to make the voices of the villages I represent heard at the centre. It might be more efficient in administrative terms, but it will not be more effective at hearing the voices of local people. For me, local democracy is about local people, and their representatives listening to them and doing something about what they have said. There is not much point if they do not.
As noble Lords can hear, I am very concerned about what is happening in Somerset. It is going to happen, so I hope it is made to work. It will only work if there is proper devolution. I wonder whether the Minister will be able to put some pressure on his colleagues in Somerset to insist that that happens. With those few words, I look forward to what he has to say.
Baroness Hayman of Ullock (Lab)
My Lords, this is the third and last of the SIs on structural changes we have been debating. I will be brief, as we seem to have been here for some time. I thank the Minister for his introduction and the noble Lord, Lord King, for giving the perspective of someone from Somerset. As always, it was helpful and useful to hear that. My credentials are that my husband is a Somerset boy—well, not such a boy anymore, but he is from Somerset.
I understand from the consultation that
“The Secretary of State has concluded … that the proposal for a single unitary council meets all three criteria and that the proposal for two unitary councils meets only the criterion on local support”,
not those on improving local government and being a credible geography. From looking at the consultation, it seems the people of Somerset supported a proposal for two councils. Both the noble Baroness, Lady Pinnock, and the Minister mentioned the poll that was run by the four district councils, with a good number of people taking part—more than 100,000—of which 65.3% voted for the district council’s “Stronger Somerset” proposal, which would have created two councils, western Somerset and eastern Somerset.
As referred to by the noble Baroness, Lady Pinnock, Somerset County Council did not like that proposal. My understanding is that it described the poll as “deeply flawed” and “biased”, but the Member of Parliament for Bridgwater and West Somerset, Ian Liddell-Grainger, said that the Secretary of State “cannot afford” to ignore the poll. Could the Minister explain why the then Secretary of State ignored that poll? Did he agree with the county council that it was deeply flawed and biased? Will the Minister and the department assure the people of Somerset that their views in the consultation will not be ignored, and will be heard loud and clear in the transition phase to the new unitary authority? The people of Somerset need to be fully involved in the process at every stage. I hope the Minister can give specific assurances on this.
Noble Lords have said it is important for local people’s voices to be heard. Local decision-making must be part of any future structures. If the Minister could give reassurances on these matters, I would be grateful.
Lord Greenhalgh (Con)
My Lords, this is almost like a well-oiled relay. First, we had my noble friend Lord Jopling stepping in to provide covering fire. Then we had my noble friend Lord King of Bridgwater, with his Somerset credentials, stepping in to cover my lack of them. I went to a school in Somerset once—I think Blundell’s is in Somerset—and I did a prize-giving there, but that was about the first time.
Lord Greenhalgh (Con)
Is it in Devon? Gosh, that was not particularly good; I am probably not best placed to sell the virtues of Somerset. I wanted to say that I learn something every time, such as the fact that my noble friend was a Local Government Minister under the noble Lord, Lord Heseltine. You succeeded him, did you not? That was your first Cabinet position and you continued to serve with great distinction, for almost a decade, in the Cabinets of Margaret Thatcher and John Major. Each time I see my noble friend I am reminded of “Spitting Image”; he has not changed a bit in all those years, I have to say.
Most importantly, my noble friend raised the issue that Governments need to be strategic but also deliver. As someone who has served in the town hall, in City Hall and now as a Minister, I absolutely recognise that. It is possible to do both. It is possible to be strategic and focus on delivery. That is what local leadership is all about. That is what I would say in response to my noble friend.
It has been very difficult to listen to some of the passages from the noble Baroness, Lady Pinnock, because I was being lectured by someone from Yorkshire about Somerset and about Hammersmith and Fulham. In response to her and the noble Baroness, Lady Hayman, I would say that the process was done properly. The key point is that both options had a great deal of support in Somerset. As I set out in some detail for the first statutory instrument, the three criteria are considered in the round. Residents are central to the criteria that have led to this order, in the sense that this reform is all about better delivery of services to the residents of Somerset.
Before I conclude, I will just say that the electoral arrangements are clearly for an election in May 2022. That was proposed by the Somerset councils. There will be a review by the Local Government Boundary Commission for England before the second election in 2027.
This has widespread support from residents, local businesses, and the voluntary and community sector in Somerset. I commend the order to the Committee.
Greenhouse Gas Emissions Trading Scheme (Amendment) Order 2022
Baroness Bloomfield of Hinton Waldrist
That the Grand Committee do consider the Greenhouse Gas Emissions Trading Scheme (Amendment) Order 2022.
Baroness Bloomfield of Hinton Waldrist (Con)
My Lords, I beg to move that the draft Greenhouse Gas Emissions Trading Scheme (Amendment) Order 2022, which was laid before the House on 9 March 2022, be approved.
The UK Emissions Trading Scheme, or UK ETS, was established under the Climate Change Act 2008 by the Greenhouse Gas Emissions Trading Scheme Order 2020 as a UK-wide greenhouse gas emissions trading scheme to encourage cost-effective emissions reductions which will contribute to the UK’s emissions reduction targets and net-zero goal. This scheme replaced the UK’s participation in the EU Emissions Trading Scheme, and the 2020 order applied EU ETS rules on the monitoring, reporting and verification of emissions, with modifications to ensure that they work for the UK ETS.
The 2020 order was subsequently amended by the Greenhouse Gas Emissions Trading Scheme (Amendment) Order 2020 to include provisions for the free allocation of emissions allowances and to create the UK ETS registry. Regulations under the Finance Act 2020 established the rules for auctioning allowances and mechanisms to support market stability. The UK ETS launched on 1 January 2021 and the first auction successfully completed on 19 May. The scheme has been running well since this launch, but there is a need to continue to improve its operation.
Further amendments to the scheme were made by the Greenhouse Gas Emissions Trading Scheme (Amendment) Order 2021, which was subject to the negative procedure and came into force on 7 February 2022. In broad terms, the 2021 order made various technical and operational amendments to the UK ETS across a number of scheme aspects, including providing for installations in the hospital and small emitter opt-out scheme to be able to increase their emissions targets and for installations in both opt-out schemes that return to the main scheme to benefit from free allocation.
The purpose of this order is to amend the 2020 order to address several residual operational issues identified in the development of and legislation on the scheme, and to support the scheme’s technical operation. This legislation also addresses an issue of doubtful vires relating to the previous amendments raised by the Joint Committee on Statutory Instruments.
This proposed order consists of various operational issues that were identified by BEIS, the devolved Administrations and the national scheme regulators during the establishment of the scheme but were required to be legislated for via an affirmative procedure. In particular, this order introduces a civil penalty to enforce an existing obligation to return overallocated allowances; creates an offence of intentionally obstructing the scheme regulators exercising enforcement powers; makes it clear that some enforcement powers previously introduced by the negative procedure are valid; and provides that, when an installation’s permit is surrendered or revoked, the notice given to the operator will include a requirement to surrender any deficit of allowances from previous scheme years.
The Government consulted on the policy in these regulations between July and September 2021. The consultation generated seven responses from a range of stakeholders. Responses were largely considered clarification-based, none of which impacted on the proposed policy changes. Alongside the consultation, the UK Government and the devolved Administrations jointly sought the advice of the Committee on Climate Change on the public consultation. The Committee on Climate Change reviewed the consultation on the proposed amendments and had no comments on the content.
The amendments made to the surrender and revocation notice provisions were not included in the public consultation. The department took the view that the policy represented by these amendments is within the scope of the consultation previously carried out on the future of UK carbon pricing in 2019 and is covered by the Government’s response to that consultation, which was published in June 2020. The scheme regulators were consulted and agreed with the proposed amendments. The Committee on Climate Change was advised of the additional provisions and had no comments.
The overall level of climate ambition in the UK ETS is unchanged by the proposals. There is no overall impact on the monetised costs and benefits to businesses. There is no change to the supply of allowances or the expected emissions from participants. There is also no expected change to the general administrative burden for emitters. In terms of other impacts, these provisions are also designed to address a number of specific circumstances for regulators and the registry administrator, including options to apply penalties specifically if operators or aircraft operators fail to return allowances. Again, these are not expected to apply generally, but might take effect in specific circumstances.
In conclusion, this order will help to improve the effective operation of the UK ETS. This in turn will help to ensure that the scheme plays its part in reducing emissions. I commend the draft order to the Committee.
Lord Kennedy of Southwark (Lab Co-op)
My Lords, I do not intend to speak for long. This order is fairly uncontroversial, so I do not want to detain this packed Committee. The one thing that I want to mention is that the Minister mentioned consultation and said that only seven people responded. I have stood here many times and looked at consultations, and it always strikes me how woefully few the responses are. This order may not cover very much, but it seems to me that we have to consult. The Minister need not come back but, if only seven people respond, have we got the consultation right? That is a general comment across a number of departments. I shall not detain the Committee, because I do not have a huge objection; the order is fairly uncontroversial. However, I understand that this order amends a previous order, so the question is why we did not get it right in the first place. Perhaps the Minister can respond on that point in particular and about consultation. I will leave it there.
Baroness Bloomfield of Hinton Waldrist (Con)
I thank the noble Lord for his kind comments and his contribution to this debate. I take his points about the consultation. I wondered why we had had so few responses, but it is a general point about consultations.
The UK ETS was designed by the UK Government jointly with the Scottish Government, the Welsh Government and the Northern Ireland Executive. It came into force on 1 January 2021, only 15 months ago, replacing the UK’s participation in the EU scheme. The UK Government and devolved Administrations are committed to the use of carbon pricing as a key policy lever to ensure that the UK reaches its ambitious climate targets, including net-zero emissions by 2050, cost effectively. We will in due course also consult on aligning the UK ETS cap with our ambitious net-zero target—and I am sure the officials behind me will take note of the consultation procedures for that. The UK ETS will promote cost-effective decarbonisation, allowing businesses to cut carbon where it is cheapest to do so. It will help mobilise the scale of capital investment necessary to deploy clean energy technologies and to capture new trade opportunities on the back of the energy transition. Alongside our UK ETS, we are also supporting and incentivising business to invest in key technologies such as hydrogen and carbon capture, which, as the noble Lord will know, is also supported by the Government.
Small Business, Enterprise and Employment Act 2015 and Pubs Code etc. (Amendment) Regulations 2021
Baroness Bloomfield of Hinton Waldrist
That the Grand Committee do consider the Small Business, Enterprise and Employment Act 2015 and Pubs Code etc. (Amendment) Regulations 2021.
Baroness Bloomfield of Hinton Waldrist (Con)
My Lords, I beg to move that the Small Business, Enterprise and Employment Act 2015 and Pubs Code etc. (Amendment) Regulations, which were laid before the House on 30 November 2021, be approved.
The Pubs Code was introduced in 2016 to ensure the fair and lawful treatment of tied pub tenants of large pub-owning businesses. These regulations would improve its practical operation. A tied pub tenancy is where the tenant has agreed to purchase beer and other stock from their pub-owning landlord in return for a lower rent and other benefits. That agreement means that the tied pub tenant is unable to negotiate deals in the open market for beer and other products, but also means that their landlord has a shared interest in the success of the pub and works in partnership with the tied tenant. This has not worked well in all cases, and evidence from tenants to several Select Committees identified failures in the tied pubs sector and led the Government to introduce the Pubs Code to regulate this relationship. The Pubs Code creates certain rights and protections for tied tenants, including better information prior to signing a contract; no upward-rent-only reviews; no tied gaming machines; a right, at certain points, to break their tied arrangement and opt for a free-of-tie tenancy, by way of the market-rent-only process; and a system of redress through the Pubs Code Adjudicator.
The tied model is not inherently bad. In many cases, if not most, tenants are positive about their tied arrangements and welcome the partnership with the pub-owning business. It is therefore crucial that the Pubs Code strikes the right balance between creating rights and protections for the tied tenant, the property rights of pub-owning businesses and their ability to realise the value of their investments. To ensure the Pubs Code continues to operate as intended, a statutory review must be conducted every three years. The first such review concluded with the publication of the Government’s report in November 2020. This found that although there had been improvements, there were some aspects of the code’s practical operation that could be improved. Following a public consultation, the Government committed to make several changes to the Pubs Code.
The most significant changes in these amendments are the improvements to how the process for the market-rent-only option works in practice. The MRO process enables the tied tenant to request a proposal from their pub-owning business that sets out the terms for a free-of-tie tenancy where the tenant would pay a market rent. That rent will likely be higher with the removal of the contractual agreement to purchase tied products from the landlord and is a matter for the parties to negotiate.
The SI will improve the MRO process, first by requiring the initial MRO proposal from the pub-owning business to include a rent proposal, so that parties can negotiate both terms and rent at the same time. Secondly, it will create a single resolution period of up to three months. Unlike the current process, where the tenant has 14 days to decide whether to refer an MRO proposal to the PCA, the parties will have time to negotiate the proposed free-of-tie terms and rent. This change has been welcomed by most stakeholders, including the PCA. Only the tenant can end this period early, at any time after 21 days, enabling them to refer the proposed terms to the PCA, or the proposed rent to an independent assessor.
Finally, the SI makes other changes, adjustments and clarifications to the MRO process, reflecting the introduction of the resolution period. For instance, where there is a procedural defect in the MRO proposal, such as the omission of the rent offer, the tenant has 14 days to refer this to the PCA to resolve such technicalities more quickly. It also provides expressly for rereferral to the PCA where the tenant considers that the pub-owning business’s revised response is still not MRO-compliant.
Schedule 1 to the statutory instrument uses powers in the Small Business, Enterprise and Employment Act 2015 to amend the qualification period for a business owning tied pubs to come into or out of scope of the Pubs Code. This amends the requirement from having owned 500 or more tied pubs for six months in the previous financial year to three months. No new pub-owning business has met this threshold since 2016, but noble Lords will be aware of the merger and acquisition activity that is a feature of the pub sector.
Currently, tied tenants could wait for nearly 18 months after their landlord reaches the 500 tied-pub threshold before acquiring the rights and protections of the code. For example, under the legislation as it stands, a pub company meeting this 500 tied-pub threshold through tied pub acquisitions in October 2022 would not come under the code until April 2024. Under the amendment, the maximum period is reduced to 15 months, so a pub company meeting that 500-pub threshold in October 2022 would come under the code in April 2023. Similarly, a pub-owning business reducing its number of tied pubs to below 500 would remain regulated for a longer period, but this also means that the minimum period of full protection for the remaining tied tenants increases from six to nine months and would help to manage such changes, which are beyond the tenant’s control.
In Schedule 2, the comparison period, used to determine whether a significant price increase for a tied product or tied service has occurred, is amended from 56 weeks to 52 weeks. This is one of the events allowing a tied tenant to request an MRO proposal, and therefore serves to disincentivise significant price increases for tied beer, et cetera, under the tie.
The Government are cautious about changing this arrangement, but there is a case for amending how the comparison period is calculated. A 56-week comparison period could capture two annual price increases, raising complications for the more traditional 12-month business planning cycle. The proposed change amends the comparison period to 52 weeks but continues to disincentivise price increases, thereby protecting tied tenants.
Lastly, I move to notification of the PCA regarding extended protection, which applies where a tied pub is transferred to a landlord not regulated under the code. Tenants with extended protection continue to benefit from many of the code’s provisions for a limited time, including access to the PCA. Currently, the PCA will have no direct knowledge of such transfers. This amendment will require a regulated pub-owning business, before the transfer, to inform the PCA when it is transferring a tied pub where the tenant will enjoy extended protection. This enables the PCA to contact new owners, raising awareness of their tied tenants’ rights and protections.
In conclusion, this SI makes important changes to improve the practical operation of the Pubs Code, most notably in creating a longer period to enable the tied tenant to negotiate a free-of-tie tenancy or, indeed, a better tied deal. I commend these regulations to the Committee.
Lord Kennedy of Southwark (Lab Co-op)
My Lords, I should make it clear at the start how much I like a pub. I have spent my adult life visiting pubs all over the country and am a big supporter of them. I see them as the heart of the community and as a very British thing. We are very well served. Having said that, we all know about how many pubs are struggling and are closing. During the pandemic, I think that 40 pubs a week were going bust. That is something that we should all regret. Even outside the pandemic, I think that we have all known for years that many pubs have struggled. Publicans, those who are tied to a company and those who are not, have to work very hard to have an offering that actually serves their community. We will all know of very different pubs that know their customers well. Good pubs know what their customers want and serve them well.
The code itself is a good thing, but in practice it has not always worked to the benefit of the tied tenant. It is a bit like a David and Goliath battle, in that even when individual tied tenants seem to get changes, they are still tied into the agreement they have. I think sometimes it is very difficult for them. Yes, the tie means that they get a cheaper rent, but they are then tied into buying the beer and other things to sell often at a slightly higher price. If they want to change to a market rent, getting out of that can take a long time. There is not really speed here. Yes, the changes make some progress, but I think that, generally speaking, the adjudicator and the process have not particularly served the landlords of tenanted pubs particularly well. I still think that, even with these changes, tied tenants are getting a bit of a raw deal in some respects. We need to do much more, otherwise it will always be the tenant who has to wait to make the change and to pay. All those things go further to ensure that we lose more and more pubs.
What I would like to hear from the Minister when she responds is what further is going to be done. If anything I am saying today has any resonance with her, what are we going to do then to ensure that we will not be sitting here in years to come with more and more pubs lost, or saying that we are going to make further changes to the code? As it is now, it is not going to be good enough and we are going to see more pubs lost.
Baroness Bloomfield of Hinton Waldrist (Con)
I thank the noble Lord, Lord Kennedy, for those perceptive comments. I too am a big fan of pubs. We have a free house in the next village that gets a lot of our custom.
The points the noble Lord raised demonstrate the importance of the Pubs Code itself and the broad support to improve its practical operation. As I said in my opening speech, a number of tied tenants are very happy with the arrangements with the larger brewers, but I reiterate that the clear and narrow purpose of the Pubs Code is to regulate the relationship between large pub-owning businesses that own at least 500 tied pubs and their tenants to ensure that there is fair and lawful treatment.
The Government will commence the second statutory review this year. Ministers are considering how they wish to approach the review, but stakeholders will again be invited to share their views about how well they think the code is operating. The second review will cover the three years to the end of March this year. Stakeholders’ responses and publicly available evidence will be considered to assess the practical operation of the code to inform the Government’s conclusions. The first review did not find that the tied pub arrangement had been a significant driver of pub closures, although a number of responses to the review gave examples where they believed that the tie had contributed to the failure of a tenant’s business.
We acknowledge that these are exceptional times for the hospitality sector, including the wider pub sector. It will take time to assess the longer-term impact of Covid on the pub sector. Prior to the Covid pandemic, however, the main causes of pub closures, as identified by the Office for National Statistics, were changes in demand because of short-term economic factors and longer-term changes in consumer habits. I acknowledge that there was a worry that pub-owning businesses might have used Covid as an opportunity to punish former tied tenants for exercising their right to a market rent only free-of-tie tenancy under the code by not giving them the same support, but that is one of the reasons why the Government have introduced these streamlined arrangements to allow tenants to use the market rent only process, and why we have tweaked the Pubs Code Adjudicator to help resolve these dispute under the code.
The Pubs Code was drafted to balance those important rights and protections for tied tenants against the property rights of pub-owning businesses to operate their tied pub estate and to secure a return on their investments. We believe these amendments are proportionate in improving the practical operation of the Pubs Code and achieving real improvements for tenants without placing undue constraints on pub-owning businesses, particularly at a time that remains difficult for the tied pub sector. As I said, the next consultation is already well under way. It will be interesting to see what lessons can be drawn out of that. For the moment, I commend this instrument to the Committee.
House of Lords
Green Skills
(2 years, 9 months ago)
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Baroness Hayman
To ask Her Majesty’s Government what consideration they have given to introducing a national green skills strategy to ensure that the workforce has the necessary skills to meet the United Kingdom’s net zero emissions commitments.
The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)
My Lords, the Net Zero Strategy sets out our plans to work with industry to create the skilled workforce needed to deliver our net-zero targets. This includes green apprenticeships and retraining boot camps. The Government are establishing a green jobs delivery group, co-chaired by a government Minister and an industry representative, where government, industry and other key stakeholders will work together to deliver the skills needed for net zero.
Baroness Hayman (CB)
My Lords, I declare my interests as set out in the register and thank the Minister for that Answer. Green skills will be fundamental to economic growth and the levelling-up agenda, as well as to achieving net zero. While I recognise that much is going on in various parts of the forest, will the Government now bring together all the various agencies and departments with business and industry to provide a comprehensive and systematic strategy for skills? I also take the opportunity of the Minister being at the Dispatch Box to ask whether, given the reports in today’s papers about onshore wind, the Government will now give my Private Member’s Bill on the issue fair passage.
Lord Callanan (Con)
I thank the noble Baroness for her question. Before I answer, I will detain the House for a moment to acknowledge that, after 52 years of distinguished service in Parliament, this is the final appearance of my noble friend Lord Tebbit, who is joined by his family in the Public Gallery. I am sure I speak for the whole House in saying that we have been greatly enhanced by his presence here and wish him the very best for his long and happy retirement. We on these Benches will miss him.
Going back to the question of the noble Baroness, she makes a very good point. We are bringing together the Green Jobs Taskforce, chaired by my right honourable friend Minister Hands, with representatives from the DfE, the DWP and all the key departments in Whitehall. With regard to her Private Member’s Bill, we have an energy Bill coming up which will deal with many of these matters.
Baroness Fookes (Con)
My Lords, is my noble friend aware of the great amount of consideration that should be given to the horticultural sector, which can offer so much? It has a shortage and is crying out for skilled jobs. What can my noble friend do to assist?
Lord Callanan (Con)
My noble friend makes a very good point. There are a number of different apprenticeship standards supporting green skills. The horticultural sector is very much a green skill, so I totally agree with her that we want to do all we can to encourage this important sector.
Lord Kennedy of Southwark
My Lords, I join the Minister in paying tribute to the noble Lord, Lord Tebbit, for his long and distinguished service to this House and the other place.
Could the Minister set out for the House the specific skills that the workforce needs to develop and obtain to meet the UK’s net zero commitments?
Lord Callanan (Con)
That is a very wide-ranging question. There are a number of them, but I can give some examples: the wave 1 and 2 skills bootcamps in green subjects, such as housing retrofit, solar and nuclear energy, vehicle electrification. We have 40-plus apprenticeship standards in digital, STEM, nuclear, forestry, manufacturing et cetera—there are a number of them.
Lord Howell of Guildford (Con)
My Lords, the International Energy Agency confirms that global emissions are again rising fast. Sadly, it looks as though even if we achieve the UK net zero aim, which is commendable and something that we all want to see, those emissions will continue to rise fast and take us further and further away from the Paris targets. Is it not necessary to think about not only skills for our own net zero but skills to develop entirely new initiatives both in the production of low-carbon energy and in carbon absorption, which has been rather neglected and can be met on a much bigger scale—not only by trees but by entirely new strategies which are now being discussed?
Lord Callanan (Con)
Indeed, my noble friend makes a very good point. The UK is responsible for only 1% of worldwide emissions; it is very much a global problem that we have to work internationally to tackle. There are many exciting new developments in a whole range of industries and technologies that we want to encourage as much as possible. Technology could be our friend here.
Lord Foster of Bath (LD)
My Lords, over one-third of our homes are inadequately insulated, and yet after many failed green deals, the industry that will actually deliver the solution to the problem has lost confidence. It says that if it is going to invest in research, equipment and skills training, it wants the confidence of the Government’s home insulation targets placed firmly into legislation. Why have the Government refused?
Lord Callanan (Con)
We are working very closely with the retrofitting insulation industry. The noble Lord is aware that we are spending billions of pounds helping low-income families to upgrade their accommodation in the low-income private sector, social housing and through local authorities. This is a well-advanced programme, and we also have the ECO scheme which spends up to £1 billion a year on green retrofitting measures, so there is a lot going on this sector.
Lord Clark of Windermere (Lab)
My Lords, over four decades ago there was a similar scheme to try and push green jobs, based on a fairly similar tripartite-plus system. It was not a great success, although it had a lot of support. Will the Minister ask his civil servants to see if there are any lessons to be learned from that experience that will make sure it works now?
Lord Callanan (Con)
I thank the noble Lord for his suggestion based on his long experience in government. I will certainly pass on that suggestion to my ministerial colleague, and I am sure we would want to learn lessons from past experiences.
Lord Lilley (Con)
My Lords, if my noble friend believes the Government’s strategy when it says that green energy will create more jobs at higher pay than producing an equivalent amount of conventional energy, does that not mean it is wasteful, and that green energy must be more expensive than conventional energy?
Lord Callanan (Con)
It is the entire sector, not just the generation of energy; it includes all the retrofitting standards, the upgrading of insulation, new homes built to higher standards and others that have been mentioned. We are confident that there will be a net increase of jobs, but we do have a legally binding commitment to net zero which we need to pursue.
Lord Brownlow of Shurlock Row (Con)
My Lords, I join the Minister in paying tribute to Lord Tebbit, who was inspirational to me, as an 18 year old, to get involved in politics, and I thank him for all his service.
I have a background in recruitment: can the Minister tell me how many individuals he estimates would be needed in, say, the next five years to join a green skills workforce?
Lord Callanan (Con)
It is very hard to put a precise number on that, but I can give my noble friend some figures. Our net zero strategy supports up to 190,000 jobs by the middle of the 2020s, and up to 440,00 jobs by 2030.
Baroness Bennett of Manor Castle (GP)
My Lords, the major IPCC report out this week said that the shift from incremental change to transformational change was crucial, given the fact that carbon emissions are heading in the wrong direction. Do the Government really think they are finding the true innovation, the true change, rather than just doing business as usual with a bit of greenwash added?
Lord Callanan (Con)
It is very much not business as usual. As the noble Baroness will be aware, we have one of the most ambitious decarbonisation targets in the western world. We have decarbonised faster than most other industrialised countries. I am sorry if the noble Baroness does not like that, but it remains a fact. As I said in an earlier answer, we are responsible for 1% of worldwide emissions. Yes, we need to make progress in this country, but we also have to look at a global scale and work with partners across the world to bring down their emissions as well.
Lord Teverson (LD)
My Lords, can I make a plea to the Government? So often when we talk about green jobs—as has been mentioned already, in fact—it is nearly always around green energy, renewable energy and all of that side, whereas there is a huge need for those skills that are meeting the biodiversity emergency in this country and globally, as the noble Baroness, Lady Fookes, said. In particular, I mean biologists, ecologists, horticulturalists and farm advisers—there is a real shortage of these. If we want that emergency to be solved as well, we need jobs and training in that sector.
Lord Callanan (Con)
Yes, I am very happy to agree with the noble Lord on that point. He makes some good observations.
Lord St John of Bletso (CB)
My Lords, there is no denying that environmental illiteracy is a major problem in both the public and private sector. What measures are being taken to embrace technologies such as smart meters to change behaviours?
Lord Callanan (Con)
One of my ministerial responsibilities is the smart metering programme, which has quietly gone ahead in the background. I forget the exact figures, but I think we now have 25 million smart meters installed in this country, and the programme is already delivering net benefits. We have launched a publicity drive to drive take-up even further, and we are looking to see what we can do to expand it even more, because smart meters are a very good thing.
Trade Talks with India, Greenland and Israel
(2 years, 9 months ago)
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Baroness Hayter of Kentish Town
To ask Her Majesty’s Government, further to the opening of trade talks with the governments of India, Greenland, and Israel, what steps they intend to take to support parliamentary scrutiny of the negotiating objectives.
The Minister of State, Department for Business, Energy and Industrial Strategy and Department for International Trade (Lord Grimstone of Boscobel) (Con)
My Lords, the Government welcome parliamentary scrutiny of our negotiation objectives. The India objectives were recently published, and we will publish our negotiating objectives for our updated Israel agreement in due course. The Government are negotiating to swiftly restore the terms of our trading relationship with Greenland. If the IAC should publish a report on these objectives, of course the Government will consider it with interest and facilitate a debate on the objectives, subject to parliamentary time.
Baroness Hayter of Kentish Town (Lab)
My Lords, in addition to that, I should say that the Minister very nicely, at 10 pm last night, sent me an extremely helpful letter which said that, as the International Agreements Committee had been asking, there would be an exchange of correspondence between the Government and our committee about how we deal with scrutiny. We have been asking for that since September, so I welcome the letter sent last night. In light of that, it would be a bit churlish, perhaps, to say that it was a shame that the New Zealand agreement was published before it had been shared with our committee, so let us put that to one side. For the moment, I thank the Minister for managing to engineer this big move forward and just ask him to confirm that when that exchange of letters has been agreed, it will be published in the normal manner.
Lord Grimstone of Boscobel (Con)
My Lords, it is a great pleasure to be congratulated by the noble Baroness; I have a high respect for her and for the committee she chairs. I apologise that there was a little bit of confusion in the timing of the New Zealand publication. It was a bureaucratic error because so much was going on, and I apologise to the noble Baroness and the House for that short delay.
The Earl of Kinnoull (CB)
My Lords, Article 218 of the Treaty on the Functioning of the European Union deals with all agreements between the EU and third countries. It says:
“The European Parliament shall be immediately and fully informed at all stages”.
Through this article, the scrutiny processes of the committee of this House were engaged. Why was this piece of EU law not retained?
Lord Grimstone of Boscobel (Con)
My Lords, the Government have put in place a suite of enhanced scrutiny arrangements that go well beyond our statutory obligations, so we have no need to refer back to EU law in that instance.
The Lord Speaker (Lord McFall of Alcluith)
I call the noble Baroness, Lady Brinton, to speak virtually.
Baroness Brinton (LD) [V]
My Lords, the Government have inserted in the Health and Care Bill, which is currently going through your Lordships’ House, a clause on reciprocal healthcare agreements beyond the existing arrangements with the EU, EEA and Switzerland, because we know they work well. Will reciprocal healthcare agreements form part of the trade talks with India, Greenland and Israel?
Lord Grimstone of Boscobel (Con)
My Lords, I am not yet in a position to give an answer on that. We are at the very beginning of our journey with India but, as always, we will report progress to the House as the talks progress.
Lord Leigh of Hurley (Con)
My Lords, does the Minister agree that it is incumbent upon all of us to do everything we can to promote trade with all countries, particularly the three countries listed in the Question? Therefore, does he hope, as I do, that the whole House condemns the approach taken by certain local authority pension funds in imposing boycotts, divestment and sanctions on just one country: Israel?
Lord Grimstone of Boscobel (Con)
My Lords, I think the House recognises that trade is one of the surest ways to economic advancement for a whole range of countries. The UK is strongly committed to our trade and investment relationship with Israel, one of the Middle East’s most dynamic and innovative economies.
Lord Cunningham of Felling (Lab)
My Lords, will the Minister commit the Government to including in the parliamentary scrutiny of the negotiating objectives the aim that global companies that try to abuse and infiltrate food markets—I am not suggesting that any of the three countries mentioned are included in that—should be excluded? Should we not exclude in our negotiating commitments all companies that have proven criminal records in food markets?
Lord Grimstone of Boscobel (Con)
My Lords, the Government and I have made clear on a number of occasions that we will never enter into a free trade agreement which in any way diminishes the high standards of food in this country.
Baroness McIntosh of Pickering (Con)
My Lords, I congratulate my noble friend on opening negotiations with Greenland, and I declare my interest as someone of half-Danish heritage and co-chair of the All-Party Parliamentary Group on Denmark. How will this negotiation differ from the arrangements we had through our membership of the EU? Will he join with me in recognising the importance of Greenland, with its rich fisheries, oil and minerals, and its lithium deposits?
Lord Grimstone of Boscobel (Con)
My Lords, my noble friend always makes a good point, and the negotiations with Greenland provide the opportunity to recognise the UK’s broader bilateral relationship with it. Greenland is an important strategic partner for us, and this agreement will allow us to identify areas for future co-operation, including on UK priorities such as science, research, sustainability, gender equality, critical minerals, a stable Arctic and climate change.
Baroness Liddell of Coatdyke (Lab)
My Lords, I am grateful for this opportunity and I am not as kind as my noble friend Lady Hayter, so I will be churlish. Can we return to the issue of parliamentary scrutiny? The letter that my noble friend alludes to is about trade treaties and is not much wider than that. Is the Minister aware that the diplomatic missions of the countries with which we are seeking to strike agreements watch how Parliament discusses these issues? If there is not proper scrutiny, they will conclude that there is an attempt to hide our failure, there is incompetence, or we have a Government who do not take parliamentary scrutiny into account.
Lord Grimstone of Boscobel (Con)
My Lords, “churlish” is an adjective that I would never like to apply to the noble Baroness. I think I have made our attitude towards scrutiny of free trade agreements very clear. Of course, I will draw to the attention of my colleagues in the Foreign, Commonwealth and Development Office her comments on other treaties and agreements.
Lord Wallace of Saltaire (LD)
My Lords, it is very encouraging to hear that we are now negotiating with Greenland. Can the Minister tell us what British export sectors will benefit most from a trade agreement with Greenland, and does he think that that will help in a significant way to counterbalance the deterioration of our trade with the European continent?
Lord Grimstone of Boscobel (Con)
My Lords, I am very happy to deal with that. Greenland is an important exporter of seafood to the UK, accounting for 40% of the total value of UK imports of cold-water prawns in 2020. For those who enjoy their prawn cocktails, I can think of no better statistic.
Lord Kerr of Kinlochard (CB)
While I join the noble Lord and the noble Baroness, Lady Hayter, in congratulating each other on the Government deciding not to resile on trade agreements and commitments made by the noble Lord himself at the Dispatch Box, I do find their letter a little unsatisfactory in that it is limited to trade, thus meaning that we are still much less well informed than we were when Article 218 of the treaty applied. Also, it casts some doubt on the Ponsonby rule, which has governed the Government’s provision of information on international agreements to Parliament for 98 years. Would the Minister confirm that the Government have no intention of resiling from the Ponsonby rule?
Lord Grimstone of Boscobel (Con)
My Lords, first, if I may just offer a small correction to the noble Lord, the Ponsonby rule survived for 86 years before it was supplanted by CRaG. I can completely confirm that now that they are governed by CRaG, the Government will abide by CRaG in all the appropriate circumstances.
Lord Hamilton of Epsom (Con)
My Lords, does my noble friend accept that however much Parliament oversees free trade agreements, it cannot amend them?
Lord Grimstone of Boscobel (Con)
My Lords, I recognise the point, but free trade agreements are negotiated under the royal prerogative. The House has full opportunities to scrutinise these agreements as they move to ratification, and I believe this should be sufficient for noble Lords.
Lord Foulkes of Cumnock (Lab Co-op)
My Lords, could the Minister and any of his colleagues who have contacts with the Government of India suggest they take a more robust attitude in relation to the Russian invasion of Ukraine?
Lord Grimstone of Boscobel (Con)
My Lords, I will make sure that those comments are passed on to the appropriate parties.
Horizon Europe
(2 years, 9 months ago)
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Viscount Stansgate
To ask Her Majesty’s Government whether they intend to join the Horizon Europe programme; and if not, why not.
Viscount Stansgate (Lab)
My Lords, I beg leave to ask the Question standing in my name on the Order Paper—and, if I may, I would like to wish the noble Lord, Lord Tebbit, well in his retirement. He is a man I have disagreed with all my adult life, and I am sorry he did not quite last long enough in the Chamber to listen to the exchanges on what is my first Oral Question.
The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)
My Lords, in line with the agreement made in December 2020, this Government are committed to finalising our association to Horizon Europe at the earliest opportunity. We continue to push the EU swiftly to formalise our association to Horizon Europe, as international co-operation is more important than ever now. We will support the UK R&D sector in all scenarios, either by associating to Horizon Europe or by implementing an alternative UK programme.
Viscount Stansgate (Lab)
My Lords, I thank the Minister for the reply, but it is very dispiriting. On Monday this week in the other place, the annual STEM for Britain competition was held, which features early-career scientists from the UK and Europe, with brilliant work on display. It is the very week when our chances of co-operation with Europe are slipping away, which will be terribly damaging. Indeed, does the Minister agree with me that not joining Horizon Europe is
“harming scientific research and collaboration”?
He certainly should, because that is a direct quote from the meeting held before Christmas of the Specialised Committee on Participation in Union Programmes.
Finally, may I also ask him about the money? Money has been allocated in the Budget for our participation in Horizon Europe. The financial year is drawing to an end, and we have not yet joined. Can the Minister assure the House that the money allocated for Horizon Europe will not be lost to science but will be carried over, either for the UK’s participation in Horizon Europe or for such other plan B as may eventually be necessary?
Lord Callanan (Con)
I agree with the noble Viscount; it is indeed very disappointing that the EU is refusing to abide by the agreement we made with it. I am sure that some of the EU’s supporters in this House will want to urge it to press ahead with this agreement. The UK stands willing and able to associate. We have an agreement to that effect, and we hope the EU will also abide by its commitments. The noble Viscount will be aware that the spending review allocated funding for full association to EU programmes. In the event that the UK is unable to associate, the full funding allocated will go to UK programmes; £5.6 billion was set aside over the spending review period.
Lord Fox (LD)
My Lords, the head of policy at the Wellcome Trust is quoted as saying:
“There is a real prospect that bright young scientists will decide it will be best … if they leave the UK.”
Meanwhile, recruitment of postgraduates in some of our elite universities is reported to be seeing a huge drop in candidates. This is because young researchers fear for the future progression of their careers. The Minister said we were seeking to resolve this at the earliest possible opportunity, and I take him at his word. However, these people are making decisions now—the brain drain is already happening. In the meantime, what is the plan to attract and retain the talent we need in this country?
Lord Callanan (Con)
I reiterate the point: we want to associate with Horizon Europe. It is not the UK that is holding up association but the EU. We want to do that at the earliest possible opportunity. If the funding we have set aside is not used for Horizon Europe, we intend to spend equivalent sums on a UK programme, co-operating with other third countries if necessary. Hopefully that will attract the talent the noble Lord refers to.
Lord Hannay of Chiswick (CB)
My Lords, does the Minister take pleasure from the fact that your Lordships’ European Affairs Committee has written to the Commissioner and the Foreign Secretary about seeking to unblock Horizon? Does he not recognise that we and the EU are now basically in a lose-lose situation in which both sides are being damaged by failure to reach agreement? In the months ahead, could we see an effort by both sides to get that unblocked?
Lord Callanan (Con)
I am delighted that the European Affairs Committee has supported our position on this. As I say, the blockage is not on our side. I hope that in its letter it acknowledged where the fault lies in this situation. The EU has an agreement to associate, which we signed up to in good faith. We stand willing to associate; it is the EU that is currently blocking progress.
Baroness Chapman of Darlington (Lab)
My Lords, we need to be pragmatic about this. The truth is that this is being held up and delayed because the Government have made such a hash of negotiations on the Northern Ireland protocol. I do not see any prospect of getting it resolved until that problem is sorted out. As this may take some time, are the Government reaching out to counterparts in the EU to make sure that, even if some further months elapse, we can still join the Horizon programme, albeit at a late stage?
Lord Callanan (Con)
I am sorry that the Opposition seem to be supporting the EU position on this. The Northern Ireland protocol is a completely separate part of the agreement, and of course we stand willing to negotiate in good faith on that as well. The two are not linked. The EU has signed up to an agreement and should honour it; we will continue to press it to do so. The Northern Ireland protocol is also part of the same agreement.
Lord Trees (CB)
My Lords, does the Minister agree that the European Horizon programmes have been hugely important in catalysing research collaborations and networks, not only between British scientists and European ones but with scientists in low and middle-income countries? Moreover, does he agree that they have also been an invaluable funding bridge between the basic science funding that our research councils provide and the much more downstream R&D funding that industry provides? Her Majesty’s Government are committed to funding successful applications to Horizon while negotiations to join continue, but how long is that commitment for? Will it continue if our application to join ultimately fails?
Lord Callanan (Con)
I agree with the noble Lord that the Horizon project is very valuable. That is why we want to continue association with it and why the funding has been allocated. With regard to the funding guarantee, of course we will want to provide certainty as quickly as possible. We will have announcements to make in that regard in due course.
Lord West of Spithead (Lab)
My Lords, the Minister will be aware that one of the key areas of research in the Horizon programme is space, which we see as very important; the Government have done a considerable amount in that area. One area where there was great advance is OneWeb. Have the events in Ukraine effectively stopped the disposition of that satellite system? If not, where do we stand on it?
Lord Callanan (Con)
The noble Lord makes a very good point. Of course, there is currently a dispute ongoing with Russia about the launch of the OneWeb satellite. My right honourable friend the Secretary of State is closely involved in this and is trying to unblock it as quickly as possible. But we will not be held to ransom.
Lord Patel (CB)
My Lords, accepting that the ideal scenario would be for the UK to be part of the Horizon Europe programme, we are, I understand, in a similar situation to Switzerland. In that respect, what plan or negotiation are the Government having with the Swiss research council to collaborate with it?
Lord Callanan (Con)
The noble Lord asks a very good question. I know that the Minister for Science has had productive discussions with the Swiss on that. They have an extremely good, advanced and able scientific programme, and we will be looking to step up our co-operation with Switzerland.
Baroness Garden of Frognal (LD)
My Lords, in headier days the Government assured us that Brexit would not mean leaving either Erasmus or Horizon. One is tempted to ask what went wrong, because it certainly is not all the EU’s fault. If the Government have an alternative, why can they not start spending now?
Lord Callanan (Con)
I am afraid it is indeed the EU’s fault, and no amount of spinning from the Liberal Democrats will get away from that. We want to associate with the programme, we stand ready to do so and the money is available. If it proves to be not possible, we will spend equivalent sums on supporting UK science.
Lord Watts (Lab)
My Lords, when the Government negotiated, did they make an “in principle” decision agreement or a cast-iron agreement? It is hard to believe that something that the European Commission agreed to as cast iron is now being rejected by it.
Lord Callanan (Con)
I am sorry that the noble Lord cannot believe that the European Commission could do anything wrong, but this is actually part of the trade and co-operation agreement that the EU and the UK signed up to. We want to see all parts of that agreement implemented.
Lord Flight (Con)
My Lords, Horizon Europe is the EU’s key funding programme for research and innovation, with a budget of £95.5 billion. It tackles climate change, helps to achieve the UN’s sustainable development goals, and boosts the EU’s competitiveness and growth. Legal entities from the EU and associate countries can participate. Can our participation and our expenditure be on the basis of having the ability to benefit from items that we are financing?
The Earl of Kinnoull (CB)
My Lords, the noble Lord, Lord Hannay, referred to our letter. Our letter came after an evidence session, when it was clear that it was mutually harmful to science communities of the UK and Europe not to have the UK participating in the programme. That is not surprising, because the joint declaration, which is the foundation of this agreement, says:
“The Parties recognise the mutual benefit”.
Can the Minister assure us that both parties understand that there is a mutual harm in the programme not starting with UK participation?
Lord Callanan (Con)
I agree totally with the noble Earl that it is to the benefit of both parties. It provides value for money for the UK, which is why we agreed to associate with it. We thought that we had a legally binding agreement with the EU, as part of the trade and co-operation agreement. We will continue to try to unblock that and work towards agreement. We want to associate with it precisely because we think that it is to the benefit of both parties, and we hope that will be obvious to the EU as well.
Ukraine: Disasters Emergency Committee Appeal
(2 years, 9 months ago)
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Lord Balfe
To ask Her Majesty’s Government what assessment they have made of the value of charitable donations made to the Disasters Emergency Committee appeal for Ukraine; and what plans they have to increase their commitment to match donations.
The Minister of State, Foreign, Commonwealth and Development Office (Lord Ahmad of Wimbledon) (Con)
My Lords, it is testament to the great generosity of the British public that the Disasters Emergency Committee appeal for Ukraine reached £100 million in just four days. This is a hugely valuable contribution and public donations have been boosted by £25 million of government funding, the largest ever aid match donation by any British Government. As of yesterday, the DEC Ukraine appeal stood at £121.5 million, including the FCDO UK aid match contribution of £25 million. Of course we have also committed more support to Ukraine during this crisis, which has reached almost £400 million.
Lord Balfe (Con)
I thank the Minister for his Answer, which is a tribute to the generosity of the British people. One problem has been the number of people sending goods rather than money. I hope the Government can encourage people to make cash donations, which are much easier to process. Is the FCO supporting people on the ground to buy up goods with the money donated so that it is spent in the most effective way for the relief of the people of Ukraine?
Lord Ahmad of Wimbledon (Con)
My Lords, if I may, I must first correct my noble friend: it is the FCDO. The development element of our work is extremely important and it links in with the humanitarian support. I confirm that through rapid deployment teams, including the assessments they are making, we are working directly with the Ukrainian authorities and the Ukrainian Government to determine exactly what is required on the ground. I agree with him; as my right honourable friend the Foreign Secretary has said, what is best for the Ukrainian people is for people to make cash donations, and the DEC appeal demonstrates the importance of that.
Baroness Northover (LD)
My Lords, I thank the noble Lord and his colleague alongside him—the noble Baroness, Lady Williams—for their help in relation to a case flagged to me by World Jewish Relief, and which I flagged in your Lordships’ House on Monday, of an elderly lady in her 90s who was waiting for a visa in Warsaw. What action is he taking to ensure that the system to assist refugees in such a desperate situation is fit for purpose and properly funded, so that we do not have to come to him and his colleague with individual cases?
Lord Ahmad of Wimbledon (Con)
My Lords, I thank the noble Baroness for flagging that issue. I speak for my noble friend as well as myself, and I know that I speak for the whole of the Front Bench in saying that wherever there are issues it is our job to respond to Members’ inquiries directly to us in our own roles. If we can assist, as we have managed to do in this case, that is a tribute to the noble Baroness and indeed to the whole of your Lordships’ House about the importance of working collaboratively on this crisis. My noble friend will be taking an Urgent Question shortly on fitness for purpose, but I am assured by her and the Home Office that, for example, visa applications are being received. Over 10,000 people have already started their applications, and as of this morning over 1,000 visas had been issued by the United Kingdom.
Lord Blunkett (Lab)
My Lords, the incredible generosity of the British people in the donations that we are discussing is equally matched by the desire of business, of faith and community groups, and of families to take hold of and be able to use the sponsorship scheme that was announced this time last week but about which we have no detail. Surely we should be matching the financial contribution with the personal giving that people are now offering to those who will come to their home and receive sustenance and support from the British people.
Lord Ahmad of Wimbledon (Con)
My Lords, I agree. Again, through this crisis we have seen the best of humanity as people have opened up their doors and given their homes and support to people they do not know—strangers—across Europe. That applies equally to the United Kingdom. I know that my noble friend will be providing the House with an update shortly on the very point that the noble Lord raises.
Lord Howard of Lympne (Con)
My Lords, I begin by paying tribute to my noble friend Lord Tebbit, who has been such an inspiration to so many of us on the Government Benches for so very long. We were all deeply moved yesterday by the words of President Zelensky. I am sure his words will lead to further donations to the committee. Sadly, the torrent of words which have registered support for Ukraine has not always been matched by action. Given the lamentable decision of President Biden to veto the ability of Poland to send its MiG-29s to an American base in Germany, will Her Majesty’s Government match the courage of the Government of Poland—not to mention of the Government of Ukraine—and make available facilities in this country to which those MiGs could be flown and collected by Ukrainian pilots, then flown to Ukraine?
Lord Ahmad of Wimbledon (Con)
My Lords, I join my noble friend in the tribute he paid to my noble friend Lord Tebbit. I remember that one of my first appearances at the Dispatch Box was reflective of an ongoing cricket analogy that we have played out. I greatly respect the support that he has given to me over the years. I am sure I speak for many across the House in paying tribute to my noble friend Lord Tebbit for his services to your Lordships’ House and the country over many years. On the specific question, the United Kingdom has been at the forefront of support for Ukraine, including supporting its defence requirements. Defence is playing a central role in the UK’s response to the Russian invasion. We are working very closely with our allies and partners to fully understand the nature of what is required on the ground. We were reminded of this by President Zelensky, who is in daily contact with my right honourable friend the Prime Minister. I listened very carefully to what my noble friend Lord Howard said, and I will certainly take that back to the Ministry of Defence.
Lord Harries of Pentregarth (CB)
My Lords, I will follow up the question asked by the noble Lord, Lord Blunkett. Yesterday the Government made the very welcome announcement that they are opening out this humanitarian sponsorship scheme, but they did not say anything about how all these people who want to offer their homes can link with those who want to come here. Are the Government yet able to reveal how this contact is to be made?
Lord Ahmad of Wimbledon (Con)
I know that my noble friend Lady Williams and my colleagues in the Home Office are working on the very points that the noble and right reverend Lord raises about the detail of the scheme. I am sure that she will update the House on progress very shortly.
Lord Collins of Highbury (Lab)
My Lords, the noble Lord, Lord Howard, mentioned President Zelensky’s moving address to Parliament yesterday. He described the horrific conditions—the killing of children, the bombing of orphanages, schools and hospitals. Earlier this week UNICEF called for greater protection for unaccompanied and separated children crossing borders. What will the Government do to support those children to get to a place of safety?
Lord Ahmad of Wimbledon (Con)
My Lords, I join the noble Lord; I am sure I speak for the whole House when I say that we are taken by the horror of what is happening in Ukraine, particularly the targeting of humanitarian corridors, the specific targeting of civilian centres of population and the tragedy we now see of families being separated. He is right to raise the issue of vulnerable children, particularly unaccompanied minors. We have RDTs working on the ground in all neighbouring countries. I am in regular touch with all the UN agencies. Only this morning I exchanged messages with Filippo Grandi on specific requirements. I assure the noble Lord that I will provide regular updates on the specific support we are giving to particular vulnerable communities and, most importantly, to vulnerable children.
Lord Lamont of Lerwick (Con)
My Lords, while I agree with what my noble friend Lord Balfe said—that it would be better if donations were given in cash rather than goods—my noble friend will be aware that a number of individuals, charities and companies have attempted to supply goods and medicines through the EU to the people of Ukraine or people on the border, but have experienced great difficulty with customs and form-filling. Will my noble friend look at this and see what could be done to simplify the administrative burden for those who are trying to supply goods in kind?
Lord Ahmad of Wimbledon (Con)
My noble friend makes a very important practical point. I will certainly take that up. Later today I am leaving for meetings in Vienna with European partners at the OSCE. I am sure this point will be raised, particularly when we look at the OSCE’s set-up on civil society groups’ support for humanitarian efforts, which are also based across the border in Poland. I will update my noble friend accordingly. He makes a point which I am aware of, and we are working with European partners to unlock this particular issue.
Business of the House
(2 years, 9 months ago)
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Baroness Evans of Bowes Park
That, in the event that the Supply and Appropriation (Anticipation and Adjustments) Bill has been brought from the Commons, Standing Order 44 (No two stages of a Bill to be taken on one day) be dispensed with on Monday 14 March to allow the Bill to be taken through its remaining stages that day.
Business of the House
(2 years, 9 months ago)
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Baroness Evans of Bowes Park
That Standing Order 44 (No two stages of a Bill to be taken on one day) be dispensed with on Monday 14 March to allow the Economic Crime (Transparency and Enforcement) Bill to be taken through its remaining stages that day and that therefore, in accordance with Standing Order 47 (Amendments on Third Reading), amendments shall not be moved on Third Reading.
Ukraine: Urgent Refugee Applications
(2 years, 9 months ago)
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Lord Rosser (Lab)
The Home Office has not stepped up to the mark in processing urgent Ukrainian refugee applications—no doubt in part because the Home Office culture, as shown by the Nationality and Borders Bill, is geared towards keeping refugees out rather than welcoming them in.
On Monday, the Home Secretary claimed that a visa application centre had been set up en route to Calais and was staffed. Yesterday, however, the Commons Minister said that
“we are looking to establish a presence in Lille ... and we expect that to be set up within the next 24 hours.”—[Official Report, Commons, 8/3/22; col. 198.]
Has the Lille centre now been set up, opened and staffed, and how many visas can it process per day?
A week ago, the Home Secretary announced the introduction of a humanitarian sponsorship visa. Yesterday, the Government said in this House:
“The sponsorship scheme … should be up and running very shortly.”—[Official Report, 8/3/22; col. 1265.]
When exactly is the sponsorship scheme going to be “up and running”? Why does the Home Office still not know? What is needed now is an emergency visa scheme for those fleeing Ukraine. Are the Government going to do that?
The Minister of State, Home Office (Baroness Williams of Trafford) (Con)
I thank the noble Lord for his questions. As of 9.30 am this morning, 17,700 applications had been made, and there were 1,000 grants of visas. We are expecting a further 1,000 grants of visas by the end of the day. I think that noble Lords will agree that that is a positive trajectory.
The Lille VAC will indeed be set up.
In total, we had almost 1,000 offers for the humanitarian sponsorship pathway, which I counted up from across this House, given the details I received from the right reverend Prelate and another noble Lord yesterday. I want to take back to the Home Office—as I said yesterday that I would—the offers of support which are not just from within your Lordships’ House but are coming in thick and fast from all over the country. They will be very helpful when those families and people arrive in the UK.
Lord Paddick (LD)
My Lords, Ukrainian refugees arriving in Bucharest and applying to join families in the UK today are being given appointments on 28 March to have their biometrics taken. What are they supposed to do for two weeks in a foreign city where they know no one, have few belongings and little or no money, when they could be here in the UK with their families?
Baroness Williams of Trafford (Con)
The noble Lord makes a very understandable point. As I said yesterday to the House, I know that we are training people as we speak, and surging the capacity and capability of our VAC teams from that region.
Lord Cormack (Con)
My Lords, what are we doing to liaise with the Polish authorities, who have received so many of these refugees from Ukraine? Surely, if they have been accepted into Poland, we can arrange quick transfers to the UK for those who wish to come here—many of whom have family members here.
Baroness Williams of Trafford (Con)
My noble friend will have seen footage of my right honourable friend the Home Secretary there over the weekend. We are in very regular contact with Poland. I just turned to my noble friend to clarify the contact we are having with the UNHCR: it sounds regular and very thorough in enabling refugees to come to this country as quickly as possible. If someone is in Poland, and has had their visa issued in Poland, they are absolutely ready to come to this country. That is the very positive benefit of having VACs in Poland.
The Lord Bishop of Leeds
My Lords, I heard yesterday that one of the refugee application centres in Poland has no available appointments until the end of April—the end of next month. This seems to be a bureaucratic answer to a humanitarian question. I received an email last night asking, “Is the UK Government ill prepared, incompetent or unwilling?”—and I do not know how to answer it.
Baroness Williams of Trafford (Con)
Well, I hope I can help the right reverend Prelate in saying that we are surging capacity and capability in the VACs. It is not acceptable if people are being told that they have to wait until the end of April. I certainly hope that, when I next return to this House with an update, it will be a far more positive picture.
Lord Harris of Haringey (Lab)
My Lords, the whole House recognises that the noble Baroness the Minister is a very empathetic person, and she is quite clear about her sincerity in trying to help refugees from Ukraine. However, the Minister for Justice in Ireland today met Ukrainian refugees arriving in that country and ushered them to a separate room, where they were given national insurance numbers or the equivalent and told how to get help with medical and housing requirements. Why is it that we, a similar nation, are requiring that people apply—very bureaucratically—hundreds of miles away and fill in numerous forms, rather than simply directly accepting people from Ukraine and dealing with them here?
Baroness Williams of Trafford (Con)
There is one area where I will depart from the noble Lord, which is on the need to make sure that people are who they say they are. If someone says they are Ukrainian and in fact are not—particularly if they are someone who we might not wish to have in this country because of their behaviour—it is really important that that place is not taken by someone who has no genuine right to be here. So I do not make an apology for that, but I otherwise completely concur with the noble Lord. We are country that welcomes people and tries to provide as much support as we can—and, as I said, my right honourable friend the Home Secretary was in Poland at the weekend.
Lord Alton of Liverpool (CB)
My Lords, the FCDO has organised excellent morning briefings and, this morning, the Foreign Office representative suggested that as many as 2 million people may have now been displaced in Ukraine. Would it not be sensible at those briefing sessions for the Home Office also to be represented? The information that the noble Baroness has been giving would be very useful. Can the noble Baroness confirm reports that 227,000 people have now fled from Ukraine across the Romanian border? Has she seen the representations made to her department by James Grundy, the Member of Parliament for Leigh in the north-west of England, about a small charity that has a house where they have already taken a couple of hundred Ukrainian refugees? Would it not be sensible for the Disasters Emergency Committee to include small charities that are not part of DEC so that they too can be funded to ensure that people can be kept in safe places in Romania or Poland without having to make journeys to other parts of the world?
Baroness Williams of Trafford (Con)
I think that what the noble Lord has done is outline how the people of Ukraine would actually like to get back to Ukraine. His suggestion about small charities that are able to help, whether here or in Romania, is really sensible. In terms of the numbers crossing into Romania, I cannot verify those figures, but I am absolutely sure that it must be a very high number indeed. On the subject of the morning briefings, he must be able to lip-read, because my noble friend Lord Ahmad and I were in fact talking about that just before we stood up.
Baroness Meyer (Con)
My Lords, given the extraordinary nature of our times, exemplified yesterday by the eloquent and historic address by President Zelensky, might the Home Office not rise to the moment and welcome Ukrainian refugees in Calais with open arms, instead of chips and KitKats?
Baroness Williams of Trafford (Con)
First, I pay tribute to my noble friend’s son, who has opened up his heart and accommodation to Ukrainians. As for welcoming with open arms rather than bureaucracy, I have looked at the figures for the VACs where Ukrainian refugees are fleeing to. By and large, they are in Poland. In Calais, there have been one or two instances where people are not who they say they are, so it is important not only to keep them safe but also to make sure that we are giving refuge to those we want to give refuge to.
Lord Wigley (PC)
My Lords, the noble Baroness will be aware of the offers made by the Governments of both Scotland and Wales to take in refugees, reflecting the overwhelming good will among people throughout these islands who want to help in these matters. Is the announcement at Question Time this morning by the Prime Minister, concerning the new responsibilities for the Minister for Levelling Up, an indication that the Government may be rethinking this matter?
Baroness Williams of Trafford (Con)
I heard not much of the noble Lord’s question, but I am guessing that it concerned the appointment of my very dear friend Richard Harrington as Minister for Refugees. I know him well and he will be a superb appointment.
The Deputy Speaker (Lord Duncan of Springbank) (Con)
My Lords, the time allowed for this Question is now up and I will allow a moment or two to clear the Chamber for those who want to escape before the next business takes place.
Public Service Pensions and Judicial Offices Bill [HL]
Wednesday 9th March 2022
(2 years, 9 months ago)
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Viscount Younger of Leckie
That this House do agree with the Commons in their Amendments 1 to 47.
(a) pensionable service under a Chapter 1 legacy scheme,
(b) pensionable service under a Chapter 1 new scheme that would have been pensionable service under a Chapter 1 legacy scheme but for the person’s failure to meet a condition relating to the person’s attainment of normal pension age, or another specified age, by a specified date, or
(c) excess teacher service.
The second condition is met if all of the service in question falls within paragraphs (a) to (c) (even if it does not all fall within only one of those paragraphs).”
(c) is, as a result of a local government contracting-out transfer, pensionable service under a pension scheme that offers pension arrangements that are broadly comparable with those offered to the person before the transfer.”
“(3A) In a case in which any of the person’s remediable service in the employment or office in question is excess teacher service, “the relevant Chapter 1 legacy scheme”, in relation to so much of the person’s remediable service as is excess teacher service, means the local government new scheme mentioned in section 98(2).”
“(da) provision about the benefits payable in respect of a child of a deceased member where—
the member has remediable service in an employment or office, and
the child is not living in the same household as an adult survivor of the member;”
“(db) provision about cases in which a person has remediable service in an employment or office any of which is excess teacher service;
(dc) provision about cases in which a person has remediable service in an employment or office and also has service in an employment or office as a teacher which—
(i) takes place in the period beginning with the day after the closing date and ending with 31 March 2022,
(ii) is pensionable service under a Chapter 1 new scheme, and
(iii) is not remediable service;”
“(dd) provision about cases in which a person has a partnership pension account;”
“(de) provision about cases in which a person is made redundant;”
““adult survivor”, in relation to a member of a Chapter 1 scheme who has remediable service, means a surviving spouse, civil partner or other adult who is entitled under the scheme to a pension determined (to any extent) by reference to the member’s remediable service;”
““child”, in relation to a member of a Chapter 1 scheme, means any individual who—
(a) is entitled to receive benefits under the scheme in their capacity as a child of the member, or
(b) would have been entitled to receive benefits under the scheme in that capacity on the assumption that any election under this Chapter was, or was not, made in respect of the member;”
““made redundant”: a reference to a person being “made redundant” includes, in relation to a member of the armed forces, a person becoming entitled to a redundancy payment under—
(a) Part 2 of the Armed Forces (Redundancy, Resettlement and Gratuity Earnings Schemes) (No 2) Order 2010 (S.I. 2010/ 832),
(b) the Armed Forces Redundancy Scheme Order 2006 (S.I. 2006/55), or
(c) the Armed Forces Redundancy Scheme Order 2020 (S.I. 2020/1298);”
“The second condition is met if all of the service in question falls within paragraphs (a) and (b) (even if it does not all fall within only one of those paragraphs).”
“Meaning of “remediable service”
(1) For the purposes of this Chapter any continuous period of service of a person in an employment or office is “remediable service” in that employment or office if the following four conditions are met.
(2) In this section “the service in question” means the service mentioned in subsection (1).
(3) The first condition is that the service in question takes place in the period—
(a) beginning with the day after the closing date, and
(b) ending with 31 March 2022 or, if earlier, the date on which the person attains legacy scheme normal pension age.
(4) The second condition is that the service in question is pensionable service under a local government new scheme (including where the service is excess teacher service that is so pensionable by virtue of section 2(1)).
(5) The third condition is that the person was, on 31 March 2012 or any earlier day, in pensionable service under—
(a) a Chapter 1 legacy scheme (within the meaning of Chapter 1),
(b) a judicial legacy scheme (within the meaning of Chapter 2), or
(c) a local government legacy scheme.
(6) The fourth condition is that there is no disqualifying gap in service falling within the period—
(a) beginning with the day after the most recent day in relation to which the third condition is met, and
(b) ending with the day before the first day of the service in question.
(7) In subsection (3)—
“the closing date” means—
(a) 31 March 2014 in relation to service which is pensionable service under regulations under section 7 of SA 1972 which relate to persons in England and Wales;
(b) 31 March 2015 in relation to service which is pensionable service under any other local government new scheme;
“legacy scheme normal pension age” means—
(a) in a case in which the person meets the third condition in relation to a local government legacy scheme, the person’s normal pension age under that scheme;
(b) otherwise, the age of 65.
(8) In subsection (6) “disqualifying gap in service” means a period longer than 5 years at no time during which is the person in service in an employment or office which—
(a) is pensionable service under—
(i) a Chapter 1 scheme (within the meaning of Chapter 1),
(ii) a judicial scheme (within the meaning of Chapter 2), or
(iii) a local government scheme,
(b) is, as a result of a Fair Deal transfer, pensionable service under a Fair Deal scheme, or
(c) is, as a result of a local government contracting-out transfer, pensionable service under a pension scheme that offers pension arrangements that are broadly comparable with those offered to the person before the transfer.”
“Power to pay final salary benefits
(1) Scheme regulations for a local government new scheme may make provision under which the benefits payable under the scheme, so far as they are determined by reference to a member’s remediable service in any employment or office, are final salary benefits.
(2) The reference in subsection (1) to remediable service includes—
(a) remediable service within the meaning of Chapter 1 that has been transferred in from a Chapter 1 scheme, and
(b) remediable service within the meaning of Chapter 2 that has been transferred in from a judicial scheme.
(3) Scheme regulations made by virtue of subsection (1) may, in particular, include provision under which final salary benefits are only payable under the scheme to or in respect of a person who has service in multiple employments or offices if—
(a) so much of the service as is otherwise pensionable under another local government scheme, or under a Chapter 1 scheme or a judicial scheme, is transferred in to the scheme, or
(b) the service is aggregated for the purposes of determining those benefits.
(4) Scheme regulations for a local government new scheme may make provision under which the benefits payable under the scheme, so far as they are determined by reference to a member’s final salary transferred-in service in any employment or office, are final salary benefits.
(5) For the purposes of subsection (4) a member’s service in an employment or office is “final salary transferred-in service” if—
(a) the service has been transferred in from another pension scheme, and
(b) before the transfer, the benefits payable under that other scheme, so far as determined by reference to the service, were final salary benefits.
(6) Except as provided by the preceding provisions of this section, scheme regulations for a local government new scheme may not make provision under which the benefits payable under the scheme that are determined by reference to a member’s pensionable service in an employment or office are final salary benefits.”
“Section (Power to pay final salary benefits): transitional provision
(1) Any provision of scheme regulations that—
(a) was, at any time before the coming into force of section (Power to pay final salary benefits)(1), made (or purportedly made) in relation to a local government new scheme under—
(i) section 18 of PSPA 2013 or section 18 of PSPA(NI) 2014 (restriction of existing pension schemes), or
(ii) any other enactment, and
(b) could have been made under section (Power to pay final salary benefits)(1) if it had been in force at that time,
is treated as having been made under section (Power to pay final salary benefits)(1).
(2) Section (Power to pay final salary benefits)(6) does not affect the continued operation of any scheme regulations made before the coming into force of that provision.”
“Pension credit members
(1) Scheme regulations for a local government new scheme may make provision about the benefits payable to or in respect of a relevant pension credit member and the corresponding pension debit member.
(2) In this section “relevant pension credit member”, in relation to a local government new scheme, means a member of the scheme who has rights under the scheme—
(a) which are attributable (directly or indirectly) to a pension credit, and
(b) the value of which was determined (to any extent) by reference to the value of benefits payable in respect of the remediable service in an employment or office of another member.
(3) In this section “the corresponding pension debit member”, in relation to a relevant pension credit member, means the member mentioned in subsection (2)(b).
(4) The provision that may be made by scheme regulations under this section includes, in particular—
(a) provision modifying any provision of this Chapter in its application to persons of a description specified in the regulations;
(b) provision corresponding to, or applying, any provision of this Chapter, with or without modifications.
(5) In this section—
“modifying” includes disapplying or supplementing (and cognate expressions are to be construed accordingly);
“pension debit” means a debit under section 29(1)(a) of WPRA 1999 or Article 26(1)(a) of WRP(NI)O 1999;
“pension credit” means a credit under section 29(1)(b) of WPRA 1999 or Article 26(1)(b) of WRP(NI)O 1999.”
“Further powers to make provision about special cases
(1) Scheme regulations for a local government new scheme may make further provision relating to a member who has remediable service in an employment or office.
(2) The provision that may be made under subsection (1) includes, in particular, provision about cases in which a person has remediable service in an employment or office any of which is excess teacher service.
(3) Scheme regulations for a local government new scheme may make provision about injury and compensation benefits payable under a relevant injury and compensation scheme to or in respect of a member who has remediable service in an employment or office.
(4) Provision made under subsection (3) may in particular be made by amending the relevant injury and compensation scheme.
(5) In subsections (3) and (4) and this subsection—
(a) “injury and compensation scheme” means a pension scheme that is listed in Schedule 6 to PSPA 2013 or Schedule 6 to PSPA(NI) 2014 (existing injury and compensation schemes);
(b) an injury and compensation scheme is “relevant”, in relation to a local government new scheme, if it is connected with the local government new scheme;
(c) a reference to “injury and compensation benefits” payable under an injury and compensation scheme is a reference to—
(i) in the case of an injury and compensation scheme in relation to which Schedule 6 to PSPA 2013 or Schedule 6 to PSPA(NI) 2014 specifies particular benefits, those benefits;
(ii) in the case of any other injury and compensation scheme, any benefits payable under the scheme.
(6) The provision that may be made by scheme regulations under this section includes, in particular—
(a) provision modifying any provision of this Chapter in its application to persons of a description specified in the regulations;
(b) provision corresponding to, or applying, any provision of this Chapter, with or without modifications.
(7) In this section “modifying” includes disapplying or supplementing (and cognate expressions are to be construed accordingly).”
“Power to pay compensation
(1) The scheme manager for a local government new scheme may pay amounts by way of compensation in respect of compensatable losses incurred by members or, in the case of deceased members, their personal representatives.
(2) Scheme regulations for a local government new scheme may make provision under which an employer in relation to the scheme is required to reimburse the scheme manager for amounts paid under subsection (1).
(3) For the purposes of this section a loss incurred by a member, or by a member’s personal representatives, is “compensatable” if and to the extent that—
(a) either of the following conditions is met, and
(b) the loss is of a description specified in Treasury directions.
(4) The first condition is that the loss is attributable to, or is reasonably regarded as attributable to, a relevant breach of a non-discrimination rule.
(5) The second condition is that the loss is attributable to the application of any provision of, or made under, this Chapter.
(6) In this section (subject to subsection (8)) “loss” includes a loss of any kind including, in particular, a Part 4 tax loss.
(7) In this section “Part 4 tax loss”, in relation to a member, means a loss arising as a result of the member—
(a) incurring a charge, or incurring an increased charge, under Part 4 of FA 2004, or
(b) not being entitled to a relief, or being entitled to less relief, under that Part of that Act.
(8) In this section “loss” does not include an amount that is payable under this Chapter or under regulations made by virtue of this Chapter.
(9) In this section “non-discrimination rule” means a rule that is, or at any time was, included in a local government scheme by virtue of—
(a) section 61 of EA 2010, or
(b) paragraph 2 of Schedule 1 to EEAR(NI) 2006.
(10) For the purposes of this section a breach of a non-discrimination rule is “relevant” if it arises from the application of a provision of scheme regulations made before 1 April 2022 under which the benefits payable under the scheme that are determined by reference to a member’s pensionable service in an employment or office are final salary benefits.
(11) Subsection (1) does not confer power to pay amounts by way of compensation in respect of compensatable losses so far as—
(a) any person has already received amounts by way of compensation in respect of them, or
(b) amounts that any person has paid the scheme have been reduced by amounts in respect of them,
whether pursuant to an order of a court or tribunal or otherwise.”
“Indirect compensation
(1) Scheme regulations for a local government new scheme may make provision under which, where a member has incurred a compensatable loss that is a Part 4 tax loss—
(a) the member is not paid an amount under section (Power to pay compensation) by way of compensation in respect of the loss, and
(b) the member is instead paid such additional benefits under the scheme as may be determined in accordance with the regulations.
(2) In this section “compensatable loss” and “Part 4 tax loss” have the same meaning as in section (Power to pay compensation).”
“Interest and process
(1) Scheme regulations for a local government new scheme may make provision—
(a) under which interest is required to be calculated and paid on relevant amounts;
(b) about the process by which relevant amounts (and any interest on them) are to be paid.
(2) Scheme regulations made by virtue of subsection (1)(b) may, in particular, include provision—
(a) about when relevant amounts (and any interest on them) are to be paid (including provision under which they are paid in instalments);
(b) under which relevant amounts (and any interest on them) may be paid only on the making of an application;
(c) conferring rights of appeal against decisions taken under the regulations.
(3) In this section “relevant amounts” means any amounts that are payable by the scheme to a person under or by virtue of this Chapter.”
“Treasury directions
(1) The powers mentioned in subsection (2) must be exercised in accordance with Treasury directions.
(2) The powers are—
(a) the power to make scheme regulations by virtue of section (Pension credit members) (pension credit members) and any powers exercisable by virtue of such regulations;
(b) the power to make scheme regulations by virtue of section (Further powers to make provision about special cases) (further powers to make provision about special cases) and any powers exercisable by virtue of such regulations;
(c) the power of a scheme manager under section (Power to pay compensation)(1) (power to pay compensation);
(d) the power to make scheme regulations by virtue of section (Power to pay compensation)(2) (power to require employer to reimburse compensation paid by scheme manager) and any powers exercisable by virtue of such regulations;
(e) the power to make scheme regulations by virtue of section (Indirect compensation)(1) (indirect compensation) and any powers exercisable by virtue of such regulations;
(f) the power to make scheme regulations by virtue of section (Interest and process)(1) (interest and process) and any powers exercisable by virtue of such regulations.
(3) Treasury directions under this section may provide for amounts that are to be paid by a scheme in relation to a member to be determined—
(a) taking into account the particular circumstances of the member and (if different) the person to whom the amount is to be paid, or
(b) without taking into account any or all of the particular circumstances of that person or those persons.
(4) Treasury directions under this section that relate to the calculation and payment of interest, and variations and revocations of such directions, may only be made after consultation with the Government Actuary.
(5) For the definition of “Treasury directions”, see section (Interpretation of Chapter)(1).”
“Interpretation of Chapter
(1) In this Chapter—
“Chapter 1 scheme” has the same meaning as in Chapter 1; “final salary benefits” has the meaning given by subsection (2); “judicial scheme” has the same meaning as in Chapter 2;
“local government legacy scheme” has the meaning given by section 79(3);
“local government new scheme” has the meaning given by section 79(2);
“local government scheme” has the meaning given by section 79(1); “scheme regulations”—
(a) in relation to a local government new scheme within section 79(2)(a) has the same meaning as in PSPA 2013 (see section 1(4) of that Act);
(b) in relation to a local government new scheme within section 79(2)(b) has the same meaning as in PSPA(NI) 2014 (see section 1(4) of that Act);
“Treasury directions” means—
(a) in relation to a local government scheme within section 79(2)(a) or (3)(a), directions given by the Treasury;
(b) in relation to a local government scheme within section 79(2)(b) or (3)(b), directions given by the Department of Finance in Northern Ireland.
(2) For the purposes of this Chapter, benefits payable under a pension scheme to or in respect of a member are “final salary benefits” if they are determined by reference to the member’s pensionable earnings, or highest, average or representative pensionable earnings, in a specified period ending at, or defined by reference to—
(a) the time when the member’s pensionable service in relation to the scheme ends, or
(b) the time when the member attains normal pension age under a local government legacy scheme.
(3) Where—
(a) a member of a pension scheme has service in multiple employments or offices that is pensionable service under the scheme, and
(b) the service is aggregated for the purpose of determining the amount of any benefit under the scheme,
the service is treated for the purposes of this Chapter as service in a single employment or office (and references to the employment or office in relation to the service are to be read accordingly).”
Viscount Younger of Leckie (Con)
My Lords, with the leave of the House, I will also speak to the other amendments and the Motions in the name of the noble Lord, Lord Davies of Brixton. Before I turn to the Commons amendments, I will take a moment to remind your Lordships of what the Public Service Pensions and Judicial Offices Bill will achieve. The Bill ensures that those who deliver our valued public services continue to receive guaranteed benefits in retirement that are among the best available, on a fair and equal basis. It is also vital in addressing the resourcing challenges facing the judiciary, recognising the unique constitutional role of judges. As has been acknowledged throughout the Bill’s passage, this is a complex and technical matter. The Bill covers more than 40 schemes, each of which has its own individual layers of detail and complexity.
Since the Bill’s introduction, the Government have continued to work closely with each of the public service pension schemes, with stakeholders and with departments to check and re-check the Bill to ensure that it will deliver our commitments to remove the discrimination and offer a complete and effective remedy. This has been crucial and has led to a number of refinements being made to the Bill during its stages in the other place.
I recognise that a large volume of amendments is being considered today but I hope noble Lords will agree that the Bill returns to this Chamber in an even stronger position than when it left. I therefore propose that the House agree with the Commons in its Amendments 1 to 81. The House will, I hope, be pleased to hear that I will not set out the detail of each and every amendment, but I hope that your Lordships will find it helpful if I briefly explain the themes that they address. I will of course be happy to turn to specific amendments if your Lordships have any questions they would like to ask.
The first theme is reforms to the cost control mechanism, which relates to Amendments 48, 49 and 52. Your Lordships may recall that the cost control mechanism is designed to ensure a fair balance of risk between public service pension scheme members and taxpayers with respect to the costs of these schemes. The Government asked the Government Actuary to review the cost control mechanism after the provisional results of the 2016 valuations suggested that the mechanism was too volatile and not operating in line with its objectives. Following publication of the final report in June 2021, the Government consulted on three of the recommendations and published their response in October 2021. These reforms will be implemented from the 2020 valuations onwards.
Commons Amendment 48 would implement the framework for two of these three reforms: the reformed scheme-only design and the economic check. I will take each of these in turn. The reformed scheme-only design means that legacy scheme costs are excluded from the mechanism. This would make it more stable and reduce intergenerational unfairness because comparatively younger members’ benefits or contributions will not change based on the cost of legacy schemes they had little, or no, access to. Although this transfers the risk associated with legacy scheme costs to the Exchequer, it ensures consistency between the set of benefits being assessed and the set of benefits potentially being adjusted.
As the Government Actuary’s report makes clear, it does not seem possible for the mechanism to be able to protect the taxpayer unless it considers the wider economic outlook. The economic check—the second reform—will therefore ensure consistency between member benefit or contribution changes and changes in the wider economic outlook. There will be a higher bar for benefit reductions or contribution increases if the country’s long-term economic outlook has improved. This will equally apply to benefit increases or contribution reductions if the long-term economic outlook has worsened.
Therefore, the economic check will operate symmetrically for the benefit of both members and taxpayers. It will operate in a transparently and be linked to an objective and independent measure of expected long-term earnings and GDP growth from the OBR. Given that the economic check can only offset or prevent breaches, not cause them, the likelihood of changes to member benefits or contributions will decline. The reforms will make the mechanism more stable and allow it to operate more in line with its objectives, giving members greater certainty with respect to their retirement incomes.
The second theme concerns amendments relating to the local government workforce, where a number of amendments to Chapter 3 of Part 1 were brought forward by the Government in the Commons to ensure a full and robust remedy for local government workers; for reference, these are Commons Amendments 2, 28 to 30, 36 to 47, 50, 51, 55 to 60, 62, 64, 65, 72 and 75 to 77. The amendments are largely technical, including a significant number designed to ensure that many of the complexities relating to other public service pension schemes that have already been addressed in the Bill are also addressed in local government.
The Government are also making an important change to align the eligibility criteria for protection in local government with other public service pension schemes. Under the amended approach, members who were in pensionable service on or before 31 March 2012 would be in scope of remedy if they leave local government and return within five years, as well as meeting qualifying criteria.
I turn next to a single amendment that concerns a change to regulatory procedure for implementing regulations with respect to the reformed judicial pension scheme. Commons Amendment 61 will simply allow the regulations to be made under the “made affirmative” procedure instead of the draft affirmative, which is the usual process for judicial scheme regulations. This is simply a matter of timing. As the draft affirmative procedure could take four to six weeks, we must rely on the “made affirmative” procedure in order to launch the scheme on 1 April 2022. The change ensures that the reformed pension scheme is in place for all judges on 1 April and that there will be no gap in judicial pensions arrangements. Allow me to reassure the House that the “made affirmative” procedure means that Parliament will still get to scrutinise and debate the draft Judicial Pension Scheme Regulations 2022. This scrutiny is important, given the unique constitutional role of the judiciary. Furthermore, the power is narrowly drawn—it can only be exercised for regulations made within 28 days of Royal Assent and will not apply to any future amendments to judicial pension schemes.
The Ministry of Justice has carried out extensive consultation both on the principles of the new scheme and the draft Judicial Pension Scheme Regulations 2022. This has demonstrated broad support for the new scheme, which provides significantly improved benefits for all members of the judiciary compared to the 2015 scheme. There is agreement that the scheme should help address the recruitment and retention issues in the judiciary, which are considered to be primarily due to the introduction of the 2015 scheme.
I turn next to the issue of guidance on investment decisions for the Local Government Pension Scheme, which, as your Lordships may know, is different to the other main public service pension schemes as it is funded rather than unfunded. My right honourable friend Robert Jenrick, the Member for Newark, in the other place proposed Commons Amendment 54, which would expand existing powers in the Public Service Pensions Act 2013 to allow the responsible authority of a public service pension scheme to issue guidance or directions to the scheme managers to cover investment decisions that it is not proper for the scheme manager to take in light of the UK’s foreign and defence policy.
The Government support that amendment, which is in line with the Government’s manifesto commitments to stopping public bodies from pursuing their own direct or indirect boycotts, divestment and sanctions campaigns against foreign countries, known as BDS. Rather than promoting coexistence, debate and dialogue, these boycotts undermine community cohesion. There is evidence of divisive BDS campaigns in public bodies, including local authorities attempting to declare boycotts. Administering authorities can of course make decisions based on sound environmental, social and governance—so-called ESG—considerations. For example, funds may well choose to not invest based on legitimate concerns over a company’s polluting activities or its poor governance. However, what is clearly inappropriate is for a fund to adopt divisive BDS policies that are inconsistent with UK foreign policy. Sanctions should be determined by the UK Government alone. It is not for local authorities or public bodies to be pursuing their own foreign policy agendas.
Your Lordships may be aware that the Government intend to bring forward wider legislation on BDS, when parliamentary time allows, to ban public bodies from imposing such boycotts and divestments. This will of course be subject to scrutiny in both Houses in the usual way. This amendment signals the Government’s intent and provides the powers for the responsible authority to issue guidance or directions on this matter. It is important to note that the amendment would place no immediate duty on scheme managers to take any such investment or divestment decisions.
If the responsible authority were to issue guidance or directions, this would be subject to the usual 12-week consultation. I hope that this gives the House reassurance that the devising of any parameters related to this amendment would involve extensive engagement with the LGPS community over a number of months, during which time all views and concerns would be considered, so as to ensure they do not inadvertently restrict proper account of ESG matters.
Finally, I will cover the remaining amendments—Amendments 1, 3 to 13, 15 to 21, 25, 26, 31 to 35, 53, 63, 66 to 71, 73 and 79 to 81, which are minor and technical. These amendments are for clarification and are primarily to ensure that the Bill offers a comprehensive pensions remedy for eligible members in particular circumstances or special cases. For example, Amendments 15, 19 and 20 ensure that where a member has died and a child pension is already in payment which would be impacted by a decision taken by someone outside the child’s household, schemes have the powers to make regulations to allow that pension to be protected. A further example under this theme is in Commons Amendments 79 and 81, which change the reference to the Special Educational Needs Tribunal for Wales to the Education Tribunal for Wales, as the tribunal was renamed during the passage of the Bill.
Lord Davies of Brixton (Lab)
My Lords, while I do not have a current interest to declare, it would be appropriate for me to mention that, until last August, I was a consultant to a number of trade unions, advising them in this specific area. It appears in the register of interests, but I no longer undertake that work. I thank the Minister for providing more background to the legislation. He has been extremely helpful in ensuring that the fullest information is available on the changes being made at this stage.
However, it is worth recalling that, when the Bill was introduced last July, it dealt with two main issues: first and principally, it provided the remedy for the Government’s unlawful age discrimination in the Public Service Pensions Act 2013; secondly, it established a one-of-a-kind pension scheme for judges and, as a bit of an add-on, increased their retirement age. That is how it left your Lordships’ House.
In the Commons, two significant new issues were added. In Committee, amendments were introduced that made significant changes to the cost control mechanism that applies to public service pension schemes—this is Amendment 48—and then, on Report, Amendment 54 was introduced, which will allow the Secretary of State to issue directions to the trustees of local government pension schemes about how they invest their members’ money. It must be stressed that both these issues are completely new and have no direct connection with what was in the Bill when we considered it previously. Therefore, it is entirely proper—indeed, necessary—that we should give both amendments adequate consideration. I will argue that they are both objectionable.
I will come back to local government pension schemes, but I start with Amendment 48, which provides for significant changes in the cost control mechanism. This is complicated stuff and time is limited, and I am sure that many noble Lords want to get on with subsequent business, but the Government need to rethink their approach—hence the Motions in my name. The key change to the mechanism proposed by the Government is the addition of what is described as an “economic test”. This is completely new; it constitutes a significant change to the mechanism and is clearly outside the repeatedly given guarantees that there would be a 25-year stable regime to administer public service pensions.
Whatever was decided back in 2011 was meant to remain for a generation, and repeated promises were made that there would be no surprises. It is important to understand that these promises went beyond what was ultimately included in the subsequent legislation. For example, following the negotiations that took place on the reforms, the then Chief Secretary to the Treasury, Danny Alexander, said that reform along the lines the Government had proposed could endure for 25 years:
“It will be a sustainable deal that will endure for at least 25 years”.—[Official Report, Commons, 2/11/11; col. 929.]
In the same vein, the Minister for the Cabinet Office, the then Francis Maude MP, gave a guarantee that
“outside of the scheme designs parameters”
there would be
“no further reform for the next 25 years.”—[Official Report, Commons, 20/12/11; col. 151WS.]
This proposal, the introduction of the economic test, is a clear breach of the commitment given by the Government in 2011. The agreement reached then was difficult for many unions and members to accept, as it amounted to public servants paying more, working more and getting less, but unions engaged in the negotiations in good faith and most accepted the resulting deal. The cost-control mechanism set out at that time was a key part of that arrangement.
From the hard information we have been given so far about the economic test, it gives the appearance of being designed to allow the Government to override the results of the cost-control mechanism in the event of what is termed a downward breach of the cost cap. A downward breach is when the value of members’ benefits falls by a significant amount—by a tenth or more, roughly speaking. Such a fall in the value of members’ benefits can arise from a combination of factors, but principally from a reduction in longevity compared with what was expected or from lower rates of inflation, to which benefit increases are linked.
The situation is that the value of members’ benefits might fall significantly and, consequently, they are entitled to an offsetting increase in their benefits to restore their value. But with this amendment the Government are given the power to cancel the increase on a basis that so far is ill defined. The Government and the Minister emphasised the potential for the economic check to be used to override an upward breach and stop the consequent cuts in members’ benefits, if the existing benefits are considered affordable.
To summarise, on the one hand, when growth in the economy is greater than expected, members will not have to suffer cuts in benefits. On the other hand, if economic growth is less than expected, members will not enjoy increases in benefits to which they would otherwise have been entitled. The problem is that it introduces a large degree of subjectivity and potential for political considerations to influence what should be a transparent and objective process. This need for objectivity is only increased by the mistrust generated by the Government’s response to the initial 2016 valuations of public service schemes.
The Minister in the Commons said that the cost-control mechanism
“will operate in a transparent way and be linked to an objective and independent measure of expected long-term earnings and GDP growth from the Office for Budget Responsibility”.—[Official Report, Commons, Public Service Pensions and Judicial Offices Bill Committee, 27/1/22; col. 33.]
But we have no idea in any detail how this will operate. We have no idea how transparent and open to debate it will be.
The detail will be set out in Treasury directions, which never come before this House, let alone the Commons. Treasury directions are not like delegated legislation. They are made by the Government with no form of accountability, so the Government will effectively be able to tear up the cost-control mechanism that unions were promised would last 25 years. That is why I believe Treasury directions are unsuitable for something so significant that will affect the terms of employment of our public sector workers.
The Minister needs to look again at how to restore trust and confidence in public service pensions in future without resiling from the promises given 10 years ago. At the very least, will the Minister spell out for the House in more detail how the Government propose to get from the figures provided by the Office for Budget Responsibility to the ultimate decision not to proceed with increases to which members are entitled?
Having addressed the issue of Amendment 48, I will shift gear somewhat and move on to Amendment 54. I am opposed to the new clause, which was introduced in the Commons on Report—a very late stage of the Bill’s progress through the Commons. It gives the Secretary of State the power to issue guidance or directions to authorities that administer public sector pension schemes that would ban them from taking investment decisions that conflict with the UK’s foreign and defence policy. In practice, as has been explained, this affects only the Local Government Pension Scheme, as it is the only significant public sector pension scheme that has investments.
The new clause would reverse the decision of the Supreme Court in the case involving the Palestinian Solidarity Campaign. The full judgment is worth reading as it sets out the argument against ministerial involvement in trustee decisions with force and clarity. The court found that the Secretary of State was wrong to claim that the Local Government Pension Scheme administrators were part of the machinery of the state. This claim fails to recognise that the administrators have duties which, at a practical level, are similar to those of trustees and that they consider themselves as quasi-trustees who should act in members’ best interests. The court also found the Secretary of State’s claim that contributions to the scheme are ultimately funded by the taxpayer equally misleading, as the fund represents the contributing employees’ money, not state money.
The proponents of the new clause tried to make BDS the issue, but it is actually about government overreach. The Supreme Court ruled that the power of the Secretary of State to issue guidance to local authorities has to respect their primary responsibility as quasi-trustees of the fund. The Secretary of State was not entitled, therefore, to make authorities give effect to his own policies in preference to those that they themselves thought it right to adopt in fulfilment of their fiduciary duties.
I want to make it clear that I do not want to be thought of as simply wishing to dodge the issue of BDS. I would welcome a debate on BDS, but that is not what we are discussing here today. This amendment does not mention BDS and potentially goes much wider, with a potential impact on the whole environmental, social and governance agenda.
The House will be aware that there is general support for initiatives that help pension schemes with assessing ESG-related risks. Indeed, the Government have enacted legislation that requires schemes to consider ESG objectives. It is now accepted that pension funds’ fiduciary responsibilities to members, which prioritise generating investment returns, permit scope to allow the removal of investments on non-economic grounds if they do not materially harm investment fulfilments.
It should also be understood that the Local Government Pension Scheme advisory board for England and Wales has produced guidance on responsible investment and provided investment decision-makers with a range of information, case studies and tools to help them meet the challenges involved. This guidance should be sufficient, and it is not necessary, therefore, to consider further legislative intervention in the operation of their investments or changes to the long-standing law in this area.
I understand that the Pensions and Lifetime Savings Association—the body that represents workplace pension schemes, including the Local Government Pension Scheme—has written to the Treasury to urge the Government to give more time and thought to how this would work in practice before it is adopted into law. We know, as the Minister has explained, that the Government are also considering more widely what role investment funds can play, particularly in promoting local investment, as part of their levelling-up agenda.
I have three more points. First, it should be recognised that in the context of the Local Government Pension Scheme, investment decisions have a potential impact on the contributions paid by employers and members of the scheme. Decisions made to align with government policies may result in additional costs to local government employers and employees, and to the many private sector operations included in their schemes.
Secondly, there is some doubt as to whether the amendment in its current form will work in the way that is intended. It fails to resolve the potential conflict between the Secretary of State’s directions and the trustees’ continuing duties to their members. It calls into question the relationship between the power of the state over individual property rights. At the very least, there is a question about interference with rights under the European Convention on Human Rights.
Baroness Deech (CB)
My Lords, let there be no obfuscation. We know what local authorities have already been trying in relation to BDS. We should be clear that the boycott which the noble Lord, Lord Davies, is anxious to facilitate is aimed at one state only. Local authorities have not been trying to divest from China, Myanmar, North Korea, nor even Russia, but only one state—Israel. The BDS movement is intended to delegitimise Israel, and ultimately destroy the state. Singling out Israel for boycott is out of all proportion to other states in this troubled world, and it is anti-Semitic. That is because it applies double standards and denies the Jewish people own right to self-determination, as defined in the IHRA definition.
The noble Lord, Lord Davies, is also reckless as to the interests of public pension holders, who, if asked, would not want to be drawn into a Middle East conflict and are likely to wish to continue to enjoy the fruits of investment in Israeli technology and medical products, not to mention technology that goes into iPads, iPhones, electric car batteries, and other important everyday products. BDS almost always equates to anti-Semitism, which is why Sir Keir Starmer has come out against it and continues his efforts to rid the Labour Party of the anti-Semitism found to be present in it by the EHRC. It does not help the peace process; BDS fuels a rise in anti-Semitic incidents, and the growing number of assaults on Jews and Jewish community buildings. We cannot allow local authorities to make flag-waving foreign policy decisions, bringing their communities into conflicts which are not relevant. Do we want local government pensions scheme investing in Russia? There is no reason why government policies should not be determinative of this.
Bearing in mind our discussions this afternoon, in the Second World War, over 1 million Jews died in Ukraine. Today, Israel has taken in thousands of refugees from Ukraine, Jewish and non-Jewish. Never again will persecuted Jews have no safe place to go, for Israel is the haven for them and the home for survivors of the Holocaust. This is the moral choice that faces your Lordships in relation to Amendment 54A. It is clear that the amendment of the noble Lord, Lord Davies, is not it.
Baroness Sheehan (LD)
My Lords, I speak at this stage of the Bill because Commons Amendment 54 was tabled so very late on Report in the Commons, after it had already been through this House where it started. How extraordinary it is that an amendment with such potentially wide-ranging impact should have been tabled so that no meaningful scrutiny was possible, with so little notice that the local government pension scheme advisory board was only able to publish its consent after the amendment was passed in the other place.
The concerns the amendment raises are substantial. They go to the heart of who takes the decision on how an individual’s money is invested. Should it be the Government, or should it be the representatives of the people whose money is being invested, which in this case would be the scheme administrators who fulfil the same functions as pension fund trustees? The crux of Amendment 54 is that it is the Government’s money, and the Government should be the final arbiter of the decision. However, when that was tested in 2020, the Supreme Court disagreed and ruled against that contention, asserting that the funds of members of public centre pension schemes belong to the members. It is not public money.
Amendment 54 from the Government seeks in effect to negate that decision. If it were to become law, the Government could issue guidance or directions—and I quote from the explanatory guidance—that
“public sector pension schemes, including the local government pension scheme … may not make investment decisions that conflict with the UK’s foreign and defence policy.”
The crucial decision of who will make the divestment decisions based on ESG and ethical considerations, if Amendment 54 were in place, becomes more blurred.
Some examples may help to illustrate the frictions that could arise. What is happening in Ukraine is uppermost in all our minds. This is not about anti-Semitism; this is about humanitarian concerns. That is why those decisions are taken. What is happening in Ukraine is something we all care about enormously. Many people are outraged by the Russian regime’s callous disregard for innocent civilians who dare to resist their advance. Suppose an LGPS scheme decided to divest from a Russian-owned organisation that is not on the sanctions list—this was the situation not so long ago with Gazprom —the existence of Amendment 54 on the statute book could have deterred that scheme. That, in effect, would be its consequence, given its vague wording and potentially broad application.
Local councils should have a duty to invest ethically, and they should be able to do so unequivocally in alignment with the UN guiding principles on business and human rights. If what is in those principles are not clear to any noble Lords in the Chamber, perhaps they should Google it. It speaks to a very specific example. In areas of the world where states are in breach of international law with clearly documented and verified violations of the human rights of civilian populations, such as is occurring on a regular and sustained basis in the occupied Palestinian territory, local authorities should be able to exercise their ethical judgment and divest from companies that produce and deal in goods from the illegal Israeli settlements in Palestinian territories. However, through Amendment 54, the Government could mandate that if they were to do so, they would be in conflict with the UK’s foreign and defence policy. That cannot be right.
On another issue, fund administrators also have a responsibility to invest in alignment with domestic legislation, such as meeting our net-zero target by 2050, and with international agreements, such as the Glasgow climate accord, agreed at COP 26 just last year. It is not just a responsibility to safeguard environmental and natural assets that is at stake: ultimately, it is the fiduciary duty of fund managers to act in the financial interests of their members.
In 2020, in his annual letter to CEOs, Larry Fink, CEO of BlackRock, the world’s largest assets manager with $10 trillion of assets under management, stated that
“climate risk is investment risk.”
Mark Carney, too, has warned that continued investments in fossil fuels risks write-offs and stranded assets. Local authorities must be able to divest from sources of oil, gas and coal wherever in the world they happen to be, regardless of whether that decision is in alignment with the Government’s foreign and defence policy. Not only must local authorities be able to meet their ESG requirement, they must also be able to fulfil their fiduciary duty. This amendment will hamper their ability to do both, and it should not be included in this Bill.
Baroness Altmann (Con)
My Lords, I will address both amendments from the noble Lord, Lord Davies, with whom I so often wholly agree on pension matters; but I am afraid that, in these instances, I find myself in disagreement.
As regards Amendment 48, I would like to make it clear that I support both the amendments that were passed in the Commons. I also believe that public sector workers deserve good pensions. They have good pensions. This stems from the changes that were made in the Hutton review in 2011. I confess that I was astonished at the time that a 25-year settlement seemed to have been agreed in the context of defined benefit pensions, for which costs can change so dramatically in that kind of timeframe. Indeed, employers have found that the costs have significantly increased.
In 2010 or so, the cost of providing a standard public sector pension would have been, perhaps, between 30% and 40% of salary. Subsequent to that, the costs have risen to at least 40% to 50% of salary, if not more than that. So, in effect, there has been a significant pay increase—albeit in deferred pay—for local government workers and public sector workers in general.
The 2016 valuation, based on various assumptions, also does not necessarily mean that the costs at the time would be the ones that are experienced today. Were a valuation to be conducted, say, three years later, four years later or five years later, there would be a significant increase in cost, but by relying wholly on the 2016 valuation and not factoring in the judgments of the courts in terms of the transitional protections agreed, it would appear that the workforce should have increased pension offers, which would subsequently need to be potentially reversed under this economic test.
Part of the problem stems from the expectation—which is wholly unrealistic—that there can be a 25-year guarantee for the kind of defined benefit pensions that are underwritten by taxpayers. That is also an important consideration because local government pension schemes do not belong to the Pension Protection Fund. The benefits promised to the workforce are underwritten by what are called employers, but they are actually taxpayers across the whole country, whether it is council tax payers or ultimately general taxpayers. Given the fiscal situation that we are currently in, and given the changes in the fiscal situation that can accrue, I believe that there is clearly a government interest and a taxpayer interest in the delivery of the benefits of these schemes. It is not just individuals’ money; it belongs to all of us, because we underwrite the full value of all public sector pensions, including the LGPS—which is not, as I say, part of the Pension Protection Fund, so there is no other underwriting available.
Lord Macdonald of River Glaven (CB)
My Lords, I entirely agree with the noble Baronesses, Lady Deech and Lady Altmann, that BDS is a discriminatory and racist movement whose object is the destruction of the state of Israel, and unmistakably so. However, I do not agree with them that that is a reason in itself for supporting Amendment 54. For all the reasons articulated by the noble Baroness, Lady Sheehan, my view is that this amendment represents overreach by the Government and has hardly received the sort of scrutiny that such an important measure clearly requires.
Baroness Kramer (LD)
My Lords, I had not intended to speak in this debate except to say a few words on the cost control amendments, at the request of my noble friend Lady Janke, who is leading for us on this issue. I shall now say very little on cost control, except that I am very much in the same camp as the noble Lord, Lord Davies.
My answer to the noble Baroness, Lady Altmann, is that if the Government decide that a commitment they made to a 25-year agreement is one that they no longer wish to keep, they should reopen the negotiations, not turn to Parliament in the late stages of the passage of a Bill and take for themselves powers to simply override the commitment that they once made. This was supposed, from a public pensions perspective, to be a Bill that simply corrected unlawful parts of the structure that the Government had entered into that were struck down by the courts in the McCloud judgment. The Government used that as an opportunity to go far beyond that.
I have problems with the cost control mechanism altogether, because it basically says that the mistakes the Government made need to be paid for by the scheme members as a whole: we will correct the injustice to a particular group, but the cost of that will be picked up by the other pensioners in the scheme. Now the Government have essentially said that if they mismanage the economy, that cost needs to be picked up by the members in the scheme as well. At the very least, they should have gone back and negotiated with the parties with whom the original arrangement was structured.
I shall now speak to the other amendment, partly because of a word used by the noble Baronesses, Lady Deech and Lady Altmann: “anti-Semitism”. When I read Amendment 54, it is a direction—I think the Minister tried to emphasise that it is guidance, but it is not guidance, it is a direction, and it says that very clearly in the amendment. I was told that various people were very concerned not to vote against it in the Commons because they were afraid that they would be labelled anti-Semitic. I thought, “Nonsense, not in a Parliament like this, not among people of the standing we have in the House of Commons and the House of Lords.” Yet, I heard very clearly from the noble Baroness, Lady Deech, the notion that opposing the amendment is anti-Semitic. I oppose it, and I dare her ever to say that I am anti-Semitic.
When I see those crowds of refugees coming out of Ukraine, they are to me an evocation of my grandparents, my aunts, my uncles and my cousins who were taken to concentration camps or as slave labour for the Hungarian army on the Russian front. In every political campaign I have waged, I have been attacked for being a Jew. In the most striking attack, a physical attack on my son and on me with eggs and flour, we had to be barricaded into a room and rescued by riot police. I dare the noble Baroness to label me anti-Semitic, but I oppose that amendment, and precisely for the reason that the noble Lord, Lord Macdonald, gave: this is total overreach. Israel and that issue is the excuse.
I look at the actions of the Government in so many ways. When I look at the powers they have taken away from local government, essentially trying to reconstruct it just as an agency of central government departments; when I look at what happens in this House, with skeleton Bills and Henry VIII clauses; when I look at the way that powers that came from the European Union were transferred directly to regulators, becoming, in effect, no longer either visible or, certainly, accountable, I see a constant shift of a central Government that feels they have the right to reach in and take and do whatever they please. With their 80-seat majority in the Commons, they can achieve exactly that and this measure is exactly part of that.
I referred to my family and will do so again. My grandsons have not only the heritage of those who died in the Holocaust but the heritage of those who were slaves. Had this particular amendment been available when Margaret Thatcher was Prime Minister, she could have—and I think we know would have—directed local government pensions to invest in apartheid South Africa and would not have permitted anyone who objected who was part of those pensions to have refused that investment. To me, that is outrageous and it is the fundamental flaw that sits within this amendment.
Looking at this amendment, I say to the noble Baroness, Lady Altmann, who suggested that these pension funds are somehow owned by the taxpayer, that these pension arrangements are in lieu of salary. I do not believe that anyone would say that the salary paid to a local government official should be invested under government direction, so why should the pension of a local government official be invested under government direction?
I will speak later on the economic crime Bill, very much in support of sanctions against Russia. However, those sanctions apply to everybody; they apply to every asset, public and private, and to every pension. The rules are universal. I do not have a problem with universal rules, used in extremis, which is exactly the proposition that the Government will make to us today. I do have a problem, however, when local government is singled out—when the pensions of local government servants now come under the direction of the political interest of a Government. If the Government feel so strongly that the current trustees are behaving inappropriately, they could easily have made an arrangement whereby investment decisions are put to the members; they could let them decide what they think is ethical from their perspective and how their money should be used.
I agree very much with those who have said that this is overreach. If anybody uses that word “anti-Semitism” to address opposition to this, it tells you how utterly empty the policy is in and of itself.
Lord Mann (Non-Afl)
My Lords, we could have a long and interesting debate on the question of anti-Semitism, but I fear that issues are getting slightly confused. Unless I have read this government proposal inaccurately, the Government are not proposing to give themselves powers to instruct any local authority on what it should do; they are giving themselves powers to prevent local authorities involving themselves in what local authorities might like to describe as foreign policy.
I am, on balance, in favour of this proposal, but I could put an argument against it, which would be about its impact on the BDS movement—which is, I think, in my lifetime, the most unsuccessful political campaign that I have seen. It has attempted to close down links between British academics and Israeli universities and academics and, as a consequence, those links have been greatly enhanced and deepened. It has attempted to target all sorts of investments and has failed to do so. There is an example, though, of a local authority attempting to do what might be caught out by this amendment. Sussex County Council, in 2021, following a big campaign—well, not very big, but noisy—by a small number of people demanding that it boycott Israel, made a decision. But when one looks at the decision that it made, it was not making a foreign policy statement expressly; it was fiduciary duty, the council claimed.
Did the council boycott Israel, or the alleged targets, the settlements—that was the original concept of the BDS campaign—but, having failed in that, then shift to Israel? No, it did not. It went to where things have now shifted again. It targeted multinational companies that were, it alleged, operating in Israel. The precise companies that it targeted and the products that it cited were exactly—and I mean exactly—the same products and companies that Zelensky and the Ukrainians are repeatedly requesting to defend themselves from the Russian invasion. That is what that would have meant in terms of disinvestment. The BDS campaign was not a success anywhere. It is about the impact on the Jewish community—particularly the young Jewish community, which gets this and worse thrown in its face repeatedly and constantly. It is about virtue-signalling, when the people who did it did not even have the bottle to say what it was about but pretended, in that one example, that it was fiduciary duty. That is what is particularly abhorrent to me.
Lord Leigh of Hurley (Con)
My Lords, it is always a great privilege to follow the noble Lord, Lord Mann, whose excellent speech has clarified a number of things for me—and the rest of the House, I hope—about how we should look at Amendments 54 and 54A. I am somewhat puzzled by the assertion from the noble Lord, Lord Davies of Brixton, that Amendment 54 has nothing to do with BDS. I have listened to the debate in the House of Commons and, indeed, the debate this afternoon, and that does not ring true with me.
The predominant drive of the BDS campaign and its leadership is not criticism of Israel’s policies, which would be fair enough, but a demonisation and delegitimisation of Israel using other people’s money—and it is other people’s money. The BDS campaign promotes a biased and simplistic approach to the complex Israeli-Palestinian conflict and presents this dispute over territorial and nationalist claims as if it is the fault of just one party: Israel. The BDS campaign does not support Israeli-Palestinian peace negotiations and, by the way, rejects the two-state solution to the conflict that many people in this House would like to see. Many of the founding goals of the BDS movement, including denying the Jewish people the universal right to self-determination, along with the strategies employed in the BDS campaign, are anti-Semitic. Let us be clear. Many individuals—not all, of course—involved in the BDS campaign are driven by opposition to Israel’s very existence as a Jewish state.
I was in Manchester with my daughter, who is a student at Manchester University. We went shopping in the city centre and encountered a BDS rally. The people there were chanting a chant that noble Lords may have heard: “From the river to the sea”. Do you know what that means? My daughter asked me, “What does that mean for my friends in Israel?” It means their annihilation.
BDS campaigns create tensions in communities in the UK, particularly on college campuses, which result in harassment or intimidation of Jews and non-Jewish Israeli supporters. This sometimes includes overtly anti-Semitic expressions and acts. As I said, this uses taxpayers’ money. This dynamic can create an environment in which, apart from anything else, anti-Semitism can be expressed more freely. I would not wish to suggest that anyone who supports the amendment of the noble Lord, Lord Davies, is anti-Semitic at all; I want to make the point about the BDS.
The Government are preparing legislation for the next parliamentary Session to stop public bodies from pursuing BDS activities because of their harmful impact on our foreign policy and trade interests. As has been said, the 2019 Conservative Party manifesto pledged to
“ban public bodies from imposing their own direct or indirect boycotts … against foreign countries.”
The Prime Minister himself has previously criticised public policies for adopting
“their own pseudo foreign policies against countries which with nauseating frequency turns out to be Israel.”
To his credit, in 2021, the Labour leader, Sir Keir Starmer, stated that:
“Labour does not—and will not—support BDS.”
I hope that Amendment 54 will receive full support from all Members of this House, and that all Members of this House will oppose Amendment 54A. Abstaining is not sufficient.
Lord Polak (Con)
My Lords, it is a pleasure to follow my noble friend. I will be brief. The UK is Israel’s third largest trading partner, with £2.7 billion-worth of British exports and an overall trade relationship worth £4.8 billion. With improved and growing relations in the Middle East between the Arab world and Israel—the Abraham accords were referred to—and the UK’s very strong connection with Israel, I must say that the BDS campaign is a relic of a past war which is no longer being fought in the region, but rather by a small and divisive minority here in the UK.
Amendment 54, which has passed in the other place, will put an end to the politicisation of public sector pension funds. The main goal of local authorities—in my view as someone who is not a pensions expert—is to improve community cohesion, create local jobs and increase economic growth opportunities in their area. Supporting this amendment will allow the Government to send a clear message that global cohesion on an international scale—and the enhancement of economic growth and opportunity on a local level—should not be jeopardised by the divisive politics of a very small minority.
Baroness Janke (LD)
My Lords, I too thank the Minister for his presentation and the noble Lord, Lord Davies, for bringing forward these amendments. I also declare my interest as set out in the register.
As my noble friend Lady Kramer said, Amendment 54 is a crude and oppressive attempt to fetter the discretion of local government pension schemes. It was introduced late and with minimum scrutiny. The Government should not be in the business of directing how local government pension schemes should invest their funds. These funds are set up under strict legal requirements, as we have seen. Their members are very often vocal about wishing to have ethical considerations considered as part of their investments. As far as I can see, schemes do not appear to have been damaged in any way by investments of local government pension schemes.
The job of pension scheme managers should not be to look at UK foreign policy when setting their investment strategy. That really is not their job. Foreign policy changes, and Governments change, so are we really expecting local government pension scheme fund managers to change their long-term investment strategy every time the UK’s foreign policy changes?
As I said, local government pension schemes aspire to invest ethically, with the members of such pension schemes having the right to express their ethical views and to have them taken into account. Why should these people not require ethical considerations? As my noble friend Lady Kramer mentioned, a clear example in the 1980s was disinvestment from South Africa. The then UK Government were obdurate and determined to defend South Africa from financial sanctions despite the violence, discrimination and widespread human rights abuses of apartheid. I, for one, cannot see why pension schemes should not reflect the views of their members when they want to protest against human rights being abused, as was happening in South Africa.
In the mid-1980s one in four Britons were boycotting South African goods. Many local councils followed their local communities and measures were taken to disinvest from South Africa, including pension schemes, and there were boycotts of South African goods and the boycott of Barclays Bank, which pulled out of South Africa. It was certainly said at the time that foreign banks calling in South African loans was one of the reasons given by the South African President that enabled him to agree with his party the release of Nelson Mandela. So I do not accept that pension schemes should not be used for these purposes.
I feel that this is a measure introduced by a Government with an authoritarian record who wish to take more and more powers to themselves and using the whole idea of BDS to justify that. The amendment is also so loosely worded—as my noble friend Lady Kramer has said, it is directions, not advice, that is being given— that it could easily prevent local government pension schemes making prudent investment decisions based on environmental, social and governance considerations, as is part of their code of conduct. For example, the local authority pension scheme of my former authority, Bristol, sought to disinvest from the tobacco industry as a result of the campaign by Smokefree Bristol. I know of local authorities that wish to disinvest from Saudi Arabia on the grounds of arms sales, and others are looking at boycotting investment in China on the basis of its treatment of the Uighurs and its conduct of the affairs of Hong Kong. As my noble friend Lady Sheehan has said, carbon-neutral boycott is now a common principle, and many local authority pension schemes wish to disinvest from further investment in local gas and coal.
We have experienced in other legislation the relentless expansion of government powers. There is an opportunity in this amendment for the Government to interfere in pension scheme investment when it is not in line with their own views—and I have to say that Governments are notoriously slow in catching up with public opinion.
I thank the noble Lord, Lord Leigh, for clarifying that criticism of the Government of Israel is not at all anti-Semitic. I would also like to thank the noble Baroness, Lady Deech, for her contribution—although she seemed to imply that if we support this Motion then we are somehow being anti-Semitic. I disagree with the noble Baroness, Lady Altmann, with whom I have had the pleasure of working on many pension schemes issues: I do not believe that there is any anti-Semitic intention behind this. I do not see why, if people object to the Israeli Government’s treatment of the human rights of Palestinians, they should not demonstrate that and campaign for disinvestment from Israel if that is part of their beliefs.
The amendment is ill thought-out, badly worded, hastily constructed and has been introduced with no scrutiny, and I do not believe we should support it. If the noble Lord, Lord Davies, moves his amendment and tests the opinion of the House, we will support him.
Lord Ponsonby of Shulbrede (Lab)
My Lords, I thank the Minister for his presentation, and I shall speak first to Amendment 48, on the cost control mechanism. We agree with the points made by my noble friend Lord Davies of Brixton, reiterated and added to by the noble Baronesses, Lady Kramer and Lady Janke. In the Commons, we raised these concerns over the introduction of what the Government call the “symmetrical economic check” and voted that this particular reform of the mechanism should not be added to the Bill. I will not repeat the background, which has been expertly put forward by my noble friend, but will just echo the concern that this breaks the Treasury’s 25-year guarantee that there would be no further fundamental reforms.
In 2011, the Government’s Paymaster-General said that those reforms represented a settlement for a generation, and they arose out of the 2011 Hutton review. Further, does the Minister recognise our concern that these reforms risk undermining the faith of public service workers in their pension schemes? What does the Minister expect of future reforms? Since the Government are clearly set on pushing ahead with the economic check, what would be most helpful now are answers to the questions put by my noble friend Lord Davies on how that would work in practice.
We raised concerns in the House of Commons that the check was insufficiently transparent and gave too much room for ministerial interpretation. As has been said, the Government’s answer is that discretion will be limited as the check will be linked to objective and independent figures from the OBR, although that particular element is not set out in the Bill. I should be grateful if the Minister confirmed that. I am hopeful that he will be able to provide some more detailed answers on the process that we should expect and how the OBR figures will be used—a point made by my noble friend Lord Davies.
Turning to Amendment 54, it is fair to say that it is an unexpected addition to what is in reality a technical Bill. It causes one to reflect on the Government’s lack of control of their own Back-Benchers in the House of Commons. The Labour Party supports the broad thrust of the new clause but shares concerns over its wide scope and possible unintended consequences. We also agree with the noble Baronesses, Lady Kramer and Lady Janke, that there is a huge element of government overreach here and we are mindful that the amendment represents directions, not guidance.
We in the Labour Party are unequivocal in our opposition to the divisive and discriminatory use of BDS against the State of Israel. We do not believe that such an approach is appropriate or would enhance the prospects of peace through a negotiated settlement to the conflict, based on a two-state solution. However, regrettably, the clause is poorly worded, too broad in scope and, as we have heard, could cause difficulties for local authorities wanting to take a principled stance on, for example, China’s treatment of the Uighurs. Many other examples have been given in the debate. It is clear that the Government have chosen to progress the Bill with this additional clause but also intend to introduce further legislation in the Queen’s Speech that will be more detailed in this area. It would be helpful if the Minister clarified what comes next and how concerns raised in today’s debate will be considered. What ongoing engagement are the Government having with the Local Government Association, which has raised concerns, and many other bodies interested in this area? I understand that a full consultation process is required before any guidance or directions can be issued under the new clause. What will that consultation process look like? Are there plans to launch a consultation, or will that not be entered into until further legislation is brought forward at the Queen’s Speech?
Finally, I repeat a question on Russia asked by a noble Lord. If schemes want to divest quickly, for example because of links to Russia—Gazprom was mentioned—would anything in the directions under this clause of the Bill put that ability to act in jeopardy in the future? Can the Minister talk to this specific point? It is obviously extremely pertinent right now but there may well be similar issues in future.
Just to be clear, if my noble friend were to press his amendment to a vote, we would abstain.
Viscount Younger of Leckie (Con)
My Lords, I am pleased to know that the great majority of the amendments have been well received. I thank all noble Lords for their considered contributions. There was quite a bit to cover and a number of questions. As noble Lords would expect, I will do my best to answer them all, or as many as possible within the timeframe allowed.
As the noble Lord, Lord Davies, said, two key themes have emerged in today’s debate. The first is guidance on investment decisions for the Local Government Pension Scheme, and the second is the economic check element of the cost control mechanism reforms. I will start with the latter and turn first to the CCM, as it is called, and in particular the economic check, as raised specifically by the noble Lord, Lord Davies of Brixton. I will speak to Amendment 48. I understand from the noble Lord’s contribution that his concern is specifically with this check, but it is important to note that the effect of rejecting Commons Amendment 48 would be also to reject the framework for the reformed scheme-only design, which, as the noble Lord will be aware, is widely supported overall.
I turn to why we think the economic check is needed. It will ensure consistency between member benefit or contribution changes and changes in the wider economic outlook, as I addressed in my opening speech. To address the question of whether this is objective, the economic check will be linked to the OBR’s independent and objective measure of expected long-term GDP growth and the long-term earnings assumption. It will operate purely mechanically, with no scope for interference from individuals or groups from within government or outside. It will therefore operate transparently and be linked to an objective and independent measure of expected long-term earnings and GDP growth. Further details on the design and operation of the economic check have been set out in the Government’s consultation response published, as the noble Lord in particular will be aware, in October 2021.
I will go a little further on the clause making reference to different sectors of the economy. The Bill implements the framework for the economic check, which will ensure consistency with member benefit and contribution changes. The Bill will allow Treasury directions to set out how the economic check should operate its scheme valuations, including whether and to what extent the growth in the economy, or any sector of the economy, of the UK or any part of the UK should be taken into account. This will allow the economic check to be based on the OBR’s independent projections of long-term UK GDP growth. I will talk more about directions in just a moment. We believe that these reforms will make the mechanism more stable from the 2020 valuations onwards and allow it to operate more in line with its objectives, giving members greater certainty with respect to their retirement incomes.
I turn to points raised by the noble Lords, Lord Davies and Lord Ponsonby, my noble friend Lady Altmann and others on the 25-year guarantee. I took note of the points raised, but the Government do not believe that these reforms breach the 25-year guarantee. The elements protected by the 25-year guarantee are set out in legislation—namely, Section 22 of the Public Service Pensions Act 2013—and the cost control mechanism is not included.
The Government are making these changes following a thorough and independent review of the mechanism by the Government Actuary and a full and open consultation process. As I have noted, the Government Actuary’s report makes clear that it does not seem possible for the mechanism to be able to protect the taxpayer unless it considers the wider economic outlook. The symmetrical operation of the economic check will also protect members. Furthermore, the reforms will lead to a more stable mechanism, with both benefit reductions and improvements becoming less likely, which aligns with the spirit of the 25-year guarantee.
I turn to the original objectives of the cost control mechanism, on which I will again delve into more detail to try to give noble Lords some reassurance. The noble Lord, Lord Davies, asked for greater clarity on the CCM. As I set out in my opening remarks, the Government asked the Government Actuary to review the mechanism following provisional results from the 2016 valuations. This was the first time the mechanism was tested, and the provisional results indicated floor breaches across all schemes for which results were assessed, leading to concerns that the mechanism was too volatile.
As part of this review, the Government Actuary was asked to assess whether and to what extent the mechanism was working in line with the original policy objectives for the mechanism. These objectives are to protect taxpayers from unforeseen costs, to maintain the value of schemes to members and to provide stability and certainty on benefit levels, so the mechanism should be triggered only by extraordinary, unpredictable events. These objectives have been retained since the mechanism was first introduced in the Public Service Pensions Act 2013.
The mechanism was introduced following the recommendations of the Independent Public Service Pensions Commission in 2011. The commission, as the House will know, was chaired by the noble Lord, Lord Hutton of Furness, and specifically recommended a mechanism to protect the Exchequer from increased costs. However, the final mechanism negotiated between the Government and member representatives is symmetrical and so also maintains the value of pensions to members when costs fall.
Let me now turn to the second theme of BDS, as raised by several noble Lords. I hope I can give some reassurances. It was particularly raised by the noble Lord, Lord Davies, and the noble Baronesses, Lady Sheehan and Lady Kramer. I thought the remarks from the noble Lord, Lord Mann, were interesting, very balanced and very helpful. I hope my remarks chime to a large extent with what he said.
As I set out in opening, Commons Amendment 54 does not put a requirement on schemes to make any immediate decisions regarding their investments. It expands existing powers for the responsible authorities to issue guidance or directions, both of which would be drafted and consulted on. I reiterate that this would involve extensive engagement with the LGPS community over the usual 12-week consultation period, during which time all views and concerns would be considered. Any guidance or directions produced would set the parameters out in detail.
There will be consultation with the LGPS community when framing such parameters to ensure that all views and concerns are considered, including on ESG matters, which were raised by the noble Baroness, Lady Janke. I understand that the contributions made by several noble Lords, including the noble Baroness, were to do with ESG. I hope I can ease concerns by assuring the House that this amendment is strictly in relation to UK foreign and defence policy, as reiterated very strongly by the noble Lord, Lord Mann. Any guidance or directions issued would not seek to restrict decisions that meet the Law Commission’s test for investment decisions influenced by non-financial considerations except in a very narrow area concerned with UK foreign and defence policy.
In all other areas the existing tests would apply, namely that scheme managers must have good reason to think that scheme members would share their particular concern and the decision does not involve a risk of significant financial detriment to the fund. If issued, such guidance would seek to provide protection to LGPS funds by preventing decisions which would otherwise have been subject to challenge under the aforementioned Law Commission tests. To reiterate, this power would not be used to restrict the proper account of ESG matters in investment decisions.
To go a little further, I reiterate that these anti-boycott provisions are not about fossil fuels or climate change. The Government have passed legislation to require pension schemes to state clearly their policy on how they take account of climate change and its risks. Clearly, climate change will have long-term financial consequences. Notwithstanding that, fuels like natural gas will continue to play a vital role in Britain’s energy mix, particularly in the production of hydrogen as we transition to a net-zero economy. We need fossil fuel companies to invest in the new technologies to help deliver what we must do to reach net zero.
I will move on to focus on the use of “directions” as opposed to “guidance”—or just to discuss both—a point raised in particular by the noble Lords, Lord Davies and Lord Ponsonby. Administering authorities must have regard to guidance issued by the responsible authority. Directions allow responsible authorities to direct specific action by a scheme manager. For example, a direction may be considered appropriate if the responsible authority is satisfied that the administering authority is failing to act in accordance with guidance.
Viscount Younger of Leckie
Moved by
That this House do agree with the Commons in their Amendment 48.
“Employer cost cap
Amendments relating to employer cost cap
(1) Section 12 of PSPA 2013 (employer cost cap) is amended in accordance with subsections (2) to (9).
(2) After subsection (1) insert—
“(1A) Subsection (1) must be complied with before the end of the period of one year beginning with the day on which the scheme’s first valuation under section 11 is completed.”
(3) For subsection (2) substitute—
“(2) A reference in this section to “the employer cost cap” of a scheme under section 1 is a reference to the rate set by virtue of subsection (1) in relation to the scheme.”
(4) In subsection (3)—
(a) after “cap” insert “of a scheme under section 1”;
(b) after “set” insert “, and the changes in the cost of such a scheme are to be measured,”.
(5) In subsection (4)—
(a) in paragraph (a), for “the cap” substitute “the employer cost cap of the scheme”;
(b) in paragraph (b)—
(i) for “subsequent valuations” insert “the second or any subsequent valuation”;
(ii) for “the cap” substitute “the employer cost cap of the scheme”;
(c) in paragraph (c)—
(i) for “the extent to which” substitute “whether and if so to what extent”;
(ii) for “of this section” substitute “mentioned in paragraph (b)”;
(d) after paragraph (c) insert—
“(d) that the data, methodologies and assumptions that are to be used for the purposes mentioned in paragraph (b) are to relate, to any extent, to—
(i) the growth in the economy, or any sector of the economy, of the United Kingdom or any part of the United Kingdom,
(ii) the growth in earnings of any group of persons over any period, or
(iii) the rate of inflation (however measured) over any period.”
(6) After subsection (4) insert—
“(4A) The power to give directions by virtue of subsection (4)(d) is not affected by any statement made before 27 May 2021 by the Treasury, or any Minister of the Crown, relating to the data, methodologies and assumptions that are, or are not, to be used for the purposes mentioned in subsection (4)(b).”
(7) In subsection (5)(a) for “(and any connected scheme)” substitute “(determined, if and so far as provided for by virtue of subsection (4)(c), taking into account the costs of any connected scheme)”.
(8) In subsection (6), in the opening words—
(a) for “the scheme” substitute “a scheme under section 1”;
(b) for “the margins” substitute “either of the margins specified under subsection (5)(a)”.
(9) After subsection (7) insert—
“(7A) Treasury directions may specify the time at which any increase or decrease of members’ benefits or contributions that is provided for under subsection (6) is to take effect.
(7B) Treasury directions may require that provision contained in scheme regulations under subsection (6) permits steps to be—
(a) agreed by virtue of paragraph (a) of that subsection, or
(b) determined by virtue of paragraph (b) of that subsection, only after the scheme actuary has certified that the steps would, if taken, achieve the target cost for the scheme.
(7C) Treasury directions under subsection (7B) may specify—
(a) the costs or changes in costs that are to be taken into account, or
(b) the data, methodologies and assumptions that are to be used,
for the purposes of determining whether any steps would, if taken, achieve the target cost for the scheme.
(7D) In subsection (7B) “the scheme actuary”, in relation to a scheme under section 1, means the actuary who carried out, or is for the time being exercising actuarial functions in relation to, the valuation under section 11 by reference to which it has been determined that the costs of the scheme have gone, or may go, beyond either of the margins specified under subsection (5)(a).”
(10) Section 12 of PSPA(NI) 2014 (employer cost cap) is amended in accordance with subsections (11) to (19).
(11) After subsection (1) insert—
“(1A) Subsection (1) must be complied with before the end of the period of one year beginning with the day on which the scheme’s first valuation under section 11 is completed.”
(12) For subsection (2) substitute—
“(2) A reference in this section to “the employer cost cap” of a scheme under section 1 is a reference to the rate set by virtue of subsection
(1) in relation to the scheme.”
(13) In subsection (3)—
(a) after “cap” insert “of a scheme under section 1”;
(b) after “set” insert “, and the changes in the cost of such a scheme are to be measured,”.
(14) In subsection (4)—
(a) in paragraph (a), for “the cap” substitute “the employer cost cap of the scheme ”;
(b) in paragraph (b)—
(i) for “subsequent valuations” insert “the second or any subsequent valuation”;
(ii) for “the cap” substitute “the employer cost cap of the scheme”;
(c) in paragraph (c)—
(i) for “the extent to which” substitute “whether and if so to what extent”;
(ii) for “of this section” substitute “mentioned in paragraph (b)”;
(d) after paragraph (c) insert—
“(d) that the data, methodologies and assumptions that are to be used for the purposes mentioned in paragraph (b) are to relate, to any extent, to—
(i) the growth in the economy, or any sector of the economy, of the United Kingdom or any part of the United Kingdom,
(ii) the growth in earnings of any group of persons over any period, or
(iii) the rate of inflation (however measured) over any period.”
(15) After subsection (4) insert—
“(4A) The power to give directions by virtue of subsection (4)(d) is not affected by any statement made before 27 May 2021 by the Department of Finance, or any other department, relating to the data, methodologies and assumptions that are, or are not, to be used for the purposes mentioned in subsection (4)(b).”
(16) In subsection (5)(a), for “(and any connected scheme)” substitute “(determined, if and so far as provided for by virtue of subsection (4)(c), taking into account the costs of any connected scheme)”.
(17) In subsection (6), in the opening words—
(a) for “the scheme” substitute “a scheme under section 1”;
(b) for “the margins” substitute “either of the margins specified under subsection (5)(a)”.
(18) After subsection (7) insert—
“(7A) Directions given by the Department of Finance may specify the time at which any increase or decrease of members’ benefits or contributions that is provided for under subsection (6) is to take effect.
(7B) Directions given by the Department of Finance may require that provision contained in scheme regulations under subsection (6) permits steps to be—
(a) agreed by virtue of paragraph (a) of that subsection, or
(b) determined by virtue of paragraph (b) of that subsection, only after the scheme actuary has certified that the steps would, if taken, achieve the target cost for the scheme.
(7C) Directions under subsection (7B) may specify—
(a) the costs or changes in costs that are to be taken into account, or
(b) the data, methodologies and assumptions that are to be used,
for the purposes of determining whether any steps would, if taken, achieve the target cost for the scheme.
(7D) In subsection (7B) “the scheme actuary”, in relation to a scheme under section 1, means the actuary who carried out, or is for the time being exercising actuarial functions in relation to, the valuation under section 11 by reference to which it has been determined that the costs of the scheme have gone, or may go, beyond either of the margins specified under subsection (5)(a).”
(19) In subsections (3), (4), (5), (8), (9) and (10) omit “and Personnel”.”
Lord Davies of Brixton (Lab)
My Lords, I make no apology for promoting this debate; this is an important issue that the House has an obligation to consider carefully. I listened to what the Minister said about the economic test. I still feel there is a lack of information but, particularly in light of his statement that there was no scope within the mechanism for intervention—presumably by the Government—I look forward to seeing the directions in some detail and will try to promote some discussion in this House. However, for the purposes of this debate, I will not move my amendment.
Viscount Younger of Leckie
Moved by
That this House do agree with the Commons in their Amendments 49 to 53.
(1) The requirement in provision made under section 12(5)(a) of PSPA 2013 that the cost of a section 1 scheme must remain within a margin above the employer cost cap of the scheme does not apply, and is treated as never having applied, in relation to the cost of the scheme that is calculated by reference to the scheme’s 2016/17 valuation.
(2) Accordingly, provision made under section 12(6) of that Act does not apply, and is treated as never having applied, in relation to a case in which the cost of a section 1 scheme that is calculated by reference to the scheme’s 2016/17 valuation goes beyond a margin above the employer cost cap of the scheme.
(3) In subsections (1) and (2) and this subsection—
(a) “section 1 scheme” means a scheme under section 1 of PSPA 2013;
(b) “the employer cost cap”, in relation to a section 1 scheme, has the same meaning as in section 12 of PSPA 2013;
(c) a reference to a section 1 scheme’s “2016/17 valuation” is to the scheme’s valuation under section 11 of PSPA 2013 the effective date of which is a date in 2016 or 2017.
(4) The requirement in provision made under section 12(5)(a) of PSPA(NI) 2014 that the cost of a section 1 scheme must remain within a margin above the employer cost cap of the scheme does not apply, and is treated as never having applied, in relation to the cost of the scheme that is calculated by reference to the scheme’s 2016/17 valuation.
(5) Accordingly, provision made under section 12(6) of that Act does not apply, and is treated as never having applied, in relation to a case in which the cost of a section 1 scheme that is calculated by reference to the scheme’s 2016/17 valuation goes beyond a margin above the employer cost cap of the scheme.
(6) In subsections (4) and (5) and this subsection—
(a) “section 1 scheme” means a scheme under section 1 of PSPA(NI) 2014;
(b) “the employer cost cap”, in relation to a section 1 scheme, has the same meaning as in section 12 of PSPA(NI) 2014;
(c) a reference to a section 1 scheme’s “2016/17 valuation” is to the scheme’s valuation under section 11 of PSPA(NI) 2014 the effective date of which is a date in 2016 or 2017.
(7) The actuarial valuation with an effective date of 31 March 2016 that was signed on 18 December 2018 under regulation 123 of the Local Government Pension Scheme Regulations (Northern Ireland) 2014 (S.R. (N.I.) 2014 No. 188) is of no effect.”
“(6A) In section 8 of PSPA 2013 (types of scheme), after subsection (4) insert—
“(4A) The extent to which a scheme under section 1 is a career average revalued earnings scheme is not affected by provision contained in scheme regulations that is made under section (Power to pay final salary benefits) of PSPJOA 2022 (local government schemes: power to pay final salary benefits).””
“(13A) In section 8 of PSPA(NI) 2014 (types of scheme), after subsection (4) insert—
“(4A) The extent to which a scheme under section 1 is a career average revalued earnings scheme is not affected by provision contained in scheme regulations that is made under section (Power to pay final salary benefits) of PSPJOA 2022 (local government schemes: power to pay final salary benefits).””
“Amendments relating to pension schemes for members of the Senedd
In section 30 of PSPA 2013 (new public body pension schemes), after subsection (4) insert—
“(4A) The following provisions of this section do not apply to a new public body pension scheme which is made under section 20(3) of the Government of Wales Act 2006 (remuneration of members of the Senedd: pensions)—
(a) subsection (1)(e) (cost control);
(b) subsection (3) (Treasury consent).””
Viscount Younger of Leckie
Moved by
That this House do agree with the Commons in their Amendment 54.
“Guidance to public service pension scheme managers on investment decisions
(1) The Public Service Pensions Act 2013 is amended in accordance with subsection (2).
(2) In Schedule 3, in paragraph 12(a), at end insert “including guidance or directions on investment decisions which it is not proper for the scheme manager to make in light of UK foreign and defence policy”.”
Lord Davies of Brixton (Lab)
I have to say that I understand and respect the strength of noble Lords’ feelings on BDS, but I hold to my view that it was not the subject of today’s debate. Today’s debate was about whether the decisions about local government investments held on behalf of scheme members should be taken by the trustees, who have a fiduciary responsibility, or by the Government, who do not. It is notable that the Pensions and Lifetime Savings Association and local government as a whole consider that this amendment is unnecessary and ill thought-out, with unknown consequences.
However, I take it from the Minister’s words that, in practice, full consideration of this issue will be deferred until the Government come forward with their own legislative proposals, at which time we can give it proper consideration. I suspect that I will still oppose those proposals, but clearly we have not had the time to give this change sufficient attention. In light of what the Minister has said, I will not move my amendment.
Viscount Younger of Leckie
Moved by
That this House do agree with the Commons in their Amendments 55 to 81.
(c) a compensatable loss for the purposes of section (Power to pay compensation) (power to pay compensation under Chapter 3).”
“, or (c) a member of a local government new scheme within section 79(2)(a) who has remediable service that is pensionable service under the scheme.”
“(c) in paragraph (c), “local government new scheme” and “remediable service” have the same meaning as in Chapter 3.”
(c) a compensatable loss for the purposes of section (Power to pay compensation) (power to pay compensation under Chapter 3).”
(c) a member of a local government new scheme within section 79(2)(b) who has remediable service that is pensionable service under the scheme.”
“(c) in paragraph (c), “local government new scheme” and “remediable service” have the same meaning as in Chapter 3.”
“Parliamentary procedure for judicial schemes: transitory provision
(1) This section applies to scheme regulations for a scheme relating to the judiciary that are made at any time within the period of one month beginning with the day on which this Act is passed.
(2) A statutory instrument containing scheme regulations to which this section applies must be laid before Parliament after being made.
(3) Regulations contained in a statutory instrument laid before Parliament under subsection (2) cease to have effect at the end of the period of 28 days beginning with the day on which the instrument is made unless, during that period, the instrument is approved by a resolution of each House of Parliament.
(4) In calculating the period of 28 days, no account is to be taken of any whole days that fall within a period during which—
(a) Parliament is dissolved or prorogued, or
(b) either House of Parliament is adjourned for more than four days.
(5) If regulations cease to have effect as a result of subsection (3), that does not—
(a) affect the validity of anything previously done under the regulations, or
(b) prevent the making of new regulations.
(6) If regulations otherwise subject to the negative procedure are combined with scheme regulations to which this section applies, the combined regulations are subject to the procedure set out in this section.
(7) Section 24 of PSPA 2013 (other procedure) does not apply to scheme regulations to which this section applies.
(8) In this section, the following expressions have the same meaning as in PSPA 2013—
“the judiciary” (see paragraph 2 of Schedule 1 to that Act); “negative procedure” (see section 38(3) of that Act); “scheme” (see section 37 of that Act);
“scheme regulations” (see section 1(4) of that Act).”
(a) connected within the meaning of PSPA 2013 (see section 4(6) and (7) of that Act), or
(b) connected within the meaning of PSPA(NI) 2014 (see section 4(6) and (7) of that Act);”
““excess teacher service” has the meaning given by subsection (2)”
““Fair Deal scheme” means—
(a) a pension scheme that, in accordance with the Fair Deal Statement of Practice, has been certified by the Government Actuary’s Department as offering, to persons who have been subject to a Fair Deal transfer, pension arrangements that are broadly comparable with those offered to them before the transfer, or
(b) a pension scheme in relation to which the obligation to give such a certificate has been waived in accordance with that statement of practice;
“Fair Deal Statement of Practice” means the statement of practice entitled “Staff Transfers in the Public Sector” issued by the Cabinet Office in January 2000, as supplemented and modified from time to time;
“Fair Deal transfer” means a transfer of a person’s employment from a public sector employer to a private sector employer in accordance with the Fair Deal Statement of Practice;”
““local government contracting-out transfer” means a transfer of a person’s employment that was required to be conducted—
(a) in accordance with directions given, and having regard to guidance issued, for the purposes of section 101(1) of the Local Government Act 2003 (contracting out: staff transfer matters), or
(b) having regard to guidance issued for the purposes of section 52 of the Local Government in Scotland Act 2003 (asp 1) (guidance on contractual matters);”
““teacher” means teacher within the meaning of PSPA 2013 (see paragraph 4 of Schedule 1 to that Act) or PSPA(NI) 2014 (see paragraph 4 of Schedule 1 to that Act);”
“(2) In this Part “excess teacher service” means a person’s service in an employment or office as a teacher where (disregarding section 2(1))—
(a) the service is pensionable service under a local government new scheme, or
(b) the service—
(i) is pensionable service under a Chapter 1 new scheme for teachers, and
(ii) would have been pensionable service under a local government new scheme but for the person’s failure to meet a condition relating to the person’s attainment of normal pension age, or another specified age, by a specified date.
Service in an employment or office is “excess teacher service” if all of the service falls within paragraphs (a) and (b) (even if it does not all fall within only one of those paragraphs).
(3) In subsection (2)—
“Chapter 1 new scheme” has the same meaning as in Chapter 1; “local government new scheme” has the same meaning as in Chapter 3.”
“(ba) scheme regulations for a local government scheme (within the meaning of Chapter 3 of Part 1), or”
“(1A) In Schedule 3 (judicial offices)—
(a) Part 4 extends to Northern Ireland only;
(b) Part 5 extends to England and Wales only.”
(a) confers a power to make subordinate legislation or give directions, or
(b) otherwise relates to”
“(d) Chapter 3, and sections 97 and 98 so far as they apply for the purposes of that Chapter, come into force in relation to a local government scheme within section 79(2)(a) or (3)(a) on—
(i) 1 October 2023, or
(ii) such earlier day as the Treasury may by regulations appoint;
(da) Chapter 3, and sections 97 and 98 so far as they apply for the purposes of that Chapter, come into force in relation to a local government scheme within section 79(2)(b) or (3)(b) on—
(i) 1 October 2023, or
(ii) such earlier day as the Department of Finance in Northern Ireland may by order appoint;”
(b) Chapter 3, or sections 97 and 98 so far as they apply for the purposes of that Chapter, in relation to a local government scheme within section 79(2)(b) or (3)(b).”
“President of the Education Tribunal for Wales
Member of the legal chair panel, or the lay panel, of the Education Tribunal for Wales”
“Member of the legal chair panel of the Education Tribunal for Wales”
Commercial Rent (Coronavirus) Bill
Wednesday 9th March 2022
(2 years, 9 months ago)
Lords ChamberRead Full debate Commercial Rent (Coronavirus) Bill 2021-22 View all Commercial Rent (Coronavirus) Bill 2021-22 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 116-I Marshalled list for Report - (7 Mar 2022)
“(6) “English business tenancy” means a business tenancy comprising premises in England.(7) “Welsh business tenancy” means a business tenancy comprising premises in Wales.”Member’s explanatory statement
The amendment would define “English business tenancy” and “Welsh business tenancy”.
The Minister of State, Department for Business, Energy and Industrial Strategy and Department for International Trade (Lord Grimstone of Boscobel) (Con)
My Lords, the amendments proposed to Clauses 2, 9, 23 and, to some extent, 27 are the result of extensive discussions with Welsh Ministers, who expressed their wish that the delegated powers in the Bill be redrafted to clarify areas of Welsh competence in recognition of the importance of the Bill’s policy to Welsh businesses.
The amendments to Clause 9, regarding extending the period for making a reference to arbitration, clarify that the power to extend the arbitration reference period can be exercised for English business tenancies or for Welsh business tenancies, as well as for both. The amendments to Clause 23 decouple the moratorium period and the period for making a reference to arbitration. The moratorium period will end six months from Royal Assent, unless extended.
New Clause 23A provides that the UK must seek the consent of Welsh Ministers to extend the Bill’s moratorium period for Welsh business tenancies in respect of devolved matters. In relation to Clause 27, which is the power to reapply the Bill to a future period of coronavirus, I have tabled an amendment to enable regulations under this clause to be made just for English business tenancies, or just for Welsh business tenancies, or for both. The amendments to this clause also provide that the UK Government will seek the consent of Welsh Ministers on the use of powers to reapply the Act for Welsh tenancies in response to future periods of coronavirus-related business closures, where the provisions are devolved. In addition, in the event of new coronavirus restrictions in Wales, new Clause 27A has been included to enable Welsh Ministers, concurrently with the Secretary of State, to use the power to reapply the relevant moratorium provisions to Welsh business tenancies. I am pleased to confirm that the Senedd has now voted to support the legislative consent Motion in relation to this.
As noble Lords will be aware, the Delegated Powers and Regulatory Reform Committee published its report on 3 February. Following careful consideration of this report, I have now made several amendments to Clause 27 in order to address issues raised by the committee. I thank the committee for bringing this matter to the attention of the House. Primarily, the amendments limit the breadth of the Secretary of State’s powers to reapply the provisions of the Bill in the future. The amended power would allow for targeted modifications to accommodate new dates and to make adjustments to moratorium provisions to take account of new timeframes. However, it would not permit changes to the operation of the arbitration process or policy. The Secretary of State would retain the ability to make different provision for England and Wales, and to make incidental, supplemental, consequential, saving or transitional provisions. I beg to move.
Lord Fox (LD)
My Lords, it is pleasing to see so many more noble Lords attending this debate than there were in Committee, when there were just four of us—two of whom have subsequently come down with coronavirus. So your Lordships have been warned.
This group of amendments is testimony to the fact that the Minister listened in Committee, and has attended many meetings and taken note. For that, the Minister and the Government should be congratulated and thanked in broad measure. I highlight in particular Amendment 21, which, as the Minister set out, addresses the issues highlighted by the DPRRC. This was a serious issue, and the Minister has effectively addressed it. It is a welcome change and something these Benches were particularly concerned about it, and it was good of the Minister to have taken it on. Also, conversation with the Welsh Government has been extremely successful, and that is borne out by the legislative consent that the Minister and Government have received. Overall, we welcome this group of amendments and think them a very good improvement to the Bill as we now see it.
Lord Lennie (Lab)
My Lords, as the House may have spotted, I am not the noble Baroness, Lady Blake, as she is one of the two noble Lords who have fallen victim to Covid. We all wish her well for a quick recovery.
On this side of the House, we also welcome the Government’s moves, which follow on from representations made by the Welsh Government and the DPRRC. They show that the Government have listened and have acted upon the concerns raised. Perhaps the Minister could confirm in response that the Welsh Government are fully satisfied with these changes too, in which case we too are satisfied.
Lord Lennie
“(2A) The Secretary of State must ensure that bodies approved under subsection (1) have adequate resources and sufficient numbers of arbitrators as are (whether alone or as a member of a panel of arbitrators) required to conduct arbitrations under this Part.”Member’s explanatory statement
This amendment would require the Secretary of State to ensure that the approved arbitration bodies collectively have sufficient capacity, and resourcing, to hear all arbitrations under this Part.
Lord Lennie (Lab)
My Lords, Amendment 2 builds on the debate in Committee. The House will be pleased that I will not repeat all the arguments put forward then, but it is worth saying at the outset that this amendment is in response to severe pressures that businesses, tenants and landlords are under following an extremely difficult trading winter, plus the economic pressures of national insurance increases, energy price rises and escalated inflation. The clock is ticking loudly.
Arbitrators will be dealing with the cases that could not be resolved through voluntary measures between the parties. These will include in the main the most complex, as well as those where a failure to act was in the hope that debt would just disappear. As a point of interest, it would be beneficial to know from which sectors these outstanding cases come—not geographically, but from which sectors of economic activity. Perhaps the Minister could respond.
In Committee, the Minister—whom I paraphrase—told us not to worry about the arbitration service and that all would be well and sorted out in due course. Can he tell us what his optimism is based on? Have the Government made an assessment about the demands that will be made on the service, beyond simply the number of outstanding cases? If so, can we see the evidence of that assessment? Also in Committee, the Minister said that the Government supported the market-based approach in which arbitration firms would move things around to get over the expected spike in demand. The Minister said that he had been reassured by the arbitration firms of their ability to cope. But, without a detailed assessment or understanding of both the volume and complexity of cases, coupled with a change in the nature of the work that arbitrators will be asked to carry out—which the noble Lord, Lord Fox, will introduce in a later amendment, on behalf of the noble Earl, Lord Lytton—this would appear to be wishful thinking.
If in reality there is either an insufficient number of arbitrators, or too many complex cases, or both, this reliance of the market-based approach may be something the Government come to regret. So will they keep the progress in clearing the backlog of cases under review and report back to Parliament from time to time? I have no doubt about the quality and excellence of the arbitration service itself across the whole of the UK, but we are concerned that the Government have not undertaken an assessment of the numbers and the resources available in order to be fully satisfied that all arbitrations can be conducted in good time.
Amendment 15 proposes that, when the Government issue guidance to arbitrators aimed at enabling better outcomes, Parliament should be informed. Some concern has been expressed, in particular by small businesses, that the draft guidance produced may not be fully appropriate to the arbitration process. This is turn raises the prospect that arbitrators’ decisions are likely to be distorted. So Amendment 15 adds a layer to safeguard against such an occurrence by asking the Government to bring statutory guidance to Parliament before it is issued. In both the Commons and in Committee we raised the need for a review of the Bill’s provisions to ensure that the process is being applied transparently, fairly and consistently. While we may not have convinced the Government to include a specific review mechanism, can the Minister assure the House that the operation of the Bill will be carefully monitored?
Finally, on the many thorny questions of viability, can the Minister tell us what engagement is being undertaken with stakeholders to stress test the Government’s draft guidance on this to make sure that it is fit for purpose? I look forward to the noble Lord’s response.
Lord Fox (LD)
My Lords, I will speak to Amendments 2 and 15 in my name. Amendment 2 is important because it is important to have the arbitrators in place to deliver this service. The purpose of Amendment 15 is to probe the guidance notes, because in Committee that guidance was out for consultation. It is important to get a chance to air some of the issues thrown up from it and to get a sense from the Minister of where we are and when your Lordships’ House will see the final draft—I hesitate to use the phrase “final draft”, because I hope he can confirm that it is a live document and will develop over time alongside experience of this process.
The noble Lord talked about stress testing. It would be helpful if the Minister, during the process of monitoring the guidelines, talked to those who have been involved in arbitration about their experience so that they can be improved over time. Can he confirm that he will?
The Government’s instinct to try to keep this simple is correct, but sometimes simplicity can leave ambiguity. I think some of that has come through in the responses they may well have received. One way of removing that ambiguity is better use of templates, which is one of the responses I have received from people on this. Can the guidelines be better used to genuinely short-circuit the process and therefore reduce costs for the proponents’ way?
A second real issue is the definition of “viability”. We had a debate on that at Second Reading and in Committee; I do not propose to return to it, but there are issues around viability that concern businesses, particularly seasonal ones. There is scope within the guidelines—I have been given this advice by some seasonal businesses—to better define the role of seasonality when looking at the viability of these businesses. I would appreciate the Minister’s thoughts on those issues.
Finally, there is an underlying suspicion from some tenants that large-scale landlords, some of whom have experience in previous types of dispute, will game the system and use their financial muscle to take advantage. They fear that these well-resourced landlords will go for the most expensive options, bid up the costs and put the process beyond the means of small independent traders. Will the Minister ensure that the arbitrators are vigilant in this regard? I would be a bit hesitant here, because there is a potential conflict of interest for those arbitrators—the bigger the job, the larger the potential fee. We then come to important issues around fees. The Minister needs to set very clear guidelines to the arbitrators on that issue, such that they are not bidding up the process or creating the opportunity for big companies to flex their financial muscle.
Lord Grimstone of Boscobel (Con)
My Lords, I am grateful to the noble Baroness, Lady Blake of Leeds—originally—and the noble Lord, Lord Fox, for raising their concerns about ensuring that arbitration bodies have adequate arbitrator capacity and administrative capability. I am sorry that the noble Baroness cannot join us today and wish her a speedy recovery, although of course I welcome the noble Lord, Lord Lennie, who is participating in her place. I agree that a number of crucial points have been made in this short debate. The need for arbitrator capacity has been a key consideration in designing the scheme.
The Bill adopts a market-based approach. This means that several arbitration bodies will be approved and deemed suitable to administer the scheme, a point which I will return to in a moment. I believe this is the best way to ensure that we maximise capacity, because arbitration bodies will be able to use their intimate knowledge of matching arbitrator skills and experience to cases. This Bill also helps maximise capacity by empowering approved arbitration bodies to design and optimise their internal workflows to make best use of their own and their arbitrators’ capacity.
The Government designed an approvals process which specifically asked arbitration bodies to evidence their capacity. The deadline for applying has now passed and an internal sifting process is under way. As the sift is ongoing, I cannot comment on the details yet, but I can state that 12 arbitration bodies have applied. This is a very pleasing indicator of the interest being shown in the scheme. To an extent, it shows that the market mechanism looks to be working. Given the breadth and content of the applications, I am confident that the approach we have taken quite rightly empowers arbitration bodies to apply their experience and expertise.
The noble Lord, Lord Lennie, asked about the number of cases. In light of recent intelligence from the mediation policy in New South Wales, Australia, we have adjusted our current estimate of the expected number of arbitration cases. It is important to note that there is still some uncertainty around these estimates, but in the central case we now estimate 2,500 arbitration cases in England and Wales. This is a significant reduction from the previous estimate of 7,500 cases in the central case. On that basis, if we were to discuss this Bill for the next few months, we might have no cases left at all. The noble Lord also asked about the sectors involved. I can confirm that closed sectors included retail, hospitality, personal care, leisure and the arts, and some others, but our evidence suggests that most outstanding rent debt falls within these sectors.
The reduction in estimated cases is a positive sign for both the scheme and the capacity of the arbitration market. As I have stated, I hope this number will reduce further as landlords and tenants continue negotiations. My officials are engaging extensively with arbitration bodies to ensure that we offer as much support as possible in helping them deliver this scheme. I hope that reassures noble Lords that we are engaging with the arbitration bodies on capacity and therefore request that this amendment be withdrawn.
Turning to Amendment 15, I am grateful to the noble Lord and the noble Baroness for raising the matter of laying statutory guidance before Parliament. There is no doubt that the statutory guidance will be very important to arbitrators’ performance of their role. The Government take this very seriously. We want to ensure that the guidance is genuinely useful to and used by arbitrators. That is why we have already published a draft of the guidance to allow for stakeholder input. This draft has been very well received by stakeholders—in particular the guidance on the assessment of the tenant’s viability, in answer to the noble Lord, Lord Lennie. My officials are having ongoing discussions with stakeholders which will inform the final version. This will take into account the comments made by the noble Lord, Lord Fox. We expect the final guidance to be published as soon as possible after Royal Assent.
We are committed to ensuring that the guidance is accessible to all. That is why the final version will also be published on GOV.UK. I am pleased to confirm that we will also write to all Peers to share a copy of the guidance when published and place a copy of it in the Libraries of both Houses. I assure the noble Lord, Lord Fox, that if experience shows that the guidance needs to be updated in any respect as the scheme unfolds, we will do so and make sure that any such changes are publicised.
I hope that noble Lords are reassured by this. We plan to make the guidance widely available and share it with your Lordships. I hope that, on this basis, the noble Lord will feel able to withdraw his amendment.
Lord Lennie (Lab)
My Lords, I thank the Minister for his detailed response to the contributions and questions raised. It is good to know that only 2,500 cases remain. He is quite right that the longer we talk, the fewer cases will be left. I am not entirely convinced that this is proof that the market-based approach is working. It is something else, probably about the voluntarily nature of agreements entered into by people under the threat of the arbitration process. Nevertheless, it is a positive sign.
As for the statutory guidance, we welcome being informed of updates, but our preference would probably have been to have it approved, although that is neither here nor there. I beg leave to withdraw the amendment.
Member’s explanatory statement
This amendment and the others in the name of the Earl of Lytton to Clause 8 are to avoid any ambiguity as to the role of the appointing body and independence of the arbitrator pursuant to the Arbitration Act 1996, to prevent unilateral objections that might delay or frustrate the process and to rely instead on the parties’ existing rights under the Arbitration Act 1996 jointly to remove an arbitrator.
Lord Fox (LD)
My Lords, I rise to speak on behalf of the noble Earl, Earl Lytton, who, as previously advertised, is the second member of the “Covid 2” in this team. His absence is disappointing for two reasons. First, he is not here to make these speeches and I have to do so on his behalf, and secondly, his wisdom on the issue of property is second to few in your Lordships’ House. The nature of these amendments points to the direction of the advice that he would have given your Lordships’ House had he been here, and I will do my best to represent that. I am given to understand that the amendments that the noble Earl tabled are supported by the RICS, which focuses their purpose.
I will speak to them in groups. In the Clause 8 amendments, the noble Earl’s point is that the appointing body that oversees the function should not carry out more than a general monitoring of the administrative good order of the process. The reason behind the noble Earl’s point is that he is anxious to ensure that the terms of Arbitration Act 1996 are not circumvented, so perhaps the Minister can set the Bill in this context with respect to the Act.
At the heart of the Clause 10 amendments is the expectation that the appointing bodies do not materially alter their screening and selection processes. The noble Earl’s point is that on potential conflicts of interest, they are almost wholly reliant on self-disclosure by potential appointees, so they would frequently have no means of checking the responses for accuracy. I would welcome the Minister’s view on this.
The purpose of the Clause 19 and Clause 20 amendments is to make it permissible in a complex case, or cases, for the appointing body to demand from the parties that a clear statement of the issues and scope of evidence be placed before the arbitrator. Any fee specified in advance should be able to rely on the statement, but also on providing a broad estimate of the applicable arbitrator time and rate, where a fixed fee is impractical. I think what the noble Earl is driving at is that the arbitrators should not be signing a blank cheque for the work they are going to do; they deserve to have a scope to understand what it is they will be arbitrating.
Those are the groupings as the noble Earl set out. For my part, I hope to hear how the Minister and his department will balance these important points from the noble Earl, Lord Lytton, and the RICS, with the need to keep things as simple and cost-effective as possible. I think this is possible but I want to hear how the Government will absorb these two issues. I beg to move Amendment 3.
Lord Lennie (Lab)
The noble Lord, Lord Fox, raises the central concerns of the struck-ill noble Earl, Lord Lytton, about the expectations of arbitrators. I would add that he seemed to suggest in Committee that the role of arbitrators in this legislation is inconsistent with the expectation of arbitrators in the Arbitration Act—that is, they decide either one way or the other between two competing cases, rather than trying to filter between the cases to find some remedy between the two.
Lord Grimstone of Boscobel (Con)
My Lords, I apologise—I was caught short by the speed with which we are moving through these amendments. Before I respond to these points, I thank the noble Earl, Lord Lytton, for the amendments he tabled. I think everybody who heard him in Committee was impressed by his erudition. I am sorry he is not able to join us to debate these points, but on behalf of the House I thank the noble Lord, Lord Fox, for stepping into the breach and for his impressive grasp of the technical matters underlying these amendments.
I start by saying that I am fully aware of the concerns of arbitration bodies seeking approval under the Bill and my officials have been in continual contact with them to ensure that their views are registered and dealt with appropriately.
The Bill differs in some aspects from the Arbitration Act 1996, and provides that approved arbitration bodies have oversight over arbitrators where they have appointed them. In answer to the noble Earl, Lord Lytton, this was deliberate, and it gives certainty to landlords and tenants that arbitration will be managed efficiently and any issues with the process dealt with expeditiously. I can assure noble Lords that the oversight function is not intended to be onerous and is primarily administrative to ensure that the process runs smoothly. We do not expect bodies to continually monitor proceedings, but only step in where a party has a legitimate complaint or new information comes to light, raising a concern. I hope this reassures the noble Lord, Lord Fox.
Under the Bill, arbitration bodies can decide on unilateral removal requests, and this was also deliberate to avoid adding to pressure on the court system. The bodies should apply the same principles in case law as the court, including that there is a high bar to removing an arbitrator, and the parties should raise any concerns promptly. Frivolous, vexatious or unsubstantiated complaints should be quickly dismissed. Complaints of any substance should be rare, given the rigorous pre-appointment checks that bodies will doubtless carry out. I am pleased to clarify the point raised by the noble Earl in Committee: it is open to the approved arbitration bodies to charge a fee for dealing with a removal application. The intention is that this may disincentivise frivolous or vexatious complaints. In addition, the arbitrator can require an obstructive party to pay a greater share of the arbitration fees. We will include this clarification in the guidance to which I referred earlier.
I appreciate that there is concern about the extent to which arbitration bodies have immunity in respect of their functions. This is an important point that has been raised; I am considering it and will return to this issue at Third Reading.
Lord Fox (LD)
I appreciate that latter point, and the conflict of interest is a concerning issue, particularly around how arbitrators are able either to sign off on that or not be required to do so.
Lord Grimstone of Boscobel (Con)
The noble Lord makes a good point on that, and I hope that all this provides reassurance to the noble Lord, Lord Fox, in his proxy role regarding Amendments 3, 4 and 5 and that he will now not press them.
Turning to Amendments 8 and 9, the Bill’s arbitration scheme is for parties that cannot reach agreement. It should not apply if the protected rent debt is covered by a company or individual voluntary arrangement, or by certain restructuring plans and schemes under the Companies Act 2006. The Bill therefore does not allow a reference to arbitration where such an arrangement has been approved. If, when the Bill scheme is open, such an arrangement has been proposed but not decided, the Bill seeks to preserve the parties’ positions. This is why a party may apply for arbitration but an arbitrator may not be appointed while the decision on the arrangement is pending. If the proposed arrangement is then approved, arbitration should not be available, so, in that instance, the Bill prevents an arbitrator being appointed.
This is important, but it should not be burdensome for approved arbitration bodies. We will set out in guidance a clear and quick process based on tenant disclosure to check whether there is an approved or proposed arrangement to limit administrative burden on the bodies. However, we should not use limited arbitral capacity to determine this. I hope that I have explained convincingly why Amendments 8 and 9 are not necessary or appropriate.
Finally, I thank the noble Lord for raising the important issue of arbitration fees. I turn first to Amendment 10. A cap on fees differing with the complexity of the dispute may seem helpful; however, complexity is subjective and difficult to define and measure. It would therefore be hard to monitor adherence to such a cap. Landlords and tenants may worry that their case would be considered complex, resulting in higher fees, which may discourage SMEs from applying. Of course, a key tenet of this Bill is that this should be an inclusive process and open to all. I hope that explains, for reasons of practicality, why I cannot accept the amendment from the noble Earl and noble Lord on the fee cap.
Amendments 11, 13 and 14 in effect remove the requirements for advance payments of arbitrators’ fees and expenses and oral hearing fees. However, it is fundamental that the parties know in advance how much arbitration will cost to avoid deterring them from using the scheme. A key gain—another key tenet—is that this scheme is intended to be fast and low cost. The arbitration mechanism is focused and based on the parties’ formal proposals and supporting evidence. Oral hearings should concern those proposals and evidence and should not require lengthy cross-examination or experts. Consequently, costs should be predictable.
Requiring fees to be paid in advance prevents a party frustrating the process by refusing to pay. It also avoids arbitration bodies having to take action to recover unpaid fees. Arbitration bodies should be reassured that it is perfectly acceptable under the Bill for them to set a higher fee for large-scale disputes, and vice versa. For these reasons, I hope that the noble Lord will understand that I must stick to the position that fees should be paid in advance.
Finally, I turn to Amendment 12. The scheme must of course be accessible to SMEs, as I have previously said, but the general rule of splitting approved arbitration body fees and expenses 50:50 is important. That even split means that neither side is incentivised to make the process more complex or lengthier than it needs to be. I believe that we should be wary of interfering with this. Of course, the exception is where a party has behaved obstructively, in which case the arbitrator can require them to pay more than 50% because of their conduct. As I have mentioned, it is perfectly acceptable for approved arbitration bodies to set fees payable in advance that differ depending on the size of the parties involved. I hope that all provides a satisfactory explanation to the noble Lord, Lord Fox. I thank him and of course the noble Earl, Lord Lytton, for their close attention to these matters, and I hope that he will not press these amendments.
Lord Fox (LD)
My Lords, I thank the Minister for his comprehensive answer on these amendments. I am not sure how much cheer the noble Earl will be getting from the answer, but he will I hope be able to respond on his own account at Third Reading.
For my own part, I think the Minister’s response that neither side is incentivised to increase the costs is a bit—if he does not mind me saying so—naïve, because that is exactly what has been happening where the big operators have flexed their muscle to, in a sense, push the smaller operators into a corner. So I do not agree with that point, and it is perhaps something that the Minister could reconsider. With that, I beg leave to withdraw the amendment.
(a) English business tenancies,(b) Welsh business tenancies, or(c) English business tenancies and Welsh business tenancies.”Member’s explanatory statement
The amendment would clarify that the power to extend the period for making references to arbitration can be exercised for English business tenancies or for Welsh business tenancies only, as well as for both.
Member’s explanatory statement
The amendment would omit a definition that is redundant if Lord Grimstone’s proposed amendment to Clause 23 at page 14, line 27 is made.
Member’s explanatory statement
The amendment would mean that the moratorium period is no longer defined directly by reference to the period under Clause 9(2) for making of references to arbitration. Instead the period under Clause 23(2)(b)(i) will end 6 months from Royal Assent, unless extended.
“(2A) Subsection (2) is subject to any extension of the period mentioned in paragraph (b)(i) that—(a) is made by or by virtue of section (Alteration of moratorium period), and(b) has effect in relation to the protected rent debt.”Member’s explanatory statement
The amendment would acknowledge that the period ending as specified in Clause 23(2)(b)(i) may be extended as provided for in the new Clause proposed by another amendment in the name of Lord Grimstone.
“Alteration of moratorium period
(1) In this section “extension regulations” means regulations under section 9(3) extending the period allowed by section 9(2) for making references to arbitration.(2) Where extension regulations made by virtue of section 9(3)(a) or (c) extend that period in the case of English business tenancies, the period specified in section 23(2)(b)(i), so far as it applies in the case of a protected rent debt under an English business tenancy, is extended for the same period of time.(3) Subsection (4) below applies where extension regulations made by virtue of section 9(3)(b) or (c) extend that period in the case of Welsh business tenancies.(4) The Secretary of State may by regulations made by statutory instrument extend the period specified in section 23(2)(b)(i), so far as it applies in the case of a protected rent debt under a Welsh business tenancy, for the same period of time.(5) Regulations under subsection (4) must provide for the extension referred to in that subsection—(a) to have effect for the purposes of this Part including the purposes of Schedule 2, or(b) to have effect for the purposes of this Part other than the purposes of Schedule 2.(6) The power to make the provision referred to in subsection (5)(a) is exercisable only with the consent of the Welsh Ministers to the extension having effect for the purposes of Schedule 2 other than the purposes of paragraph 3(6) and (7).(7) A statutory instrument containing regulations under subsection (4) is subject to annulment in pursuance of a resolution of either House of Parliament.”Member’s explanatory statement
The amendment deals with the effect of use of the Clause 9(3) power on the moratorium period under Clause 23(2). For debts under Welsh business tenancies the effect will depend on regulations, which would require the consent of the Welsh Ministers if a change in the moratorium period affects Schedule 2 (apart from paragraph 3(6) and (7), dealing with reserved matters).
“(1A) Regulations under this section may—(a) be made so as to apply in relation to—(i) English business tenancies,(ii) Welsh business tenancies, or(iii) English business tenancies and Welsh business tenancies;(b) exclude the provisions mentioned in subsection (7B)(a) to (c) from the provisions being re-applied in relation to Welsh business tenancies.”Member’s explanatory statement
The amendment would enable regulations under Clause 27 to be made just for English business tenancies or just for Welsh business tenancies (as well as for both) and also to exclude (in the case of Welsh business tenancies) provisions of the Act which deal with devolved matters in Wales.
“(7) Regulations under this section may—”Member’s explanatory statement
The amendment would omit the current specific power to exclude any of the provisions of the Act from applying again by virtue of regulations under Clause 27.
Member’s explanatory statement
The amendment would limit the power to modify the provisions of the Bill being re-applied to modifications necessary for the re-applied provisions of the Act to work in the circumstances in which the power is being used.
Member’s explanatory statement
The amendment would limit subsection (7)(c) to making different provision for England and for Wales.
“(7A) For the purposes of subsection (7)(b)—(a) “modifications” means omissions, additions or variations, and(b) modifications are “necessary” if they appear to the Secretary of State to be necessary for the provisions being re-applied to operate correctly in relation to business tenancies adversely affected by the closure requirements in question.(7B) The power under this section is exercisable only with the consent of the Welsh Ministers so far as it relates to the re-application, in relation to Welsh business tenancies, of—(a) Schedule 2 apart from paragraph 3(6) and (7),(b) section 23 so far as relating to Schedule 2 apart from paragraph 3(6) and (7), and(c) Part 1 and this Part, so far as relating to the provision mentioned in paragraphs (a) and (b).”Member’s explanatory statement
The amendment would require the consent of the Welsh Ministers to regulations re-applying the moratorium provisions of Part 3, with the exception of paragraph 3(6) and (7) of Schedule 2 (the subject-matter of which is reserved under Welsh devolution legislation).
Member’s explanatory statement
This is a drafting amendment that would secure consistency of expression in Clause 27.
“Concurrent power for Welsh Ministers to apply moratorium provisions again
(1) The Welsh Ministers may exercise the power conferred by section 27, concurrently with the Secretary of State, so far as it relates to the re-application, in relation to Welsh business tenancies, of—(a) Schedule 2 apart from paragraph 3(6) and (7),(b) section 23 so far as relating to Schedule 2 apart from paragraph 3(6) and (7), and(c) Part 1 and this Part, so far as relating to the provision mentioned in paragraphs (a) and (b).(2) Section 27 has effect in relation to regulations made by the Welsh Ministers by virtue of this section as if—(a) references to the Secretary of State were to the Welsh Ministers,(b) subsection (1A)(a)(i) and (iii) and (b) were omitted,(c) in subsection (7)—(i) the references in paragraph (b) to provisions of this Act were references to provisions mentioned in subsection (1)(a) to (c) above, and(ii) the reference in paragraph (d) to an Act of Parliament included a reference to an Act or Measure of Senedd Cymru,(d) subsection (7B) were omitted, and(e) in subsection (8)(b), for “each House of Parliament” there were substituted “Senedd Cymru”.(3) In Schedule 7B to the Government of Wales Act 2006 (general restrictions on legislative competence of Senedd Cymru), in paragraph 11(6)(b) (exceptions to restrictions relating to Ministers of the Crown)—(a) omit the “or” at the end of paragraph (vii), and(b) after paragraph (viii) insert “; or(ix) section 27 of the Commercial Rent (Coronavirus) Act 2022.””Member’s explanatory statement
The amendment would insert a new Clause enabling the Welsh Ministers, concurrently with the Secretary of State, to use the section 27 power to apply again the moratorium provisions specified in subsection (1)(a) to (c) of the new clause in relation to Welsh business tenancies affected by new coronavirus restrictions in Wales.
Economic Crime (Transparency and Enforcement) Bill
Wednesday 9th March 2022
(2 years, 9 months ago)
Lords ChamberRead Full debate Economic Crime (Transparency and Enforcement) Act 2022 View all Economic Crime (Transparency and Enforcement) Act 2022 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 126 Running list of amendments - (9 Mar 2022)
The Minister of State, Home Office (Baroness Williams of Trafford) (Con)
My Lords, in light of Russia’s invasion of Ukraine, it is vital that we take new action to crack down on Russian dirty money and corrupt elites in the UK. The measures in the Bill—passed with cross-party support in the other place—will enable us to better identify, investigate and sanction the illicit wealth of those who wish to abuse our open economy. While we are rightly focused on taking action against Putin’s regime, these measures will strengthen our framework for tackling economic crime for the long term.
I have been heartened by the previous offers from those across all parties, including on the Opposition Front Benches, to support and co-operate with the Government on emergency legislation and to offer practical support to ensure that the Economic Crime (Transparency and Enforcement) Bill is implemented. I very much hope that we can continue to work in this spirit.
The Bill comprises some emergency measures, developed in light of Putin’s outrageous actions in recent weeks, and other measures that have been planned for quite some time. The first is a new register of overseas entities, which will require overseas companies owning or buying property in the UK to give information about their true owners to Companies House. This will provide more information to help law enforcement identify those using UK property as a money laundering vehicle.
Secondly, there will be reforms to unexplained wealth orders, which are a key tool for the investigation of suspicious assets. Through this Bill, we will improve their effectiveness and make sure that they can be applied to complex ownership structures.
Thirdly, we will streamline the sanctions Act to enable even swifter sanctioning of oligarchs and businesses associated with the Russian Government. The Bill also includes amendments to financial sanctions legislation, including strengthening the Treasury’s power to impose monetary penalties on those who violate our financial sanctions laws.
These are the actions that we can take most swiftly but they are not the sum total of our ambition. We will introduce a second economic crime Bill with further measures as early as we can in the next Session. This will include major reform of Companies House, reforms to prevent the abuse of limited partnerships, new powers to make it easier to seize crypto assets from criminals and measures to provide businesses with more confidence to share information on suspected money laundering. This second Bill will be a substantial piece of legislation. I know that some of the measures it contains have long been called for. I can assure the House that drafting is under way and we will bring it forward as soon as we are able.
I will now provide more detail on the measures in today’s Bill. The Bill will create a register of overseas entities which will require anonymous foreign owners of UK property to reveal their real identity, ensuring that they can no longer hide behind secretive chains of shell companies. We know that corrupt wealth is stored in property in this country, and this new register will help us to find it. Too often, investigators at the National Crime Agency and other bodies reach a dead end when they find that a property of interest to them has its title registered in the name of a foreign company. It can be very difficult to obtain adequate information about that company, depending on where it is registered.
This new register would apply essentially the same beneficial ownership requirements to these companies as already apply to domestic companies registered at Companies House. An overseas entity that owns or wishes to own land in the UK will be required to take steps to identify its beneficial owner or owners and register them with Companies House. They will be required to verify that information and evidence that verification, and they will be required to update information annually. The provisions will apply retrospectively as far as Land Registry data allows: 1999 in England and Wales, and 2014 in Scotland. Should a foreign company not comply with these new obligations or submit false filings, its managing officers can face criminal or civil penalties. In many cases, these officers may be overseas and beyond the reach of UK law enforcement. That is why the key sanction will be the loss of rights to sell or lease the property until the register is populated with verified information.
I emphasise to the House that this is an information measure—an additional tool for law enforcement to use to inform investigations, including the case for making an unexplained wealth order. It is not a necessary underpinning of the actions we are taking right now to sanction allies of Putin. Rather, it will help to clean up our property market over the long term. However, I am mindful that many in your Lordships’ House will want to see it implemented as swiftly as possible, and I can assure the House that work to deliver the register will begin as soon as the Bill receives Royal Assent. A transition period will be in place as an essential protection for the many legitimate businesses and individuals who are likely to be holding property through overseas entities. Noble Lords will know that the Government have already amended the Bill in the other place to reduce this period to six months. We have committed to looking at how any entity in scope of the register selling its property before the register is operational should not be able to evade that scrutiny.
I turn now to the reforms to remove barriers to the use of unexplained wealth orders. These changes will increase the time available to law enforcement to carry out investigations, allowing them to be more comprehensive. We will also reform cost rules so that agencies will not be required to pay respondents’ costs unless they act dishonestly, unreasonably or improperly. This will remove a key barrier that discourages the use of UWOs and will increase and reinforce operational confidence in their use.
With this legislation, unexplained wealth orders will become more effective against those who hold property in the UK through trusts and other complex ownership structures. By targeting those who manage the properties on behalf of the beneficiaries, law enforcement will be able to obtain information that may be obscured by the beneficiaries. Individuals will not be able to hide behind shell companies and foundations any more.
I turn now to the amendments introduced to the Bill in the other place by which we propose to revise the sanctions Act. They will allow us to sanction oligarchs and businesses associated with the Russian Government even more swiftly, in concert with our allies. The new measures will ensure that we have the power to use urgent designation procedures to temporarily mirror the listings that have already been adopted by our allies. The United States, Canada, Australia and the EU are listed in the Bill, and others may be added by regulation.
We will remove the statutory test of appropriateness for making designations, thus simplifying the process. Ministers will still need to be satisfied that there are reasonable grounds to suspect that the person to be designated is “an involved person”, usually on the basis that have been involved in a specified activity. In the context of Russia, the activities specified in regulations include destabilising Ukraine, undermining or threatening its territorial integrity and supporting the Government of Russia. This is the right test to focus on in sanctioning an individual, without unnecessary statutory hurdles.
The Bill will remove some of the constraints on designations by description so that the Government can designate groups of individuals more quickly—for example, members of defined political bodies such as the Russian Federation Council. The Bill will also remove burdensome requirements to formally review each and every sanction every three years, freeing up vital resource to focus on developing new designations. However, designated persons will continue to have the opportunity to ask for their designation to be reviewed through an administrative review, and for the outcome of that review to be considered by the courts. Ministers will continue to be under a duty to revoke a designation where the relevant tests are no longer met in respect of it. The Bill will streamline reporting requirements while ensuring that Parliament can continue, rightly, to hold Ministers to account.
We are seeking to protect the public purse by permitting the payment of damages in connection with designations only in the case of bad faith. The Bill also provides a power to impose a cap on damages applying to any proceedings issued after 4 March, when the amendments were originally tabled in the other place. This will limit the ability of deep-pocketed oligarchs to claim massive payouts from sanctions challenges.
The Bill will also enhance the enforcement of financial sanctions. It will make it easier for the Treasury to impose significant monetary penalties, to name publicly those who have breached financial sanctions and to expand information-sharing powers.
We are collaborating with the devolved Administrations on this Bill. Provisions in it relating to the register of overseas entities and unexplained wealth orders engage devolved powers in both Scotland and Northern Ireland. We will continue to work with them on implementation and I am confident that we can rely on their continued support, for which I am very grateful.
The Government have consulted on the measures in the Bill. The register of overseas entities was the subject of extensive consultation and pre-legislative scrutiny. The Government accepted and acted on most of the Joint Committee’s recommendations. We have designed the reforms of unexplained wealth orders in close consultation with law enforcement agencies and representatives from the accountancy, financial and legal sectors. The Treasury will engage with industry on updating the guidance for financial sanctions before this reform takes effect. I can therefore assure the House that the Government are not acting rashly, and I urge it to support the Bill.
The Bill will ensure that our economy becomes more transparent and stronger at the same time. It will give our enforcement agencies the powers they need to effectively tackle dirty money. The House will be in no doubt, and will have noted, that the other place overwhelmingly supported the Bill when it was considered there on Monday. The Government worked with the Opposition there to strengthen and accelerate the package, and there was a clear and strong desire across party lines to present a united front by passing the legislation as swiftly as possible. I urge noble Lords to take a similar approach in this House. With that, I beg to move.
Baroness Chapman of Darlington (Lab)
My Lords, we warmly welcome the arrival of the Bill and we are pleased that the Government have promised to introduce a further economic crime Bill in the next Session. In warmly welcoming the Bill, I would just like to make some points to noble Lords. This is significant progress compared with the position outlined by the noble Lord, Lord Agnew of Oulton, in January, when it appeared that the Government did not want to treat this as a priority issue. But now Putin has left them with no choice. Until now, I am afraid there has been a persistent and troubling lack of political will to act on these issues from the Government. It has taken war to bring about this change of position, and the Government should have acted sooner.
This is welcome, but we do not kid ourselves. The Bill does not resolve all our issues, but it is a stopgap and we will support it. It is the first instalment and we await the detail in part two. I welcome the noble Baroness’s assurances in her speech that part two will be extensive and we look forward to it. The Bill introduces a register of overseas entities, revisions to the function of unexplained wealth orders and changes to the Government’s sanctions regime.
There has long been a case for a new register such as the register of overseas entities. We have been promised it time and again, as far back as the Anti-Corruption Summit of 2016. But the Government have always failed to produce the goods when pushed to do so, and this we regret. We have had multiple consultation exercises on this issue, yet it has taken until now for the Government to move. We have known about weaknesses in the UK’s anti-money laundering regime for some time, with the Financial Action Task Force noting in 2018 that there was a need for substantial increase in resources devoted to financial intelligence as well as a series of other, fundamental reforms.
The truth is that for too long the Government have turned a blind eye to illicit funds being funnelled through the British economy—up to £100 billion per year according to the NCA. There is, as we know, no silver bullet to fight against economic crime. This new register is a much-needed tool, but it will not work unless we get the next Bill right, including by addressing the long-running concerns about the resourcing and powers of key investigatory and enforcement bodies.
Turning to unexplained wealth orders, this tool has not been as effective as hoped so far, so we welcome the various moves to strengthen the unenforced wealth order regime. It is vital that these orders are used. It is important that we understand why so few of those orders have been implemented so far—only 15 orders and four cases. This cannot be explained away entirely by the risk of legal costs. The capacity of the NCA, SFO, FCA, HMRC and CPS to handle these orders also needs to be considered. The Government’s new Clause 31, requiring the Secretary of State to publish annual reports into the use of unexplained wealth orders, is definitely a positive step and we welcome it.
The Bill amends the Sanctions and Anti-Money Laundering Act 2018. The Government are making it easier to replicate the EU’s decisions in this and we welcome the collaborative working in this area with our international partners. This is a demonstration of strength and we back it. The campaign for an effective sanctions regime, though, began following the death of Sergei Magnitsky in 2009. The measures we are finally seeing now are welcome, but we do ask ourselves whether we will not be looking back and wondering whether we would be in a stronger position today had we acted sooner.
If we are to isolate Putin and his network of oligarchs and kleptocrats, the Government need to use these new powers immediately, bringing both pace and breadth to their response to events in Ukraine. While the Bill is not solely about Russia’s illegal and immoral invasion of Ukraine, it is regrettable that recent events have had to unfold before the Government have been prepared to bring these measures forward. Nevertheless, we will show solidarity with Ukraine by assisting the Government in the swift passage of this legislation. It is a common-sense approach to beginning to crack down on the shocking level of economic crime that has taken root in this country.
The Opposition have worked constructively with the Government since they announced the Bill and I am grateful to Ministers in the other place for adopting several of our key asks, including a reduced grace period for registering beneficial ownership and much harsher fines for those who break the rules. There remains, though, more to do. The grace period may have fallen from 18 months to six, but we on these Benches think it is still too long. Properties will be sold and other assets disposed of in far less time, severely undermining the effectiveness of the new register.
As drafted, the Bill does not yet do enough to crack down on the so-called enablers of money laundering and other forms of economic crime. They are arguably as guilty as those who seek to bring illicit funds to our shores in the first place. We know that Ministers are looking to bring forward amendments in a number of areas; we hope they will respond to concerns voiced by noble Lords in this debate today. Can the Government also offer us assurances that the follow-on Bill will be subject to normal processes, allowing both Houses to study and debate all the relevant measures in detail? I hope your Lordships will pass the Bill without undue delay but, in doing so, can we commit this evening to finally tackling the shameful spectacle of illicit money being laundered through our country?
Baroness Kramer (LD)
My Lords, every day’s delay in bringing in these measures costs Ukrainian lives, so these Benches join in wishing to pass the Bill urgently. We have, however, been calling for the key property ownership elements in the Bill for years, and we wish we had had them at a time when we could have gone through it carefully, clause by clause, and amended their various flaws.
I am delighted that the Minister has given us an assurance that she will bring the sequel to the Bill promptly. We will be watching for that. It must, as she said, deal with Companies House, limited partnerships and cryptocurrencies, which I am glad she mentioned. I take note that Russia, on the day of the invasion of Ukraine, moved to control key crypto exchanges, and I say to the Government that it may be necessary to move on that issue ahead of part two, because it is an obvious escape hatch that Russia is taking full advantage of. We also hope that in part two the Minister will address two other areas: trusts, which appear not to be fully covered by Schedules 2 and 3, and freeports, with their secrecy privileges. There will be a great deal to do in part two.
As for this Bill, let me start with provisions that deal with the public register of the beneficial ownership of property in the UK. Why have those with property interests purchased with dirty money and hidden by shell companies been given a six-month transition period, during which implementation is suspended? I accept that this is less of an escape hatch than the original 18-month transition period in the first version of the Bill, but it still gives any oligarch plenty of time and scope to alter their arrangements, including by liquidating and moving assets out of the United Kingdom into a safe haven. I understand that the office of the registrar needs to be staffed, resourced and trained, but that should be done urgently and, if necessary, the registrar should be loaned staff to bring its capacity up as quickly as possible.
Surely, penalties for breaching the rules should be retro-effective. It is a technique used by HMRC, particularly against small taxpayers under the loan charge, and it seems ideal to be adapted to this particular set of circumstances. Perhaps the Minister could also tell us whether there are existing powers that could be sharpened to cover the transition period.
Why does the Bill give the Secretary of State sweeping powers to exempt anyone from the register in the interests of the economic well-being of the United Kingdom? That is an incredibly broad criterion, but particularly inappropriate in this country, where allies of Putin are utterly enmeshed as major players in our economy, from media to sport to manufacturing. I am sure that no Minister would dream of making an exemption now, during the Russian invasion of Ukraine, but the clause is a message—and not a subtle one—that, once the crisis fades, anyone with a significant investment in the UK economy, regardless of the source of their money, can expect the privilege of an exemption.
Again and again in this House, your Lordships have warned that the Bill must deal with the network of enablers: the legal firms, the accountants, the developers, the banks—in effect, those who have opened the gate to dirty money and used all their skills to keep it open. I said a few days ago that this would be painful. Enablers include many respected names with very close ties to the political establishment; but why does the Bill not crack down on them and why is there no failure-to-prevent clause included in the Bill, or some equivalent kind of action? It is absolutely vital.
I will say only one thing about unexplained wealth orders. I do not wish to belittle them but, given the extraordinarily high income that oligarchs and kleptocrats enjoy from their many business interests, how useful are these orders and these clauses in our current emergency? Do they really have very much practical relevance? I am not opposed to them, but let us not put undue weight on them.
I welcome the strengthening of sanctions, but I say to the Government that, whenever anything is done in hot haste—and it has to be done that way on this occasion; I fully accept that—it is very sensible later to do a review and work out whether what was needed was done, whether there was any overreach and whether the measures were entirely appropriate. I hope we will hear that from the Government.
Lastly, enforcement absolutely matters. How confident are the Government that the Crown dependencies and overseas territories have adequate sanctions and controls and enforcement capacity? For us, what is the Government’s resourcing plan? The registrar’s office, which will have to verify all this hoarded information, will face a mountain of data and process. When will it be staffed? At the last asking, the National Crime Agency, on which we heavily depend for enforcement, had only 118 staff to investigate all financial crime, despite its complexity and the powerful lawyers and accountants used by the other side. How many additional staff, rather than transferred staff, will there be in the new kleptocrat cell and when will it be up and running, effective and fit for purpose?
If ever there was a time when we needed whistleblowers—and fast—it is now. They are not even mentioned in the Bill. The United States recently passed the Kleptocracy Asset Recovery Rewards Act, with cross-border and extraterritorial jurisdiction. Are we seriously telling whistleblowers, “Go to the Americans—we can’t be bothered”? Or will the Government commit to tackling this omission, hopefully in this part of the Bill, but, if not, absolutely, definitely in Part 2?
Lord Vaux of Harrowden (CB)
My Lords, I remind the House of my interest as a chartered accountant—which I hesitate to do after the last speech, I have to say. Like most noble Lords, I welcome this Bill, although I greatly regret the Government having to introduce these measures in such circumstances and in such a rush. We have tolerated for far too long the UK—and London in particular—becoming a haven for the ill-gotten gains of criminals. Of course, we need to get this Bill onto the statute book quickly, so that we can effectively sanction those responsible for the atrocities taking place in Ukraine.
Economic crime, however, is a much wider subject than Russia, and we have a lot of work to do to remedy the laissez-faire attitude to economic crime that has pervaded government policy—or, perhaps, lack of policy—in the last decade. The resignation speech of the noble Lord, Lord Agnew, said it better than I ever could. There is much more to do than is covered in this Bill, and I was pleased to hear the reassurances about the follow-up Bill.
In my comments, I will concentrate on the overseas entity register, but I have one observation on the unexplained wealth order clauses. The Government have blamed the aggressive use of legal action by oligarchs as the major reason why UWOs have not been successful so far. I am sure that there is some truth in that, but I am unconvinced that it is the main issue. More likely, the major problem is the lack of a properly resourced enforcement agency—something we also see in the wider issue of fraud more generally. I understand the reason for introducing legal costs clauses, but I do feel uncomfortable that someone who is entirely innocent will not be able to recover the potentially huge legal costs to defend themselves.
The overseas entity register is a good start, but I am afraid I do not expect it to make much practical difference. Innocent people will provide the required information—which is useful in itself—but those who are using offshore structures dishonestly to hide their identity will still be able to do so. There are many other ways of hiding ownership, including discretionary trusts, undisclosed nominees, complex corporate structures and so on. The current alleged situation of Graham Bonham-Carter and Oleg Deripaska is a good example of how this can happen.
So, in the spirit of being helpful, how might we improve this? First, while the reduction from 18 months is welcome, the time period of six months is still too long. In fact, the period is more than six months, because these clauses do not commence until such date as the Secretary of State decides. Can the Minister say when that will be? Six months still gives a lot of time for people to rearrange their affairs to avoid the rules. I would have favoured 28 days, but perhaps the three months that the Institute of Chartered Accountants has suggested might be a good compromise.
Secondly, while the new rules will prevent a property being sold once the rules are in force until the entity is registered, this does not stop the sale of the company, or, indeed, of a company further up the chain. The Bill will therefore not prevent a criminal realising the value of the property. Frankly, there is probably not a lot we can do about that, but I note that the register will only have to be updated annually, so it may be a very long time before we discover the change. It would be better if the changes to the beneficial ownership had to be updated on the register immediately after the transaction takes place. The Companies Act 2006 requires the persons of significant control register to be updated within 14 days. Perhaps the Minister could explain why the overseas entities register is different from that?
Thirdly, the register will be pointless if there is no real verification of it. One way to improve that would be to leverage the due diligence that should already be happening under anti-money laundering legislation, although clearly this does not always happen as well as it should do. At the moment, we rely on the passive, risk-based requirement to report suspicious activity. It would seriously concentrate the minds of lawyers and accountants who advise those using offshore entities if there was an active requirement for them to place a statement on the register that they have carried out their due diligence and are satisfied that the beneficial ownership is correctly stated, and if we also made sure they were liable for that statement under Clause 15. As well as improving the integrity of the register, this would have the additional impact of making those who are enabling the hiding of assets to think very seriously about it. The requirement for such a statement could easily be included in the regulations to be made under Clause 16. Is that something the Minister would consider?
This Bill is a start, but it is a rushed Bill, issued to deal with an emergency situation, and scrutiny is being substantially curtailed. It is not without flaws. As I said, the subject of economic crime is much wider, and deserves much greater work and consideration. I was pleased to hear the details of the follow-up Bill, which needs to be comprehensive. Can the Minister please make a clear statement that the follow-up Bill—given the curtailed nature of the scrutiny here—will allow the matters covered in this rushed Bill to be looked at again, with the more detailed scrutiny the subject needs and deserves?
The Lord Bishop of Leeds
My Lords, I welcome this Bill and the speed with which it is being brought to us, but I share some of the concerns that have been represented already. I do not intend to go into any of the detail of matters that have already been spoken about; I am sure other noble Lords would be better at that than I might be.
I hesitate to bring an ethical argument because, in my experience in this House, ethical arguments simply get ignored. Indeed, one Minister replied to an ethical argument made on a different Bill by saying, “We will not listen to strictures on morality from anyone.” That led me, at the next stage—on Report—simply to say that that implies there is no place in politics for ethics. But it is my ethical concerns, which one might represent as cultural, that cause me to stand now.
Culture is not cleaned up by one act or one reaction to a particular stimulus, albeit a serious one such as the invasion of Ukraine. Some months ago, the Foreign Secretary threatened that sanctions would be introduced if Vladimir Putin invaded Ukraine. At the time, I thought that we should not be threatening that as a reaction to something else that happens. This stuff is immoral. The money that is sweeping through the sewers of London needs to be cleared up for its own sake, not simply as a bargaining chip in relation to Ukraine. If we are going to get rid of dirty money, we ought to do so because it is a moral obligation, not because it is a tactic.
If money is dirty and people are—we keep hearing the word—corrupt, is it that the money is indeed dirty and these people are indeed corrupt, or is it just that the game has changed, so it is now convenient for us to label them in that way? They were not corrupt six months ago, a year ago or five years ago—that was just the reality of the world in which we lived. If it is just the game that changes, and therefore we react to that, I think we have an ongoing ethical, cultural problem. We are tactical, and that is all. If we are going to change the culture, we have to be led by conviction rooted in values, not simply the pragmatics of the particularity of the case we are dealing with.
I am very pleased that an amendment will be tabled in Committee to Clause 18, so I will not say more about that now. I welcome the Bill, but I am concerned about the wider culture within which it sits; I hope that that will be registered, even if disagreed with.
Lord Garnier (Con)
My Lords, I thank my noble friend the Minister for her clear opening to this debate on this very important piece of legislation. It is also a pleasure to follow the right reverend Prelate and to hear what he had to say.
I refer to my interests in the register and declare that, as a barrister in private practice, I have been instructed both by the Serious Fraud Office and by companies and individuals in whom the Serious Fraud Office has taken an interest.
Sadly, the context in which we debate this Bill this evening is the Russian invasion of Ukraine. We are reviewing a Bill that has been passed through the other place in a single day and which will, I am sure, go through your Lordships’ House, if not in a day, quite quickly. Not surprisingly, the criminal and, some may say, paranoid behaviour of Mr Putin in launching this savage attack on Ukraine has led us into thinking that something must be done—and done quickly—to curb the financial freedom of Putin’s benefactors, his nominees and his enablers. These are people who, over the past 25 years, have grown rich through the redistribution to them of what used to be Russian state assets, first by President Yeltsin and then by the current incumbent. They remain rich because Putin permits them to be so, and because they hold vast holdings of valuable property and money throughout the West on his behalf. Although they pretend to be independent operators, they are puppets controlled by a sick and dangerous man, and it is right that our laws do not allow villainy to hide in plain sight.
Two points, however, flow from this. First, although the policy behind the Bill is well understood and universally shared by right-thinking Members of both Houses, the Bill that contains many complicated provisions, which are being considered very speedily. Of course, the war in Ukraine has forced us to act quickly, but the problems caused by passing legislation in a hurry are well known. Although I entirely accept the need for speed, we must be careful that we do not pass bad law which fails to hit the targets that we have identified. As my noble friend the Minister said, another economic crime Bill will be introduced in the forthcoming Session. The Government must stand ready to correct any defects in the current Bill which, through lack of proper consideration, are left in it. I hope it may be used to reform the law of corporate criminal liability—a subject on which I know I must sound like a cracked record.
Secondly, I do not want to be misunderstood in what I am about to say, but we must be careful not to allow our understandable moral indignation to cloud our judgment about what we need to do through this Bill. If there is one thing worse than failing to scrutinise legislation because of haste, it is to pass legislation while caught in a moral spasm. Hard as it is, although I have no doubt that your Lordships’ House and the Government are both capable of doing this, and although it is correct to have a moral purpose behind the policy—here I wholly agree with the right reverend Prelate—we have to pass a Bill now that works effectively for all times and all circumstances against all money launderers, every corrupt actor and kleptocrat from across the globe, not just the Russian ones currently propping up Putin.
Now is not the time to drill too far into the detail of this Bill, nor to lament that, had legislation of this sort been introduced soon after David Cameron’s anti-corruption summit in 2016 or shortly after the work of the Joint Committee on the Draft Registration of Overseas Entities Bill was completed in 2019—I was a member of that committee under the chairmanship of my noble friend, Lord Faulks—we would have considered it in an altogether less fraught atmosphere. That committee made a number of recommendations, which are now in this Bill, but we have lost three years. So I find it a little strange that in the other place Ministers claim to be acting with all due speed. But now is better than next year or never.
Having got that off my chest, I want to pick out a few points from the Bill for later consideration. We need to make sure that, in preventing the criminal concealment of the ownership of property in this jurisdiction, we encompass not only relevant individuals and overseas companies but the owners of shares in those companies, be they individuals, other companies or trusts, and the legal and beneficial owners of the shares. It is not difficult to set up a shell company in an overseas jurisdiction through a nominee. Unless the Bill and those tasked with enforcing the law, once enacted, can get to the actual owner, as opposed to being blocked through a series of impenetrable veils, we will get nowhere.
If what the Government want, as suggested in some government statements, is to reveal the real identities of foreigners who own UK property, we need to ensure that the Bill will achieve precisely that. The legislation, as currently drafted, does not require the disclosure of the ultimate beneficial owner of the property, but rather the disclosure of the beneficial owner of the overseas entity which in turn owns the property. By Clause 33(1), the Secretary of State may by notice require an overseas entity to apply for registration in the prescribed manner within six months.
I agree with the concerns of the noble Lord, Lord Vaux, about the timing issues and the need to register entries on to the register, and I also agree with the noble Baroness, Lady Kramer, on the reduction of the 18-month period to six months. The Government should urgently take accountancy, legal and other professional advice about whether even six months is too long. Nowadays, money flows around the world at the press of a computer button. Should we not think of a far shorter period, with discretion for the Secretary of State or the High Court to extend that period on reasonable grounds in an individual case?
Unexplained wealth orders have not worked as well as they were expected to when they were introduced. Clause 53 allows for urgent designation of named individuals in certain circumstances. I hope the necessary work has already been done, because it may be that many such designations will need to be made immediately on Royal Assent. I have no doubt that the people we want to target will already have anticipated the Minister, and only the unwary minnows will end up being subject to these orders.
Finally, I need convincing that Companies House is the right body to enforce the provisions relating to the registration of overseas entities. It is essentially a recording organisation, a keeper of information provided to it by others. It is not, or not notably, an investigating or prosecuting body, but if it is to have this work, it will need a large injection of specialist staff from the Treasury, the sanctions sections of the FCDO, the National Crime Agency, the City of London police, which is the lead police force in relation to economic crime, and the Serious Fraud Office. It will also, I dare say, need to take additional advice from the security services, and all those agencies will need to be properly resourced to assist in this work.
The Bill must pass, but we must not think it answers all the questions that money launderers and other economic criminals will throw at us. If it assists us, even if indirectly, to get the Russian army out of Ukraine and persuade those supporting Putin to think again, it will most certainly have achieved some good.
Lord Eatwell (Lab)
My Lords, a considered assessment of this Bill requires some reflection as to why measures to thwart economic crime have failed so dismally up to now. At the centre of the Bill stands the registrar, embodied in Companies House. It is Companies House that is the prime source of the failings that have made London the money-laundering capital of the world. One of the political pantomimes of the last 10 years has been the spectacle of Conservative Prime Ministers referring regularly to the register maintained by Companies House as a gold standard, a beacon of openness, an example to the rest of the world. In reality, the manner in which the register is constructed has been and remains the key element in the inability of this country to stem the inflow of dirty money and the total failure to slow the growth of economic crime.
As has been known for years, the scandal derives from the fact that Companies House does not verify the beneficial ownership of the companies registered. Companies House is a library in which any shameful book can be deposited, as the noble and learned Lord, Lord Garnier, has just argued. That so many shameful books have been deposited is a matter of record. By the way, Companies House has led one prosecution in 150 years. That was of a person who deliberately registered a false company in the name of government Ministers to show how hopeless Companies House was at verifying the data. It then prosecuted this man when he owned up to what he had done.
Today, the Companies House register includes about 4.5 million UK businesses, but it operates in much the same way as it did 150 years ago, meaning that criminals have been able to set up seemingly legitimate shell companies without even the most basic identity checks. A study by Professor Jason Sharman of Cambridge University found that it was impossible to establish a shell company in the Cayman Islands, the Bahamas or Jersey, but easy to do it in London. A further study by Transparency International, in November 2020, reported that British shell companies were implicated in nearly £80 billion worth of money-laundering scandals. On top of that, the anti-corruption group Global Witness reported in 2019 that more than 336,000 companies on the register did not disclose their beneficial owner. It also found that just over 2,000 company owners were actually directors who had been disqualified, yet they were accepted by Companies House. It is this same organisation that we now ask to do more: to manage the new register of beneficial ownership of real property envisaged in the Bill.
In assessing whether Companies House can actually do the job, it is important to dismiss the comfortable fantasy that an open register provides sufficient scrutiny to detect wrongdoing. Protection against even moderately sophisticated financial crooks is provided only by verification and regular reverification of beneficial ownership by skilled forensic accountants. This fact was acknowledged by the noble Lord, Lord Callanan, in his foreword to the September 2020 White Paper Corporate Transparency and Register Reform—note that this was a document published two years ago.
The section on verification is to be found in Clause 16. Clause 16(1) refers to verification of information before an application is made by the overseas entity—that is, before the registrar is even aware of the application. I am sure that noble Lords have noticed that the wording of Clauses 4(1)(c), 7(1)(d) and 9(1)(e) indicates that the task of verification is assigned to the overseas entity. The Government may take some comfort from that, but I assure them that I do not. Clause 16(2) refers to
“the person by whom the information must be verified”,
and
“evidence or other information to be delivered to the registrar”.
Again, this suggests verification by a person other than the registrar, Companies House, to which the information is to be delivered, all ready, tied up with a fancy ribbon and a label reading “Nothing to see here.”
Nowhere in the Bill can I find a statutory obligation for the registrar, Companies House, to verify the data submitted to it. The Institute for Government has noticed the same omission, saying that
“without strengthening the organisation—expanding its powers of inquiry and resources to investigate and remove false information, and requiring mandatory identity checks on those incorporating companies, on company directors and on those who ultimately control companies—the new register could have little impact.”
There is also a clear suspicion that the Government are not willing to provide the resources the job requires, as the noble and learned Lord, Lord Garnier, pointed out earlier. To quote the Institute for Government again:
“the provisions in the new bill will make little difference unless authorities are provided with additional resource to enforce them … the UK already has strong tools to target illicit funds but law enforcement agencies have struggled to make full use of them because of resourcing issues.”
In her introduction, the Minister informed the House that a new economic crime Bill, including reform of Companies House, will be brought forward in the next Session. This has been promised time and again by this Government: it is always in the next Session—and the next Session never comes. On verification, we must act now. Making the verification of data by the registrar a statutory requirement is essential if the Bill is to be a meaningful measure and not just another PR exercise. Without a statutory requirement for verification by the registrar, and without the resources to do the job, this House will be participating in a sham. We must ensure that this is not the case.
Lord Carlile of Berriew (CB)
My Lords, it is a pleasure to follow a speech of such forceful clarity as we have just heard from the noble Lord, Lord Eatwell. I should start by declaring my interests. The first is similar to those declared by the noble and learned Lord, Lord Garnier, as a practising barrister, although these days I do not do contentious advocacy in courtrooms. The second is that I am the director of a consultancy company that provides advice to foreign entities and foreign individuals—although, I hasten to add, not Russians. I shall say a little about the sort of interests that arise in a few moments.
In ordinary circumstances, I suspect that many of us in your Lordships’ House would be reluctant to support a Bill such as this without the normal debating time that we are given in conventional legislation. A high degree of trust is being placed in the Government to ensure that the Bill reaches the statute book fit for purpose and is applied in a way that means it will bite. However, we are in extraordinary circumstances. There is no doubt that the war being conducted by President Putin, and indeed Russia, against Ukraine is funded at least in part by the product of money that has passed, and passes, through the United Kingdom, and that it is in many ways money that has been obtained illegitimately through the plundering of the public purse of Russia.
That is brought into high relief today by the news that the Mariupol children’s hospital was bombed by the Russians, including its maternity unit, and the photographs of what is left are terrifying and ghastly. Russia has now become a clear enemy of international law, and its agents, including its oligarchs, have no right to expect us to apply in full our normal ethical legal standards to their behaviour, as in their complicity with the Russian state. Indeed, our prime task, alongside doing whatever we can to assist Ukraine, is to protect our own country, the United Kingdom, against being used as an unwitting instrument of international crimes against humanitarian law.
I shall start in substantive terms by referring, as others have, to unexplained wealth orders. I echo what was said by the noble and learned Lord, Lord Garnier, and my noble friend Lord Vaux in their very eloquent speeches. UWOs have been around for a long time but it is a fact that very few proceedings have been taken by the National Crime Agency. There have been four cases, of which one failed. I can tell your Lordships that around the members of the legal profession that I speak to, and there are many on a daily basis, there is astonishment that the NCA has not brought scores of applications to court for UWOs. The reason for that is plain and twofold: one is the risk of costs, which can be dealt with, but the other, which is more difficult to deal with, is that the NCA is simply horribly understaffed to deal with these cases. It is not that there are not people who could do it, but we have to commit to employing those people and they have to be of sufficient quality. They need to be good lawyers and good investigators so that we are not standing here in a few months’ time saying, “The NCA really hasn’t been effective”.
Then, as the noble Lord, Lord Eatwell, referred to, there is the role of Companies House. It just so happens that professionally, in my consultancy company, I made an application on behalf of a client to Companies House some weeks ago now, in full detail, for a company to be deregistered. The evidence in the case could not be clearer. The company concerned is an impostor; it is pretending by its name and its fraudulent activities to be a very great international entity, but it is not—it is just a bunch of fraudsters. It is probably six weeks since I sent that application to Companies House. It is not just that they have not done anything; they have not even acknowledged—apart from the most formal immediate acknowledgment—the receipt of the application that I put in on behalf of my client. So I am absolutely with the noble Lord, Lord Eatwell: Companies House either is not fit for purpose or has to wake up and achieve that part of its purpose. Companies House, like the NCA, needs the staff to deal with these issues because it does not have them.
I have two other substantive points. The first I raised in the debate on Ukraine on 28 February, which was answered clearly, eloquently and helpfully by the noble Lord, Lord Ahmad of Wimbledon. My point relates to law firms and, indeed. other professionals—I deliberately turn to a chartered accountant when I say that—who, mostly in perfectly proper circumstances before this conflict arose, without any breach of law or ethical standards, have been involved in actual or intended transactions that may well have brought financial benefit, and therefore belligerent facilitation, to the Russian state. Some of those are property transactions, although not all, and some are transactions that are worked on but not fulfilled. A great deal of work is going on in law and other professional firms in relation to transactions that benefit the Russian state and it could tell us a great deal about what the Russian state is doing, as well as revealing criminal activity. I hope there is no single lawyer in the UK, whether in the square mile or elsewhere, who would find it ethically acceptable to bring benefit to an enemy of the United Kingdom, but the opacity of the sorts of transactions that I am describing means that lawyers and other professionals may well be complicit—entirely unintentionally, although there are of course rogues in every profession—in the sorts of transactions that I have referred to.
It is important that legal professional privilege should continue to apply to legitimate transactions. I hope that no one in this House wants to wipe away legal professional privilege in a transaction because someone happens to be a Russian; after all, there must be some very respectable Russians around because quite a lot of them have given money to one of the major political parties in this country. I hope that will not be taken amiss, but as far as I can tell it is true. So how do we achieve the scrutiny of such transactions?
After the debate on 28 February, I wrote to the noble Lord, Lord Ahmad—I have not heard from him yet but this was very recently so I would not have expected a reply—suggesting that we should adopt the architecture of the National Security and Investment Act 2021, an architecture that is now up and running in, among other places, the Ministry of Defence, with a substantial group of people working on it. They are applying the national security principles, the 17 national security categories, that are exactly relevant to the sorts of transactions that I am referring to. I respectfully suggest to the Government that they should adapt the NSIA architecture to a register of transactions by lawyers that lawyers and other professionals would have to report in clearly described circumstances, even though legal professional privilege would continue to apply as an inviolable principle unless there was an effect on our national security, as described in the NSIA. It seems to me that that sort of architecture would satisfy what is in my view a need for professional firms, if they participate in transactions that now seem to be politically dubious apropos the Russians, to be examined.
The other issue I wish to raise is about non-Russians who own property in London. A significant number of special purpose vehicles have been created for well-known foreign people to purchase. These people are huge investors in this country—entirely honestly, in good faith and with strong ethical standards—who do not wish it to be known that they, as individuals, are the beneficial owners of those properties. They have good reasons. One good reason, as one might think, is simply to protect their privacy from unwelcome curiosity and criminals. Another possibly legitimate interest may be to protect themselves from unwanted curiosity from overcurious journalists. A third reason, and possibly the most important, is for national security issues—not ours, but theirs for the country in which they live.
I will briefly give a couple of examples. I remind your Lordships of the events of 2 October 2018 when Jamal Khashoggi was murdered in Istanbul by agents of Mohammed bin Salman and the Government of Saudi Arabia. This is an example of a Government finding out everything they need to know so that they can take out an enemy of the state in completely unlawful circumstances—in a friendly country—through an outrageous and brutally executed crime. People are entitled to defend themselves against that, as are the victims of Russian-led incidents. On 23 November 2006, in Bloomsbury, just yards from my own office in Gray’s Inn Square, Alexander Litvinenko was taken out by the Russians. By whose agents was he murdered on our territory using radioactive material? Vladimir Vladimirovich Putin. Perhaps we should have been warned then. Afterwards, there were the shocking events which took place in Salisbury and affected life in one of our most beautiful cities.
When he replies, I would be grateful if the Minister could confirm that, when registration is required, the legitimate privacy and interests of good foreign investors will be protected under the provisions of this Bill, particularly Clauses 21 to 25.
Finally, I apologise for not being able to be here next Monday when the Committee takes place. This is because I have a long-standing commitment aboard, otherwise I would have come to contribute further.
Lord Thomas of Gresford (LD)
My Lords, for over 50 years, it has always been a privilege and a pleasure to speak either before or after the noble Lord, Lord Carlile.
Last Friday, the Guardian reported that the Foreign Secretary, Liz Truss, has asked government lawyers to “find literally any way” to crack down on SLAPPs—strategic lawsuits against public participation. On the same day, Reuters reported the view expressed by a number of Members of Parliament, including Conservative MPs, that British sanctions on Russian oligarchs are being partly delayed over concerns that wealthy businessmen will take the Government to court unless they have built solid legal cases against those targeted. As the noble Lord, Lord Carlile, pointed out, they do not have the cash—or the organisation within the police departments which deal with this—to do that. I ask the Minister: does this account for the Government dragging their feet on sanctions—particularly now, as others have already mentioned, that they are giving six months to Russian oligarchs in this country to liquidate their assets? I regret that the Government have not taken the opportunity in this Bill to deal with the urgent problem of SLAPPs; nor was it in the list announced for Part 2 by the Minister.
The British justice system is undoubtedly not world-leading in this area. Other common-law countries, including the United States and Canada, have brought in anti-SLAPP laws which enable a journalist or publisher to apply to the court at an early stage for a law suit to be dismissed, if it relates to content which is in the public interest. Consequently, the Foreign Policy Centre has described the UK as
“the most frequent country of origin”
for foreign legal threats against investigative journalists. The journalist Catherine Belton wrote a book called Putin’s People: How the KGB Took Back Russia and Then Took on the West. Among other things, she wrote that sources had informed her of Putin’s plan to acquire Chelsea Football Club through Abramovich to increase his influence and to raise Russia’s profile, not only with the elite but with the British people. If that was his plan, the chanting of Chelsea supporters last weekend, interrupting the applause for Ukraine at Burnley, shows that Putin has succeeded in his object. Putin has succeeded in distorting British values of freedom and democracy, at least among Chelsea fans. Catherine Belton’s book was highlighted by the opposition leader Alexei Navalny from his prison cell in January last year when he revealed, among other things, that Putin secretly owned a £1 billion Black Sea palace. She was hit with libel actions from Abramovich, who was quickly joined by other oligarchs and the leading state oil company, Rosneft. Abramovich also sued her in Australia, where the book had been published. Miss Belton’s publishers, HarperCollins, stood bravely by her. The result of this hugely expensive litigation was some minor alterations to a few sentences in her book without the payment of any damages or costs. Another similar case was brought against the Financial Times investigative journalist Tom Burgis by the Kazakh mining company ENRC. As my noble friend Lady Kramer said, there are enablers. Solicitors for the oligarchs in this litigation include the well-known London firms Mishcon de Reya, Schillings, Harbottle & Lewis, CMS and Carter-Ruck.
I have answered Ms Truss’s call by drafting a Bill which is currently in the queue for a First Reading in this House. I am very happy to share this with the Government at this early stage. It is based on the Ontario legislation which was recently considered and approved in the Supreme Court of Canada. Essentially, my Bill provides for a defendant to apply to the court at an early stage to dismiss the proceedings where the judge is satisfied that the proceedings arise from a publication relating to a matter of public interest. It is then for the claimant to satisfy the judge that the proceeding has substantial merit, and that the public interest in permitting the proceedings to continue outweighs the public interest in protecting the publication. In weighing the public interest, the judge may take into account a variety of factors, including the chilling effect of the proceedings on any future investigative journalism and any disproportion between the resources deployed and the amount of damages likely to be awarded. The judge would have power to award damages to the journalist or publisher where he concludes that the proceeding has been brought in bad faith or for an improper purpose. I had thought of seeking to amend this Bill with these provisions, but I do not think they would come within the Long Title, nor would there be time—as the noble Lord, Lord Carlile, said—to adequately debate them. But this is a way to crack down on this abuse of our judicial system, and I look forward to the Government giving time for my Bill, or their own time to deal with the matter.
Lord Rooker (Lab)
My Lords, I very much agree with the contents of virtually all the speeches we have heard so far. The right reverend Prelate the Bishop of Leeds said that he wanted to introduce some ethics into the debate. I deeply regret that before I finish I shall introduce some politics into it. The constant theme in the House of Commons on Monday was that alarm bells have been ringing for years and been ignored by the Government. It is sad to say that this is an entirely fair point to make. I shall therefore go through a bit of the history. I make no apology for saying “I told you so”.
In March 2015, Transparency International published a detailed analysis, Corruption on Your Doorstep: How Corrupt Capital is Used to Buy Property in the UK. I will not go into any of the details given there but the Government knew about it because I initiated a debate on it on 18 June 2015. The present Government Chief Whip replied.
Another alarm bell around the same time was rung in the Financial Times on 6 June 2015, when it reported that more than half the homes costing £1 million-plus were being bought with cash. The newspaper reported that 76% of the most expensive homes costing above £5 million were paid for by entirely by cash. Alarm bells?
In Singapore in July 2015, the then Prime Minister made what I have said previously was a seminal speech on corruption, which was never really followed up with action, even though that Prime Minister said in his 2017 lecture on corruption that he thought action was being taken forward. He was taken in.
In early 2016, Roman Borisovich launched the Kleptocracy Tours. The idea was to show people what it was all about—to visit locations and explain about the owners, or what was known about the owners, the lavish properties and something about the sources of wealth. That was before the emergence of unexplained wealth orders, a matter raised in the original Transparency International report. The tours started in Whitehall and went through Knightsbridge, South Kensington, Hampstead, Highgate and so on.
I shall highlight just two examples and I shall do so because I have done it before—at least four times. There is no argument about what has been going on and been ignored by the Government. The start was outside the Igor Shuvalov’s property at 4 Whitehall Court, which are two apartments, now knocked into one—138a and b—and are above the Farmers Club for those familiar with the location. This apartment was worth more than 80 times Mr Shuvalov’s annual income as a Russian government official. Due diligence there was none. The extract from the Russian registry of companies disclosed the beneficial ownership of Sova Real Estate by Shuvalov and his spouse. The purchase price of £11,440,000 is well known. The lender: none. The London end was cared for by Tulloch & Co of Hill Street.
My other example is relevant for two reasons. The person is Ukrainian and the sellers of the property were the UK Government. There is much more detail. When I prepared this speech, I saw the “Long Read” in yesterday’s Guardian by Oliver Bullough, so the details are there. It relates to a property that I have driven past for decades on my way here—a dwelling attached to the old Brompton Road Tube station. Dmytro Firtash paid over £100 million for it. He made his fortune selling Russian gas to Ukraine. He was living in Austria fighting extradition to the United States on bribery and racketeering charges. That continues today.
The matter is relevant because the Tube station closed in 1934 and during the war was used for various matters related to the Anti-Aircraft Brigade. In 2014, while Mr Firtash was still in Austria fighting the extradition charges, the owner of the site—the Ministry of Defence—sold it to him. He claimed that he wanted to convert it to residential use. He paid £53,375,000 to the Secretary of State for Defence. The property now still appears to be three separate buildings but is in fact one. In June last year, according to Reuters, the Ukraine Government headed by President Zelensky imposed sanctions on Firtash for selling products that ended up being used by Russian military enterprises. Did the MoD do any due diligence before the sale of its property? It was known that Firtash was in Austria—he was not living there. I asked about this some years ago and was simply fobbed off.
I should say in passing that the tour went past the house of Roman Rotenburg, owned through a Cypriot company. He received his father’s and uncle’s sanctioned foreign assets in 2015. I mention that only because others in this House are more capable than me of explaining the background, although they are not here tonight.
If the Government are still pleading ignorance, in 2018 along came Moneyland by Oliver Bullough. I will quote a brief extract from the flyleaf, which states:
“Once upon a time, if an official stole money, there wasn’t much he could do with it. He could buy himself a new car or build himself a nice house or give it to his friends and family, but that was about it. If he kept stealing, the money would just pile up in his house until he had no rooms left to put it in … And then some bankers in London had a bright idea.”
These matters and other examples were raised again and again, especially during the passage of both the Criminal Finances Act 2017 and the Sanctions and Money Laundering Act 2018. So why has no action been taken until Ukrainian blood is being spilled at the level it is today? The Bill is a token because it has been brought about only because of that. The issue was always there anyway. Our economy is being distorted at a crude level because if half the money disappears all at once it will be highly damaging. But we knew that because we knew that the money was coming in.
The impact assessment for the Bill, which the Minister signed on 25 February 2022, on page 5 uses as a reason for action the very report from Transparency International in 2015 that I mentioned at the start. That was seven years ago. The impact assessment to justify the Bill is based on something that the Government knew about seven years ago and has been repeatedly raised with them—but they did nothing about it.
I am not going down the road of the former Prime Minister, when Home Secretary, refusing the inquest into the death of Alexander Litvinenko because of “international relations”. Then there is the present Prime Minister, who is so close to the Russian KGB family that he dumped his security detail to go to meetings and parties—one of which was the in the week of the first Covid lockdown in March 2020. Missing five COBRA Covid meetings was okay because the top priority was to report to the Russian he could not get into this House at the time.
The common theme is the active involvement of both those top UK Government members in fundraising events—all on the record—to obtain Russian-based money into the Conservative Party. This has spread to many other Ministers. I cannot understand it. Constituency parties in this country have received donations from people who are living here legitimately and are on the electoral register. Did those constituency parties not ask why this money is coming in? We do not really need to ask any more, do we?
Lord Faulks (Non-Afl)
My Lords, I am not sure I can follow that. I should declare an interest as a practising barrister, but not one with any relevant interests so far as this debate is concerned. We of course understand why the Bill is being rushed through Parliament, but I fail to understand why the Government have taken so long to respond to what was staring them in the face.
To take up the story from the noble Lord, Lord Rooker, I was excited by the Criminal Finances Bill in 2016. It borrowed ideas from other jurisdictions but did not, in my view, go far enough. The noble Baroness, Lady Williams, not currently in her place, will recall the criticisms I offered then of unexplained wealth orders and of the omission altogether of a property register that would help to identify the true owners of choice London property. My amendments were not accepted by the Government. Sadly, not many in your Lordships’ House, with notable exceptions—I see some of them here today—seemed particularly interested in that Bill.
Then came the Sanctions and Anti-Money Laundering Bill in 2018, which attracted rather more interest—although most noble Lords seemed concerned to protect those who might be capriciously or unfairly sanctioned. The noble Lord, Lord Hodgson, and I put down amendments in 2018, once again to set up a property register—mysteriously omitted from the Bill. I was prepared to vote against my own party on this. I was placed under considerable pressure to withdraw my amendment. I was told, among other things, that it was too complicated to do in the 12 months I suggested in the amendment. I was given lavish assurances by the Government, and a timetable. Neither the assurances nor the timetable were adhered to.
In the meantime, other noble Lords had rather more luck with their amendments to the Sanctions and Anti-Money Laundering Bill. The noble Lord, Lord Pannick, who has recently been much criticised in the newspapers, and the noble and learned Lord, Lord Judge, put down amendments that were in fact perfectly conventional, rule-of-law safeguards. They were supported in those amendments by the Labour Party and the Liberal Democrats. In fact, the Liberal Democrats wanted to go further; it seemed to me that the effect of one of their amendments would have made areas of our foreign policy justiciable. This is partly explicable by the fact that the debate on these sanctions came immediately after Brexit, and everybody’s minds, at least for the most part, were not directed towards Russia.
In Committee and on Report I spoke against all the amendments. It was not that I wanted arbitrary imposition of sanctions, but it seemed to me that our foreign policy needed a degree of flexibility. It must be remembered that sanctions are essentially a tool of foreign policy. The Government were wrong to compromise, as they did, in relation to these amendments. The position now, of course, is that the oligarchs we wish to sanction will have the benefit of the finest legal minds that money can buy to represent them.
I recommend that noble Lords read pages 46 and 47 of the Explanatory Notes to the Bill. They are certainly the longest Explanatory Notes I have ever read in relation to the European Court of Human Rights. It seems to me that the civil servants advising the Minister have said that, as a result of the amendments to the Sanctions and Anti-Money Laundering Act and elsewhere, it will be very difficult indeed to sanction anybody. Paragraph 230 says that Part 3 of the Bill
“potentially engages the following provisions of the European Convention on Human Rights: Article 6 (right to a fair trial), Article 8 (right to respect for private and family life) and A1P1 (respect for peaceful enjoyment of possessions).”
I am sure we all hope that the oligarchs can have peaceful enjoyment of their possessions. The European Convention on Human Rights was not designed to protect people like them.
I hope the Minister can assure me that the government amendments will be enough to defeat the legal might of the oligarchs. In this context I recommend the suggestion made by Professor Ekins and Sir Stephen Laws in their Policy Exchange paper, published this week in the Spectator, about a way of doing this without encountering some of the difficulties I foresee.
On the subject of the Human Rights Act, in 2015, together with the now Deputy Prime Minister, I was given policy responsibility for a British Bill of Rights. It never saw the light of day, despite our best efforts. In your Lordships’ House I was regularly upbraided at the Dispatch Box for even contemplating an amendment to the Human Rights Act, let alone leaving the Council of Europe. I was told it would send a bad message to Russia and Belarus as fellow members. We are still members of the council, but it does not seem to have much inhibited Russia or Belarus as they trample over the human rights of the brave people of Ukraine.
Then there was the Joint Committee, which I was privileged to chair, with the noble and learned Lord, Lord Garnier, as a member. It was entirely apolitical in the sense that all parties agreed to a number of important things that we thought could be done to the draft Bill, including verification—already much mentioned—and trying to get rid of the problems of trusts that could be used to bypass some of the protections. We stressed how important the timing was and how urgent it was. The timetable is in fact recorded in our report—a timetable not adhered to by the Government.
We have allowed ourselves to be the receivers of stolen goods in this country. We have seen the murder of Litvinenko and the Salisbury poisonings. Reputable sources suggest that as many as 10 or more murders are attributable to Russia. Ukraine is not our fault, but we have embraced the Russian oligarchs and Putin’s henchmen.
The Explanatory Notes say the Bill has been introduced as part of Her Majesty’s Government’s
“urgent response to the Russian invasion of Ukraine.”
It contains some useful provisions, which I thoroughly support and which can no doubt be improved when the next Bill comes along. But it should never have been necessary to come to this.
Lord Hannay of Chiswick (CB)
My Lords, the Bill we are debating today is long, long overdue. Part of this delay resulted from the shameful decision to block publication of the report produced by the Joint Committee on Intelligence and Security on Russia’s activities in this country. Whatever excuse was dreamed up to justify that delay, it can now be seen as a blunder and as being responsible for the fact that in this instance the UK is not, as the Government like to claim, a world leader but rather a “world catcher-up”, well behind the US and the EU.
However, it would be wrong not to welcome the Bill’s likely passage into law later this month—all the more so as during my intervention in the emergency debate on Ukraine on 25 February, the day after the Russian invasion, I called for the Bill to enter into force during this Session of Parliament and not the next. This will now happen, and it is right to applaud that, as well as the announcement today of a further Bill for the next Session to go into greater detail. But, since speed is of the essence, it would surely make sense to cut the six months allowed for registration to a figure close, or at least closer, to the 28 days suggested in the other place. Surely the Government could accept some compromise on that.
Legislative action of the sort proposed—the sort we are debating this evening—is only a first step in a complex operation. Of far greater practical significance will be the skill and energy with which it is implemented and enforced once it is on the statute book. I hope that when the Minister replies to this debate he can assure the House that serious and detailed preparatory work is already being put in hand, so that action under the new law will not be unduly delayed. Will he also undertake to keep Parliament regularly informed of progress in enforcement if and when the Bill becomes law?
Of course, the Bill is about more than just bringing to book Russian institutions and individuals linked with illegality in general, and in particular with the war crimes being committed daily in Ukraine by the Russian state. It is another very necessary step in the battle against corruption worldwide, which began promisingly —if, again, somewhat belatedly and after considerable delay—with the Bribery Act. Like this Bill, that Act recognised that corruption anywhere in the world invariably involves more than one person or entity, and that the proceeds of corruption often end up an awful lot closer to us than we would wish.
It is all too easy to comfort ourselves with the thought that most corruption occurs somewhere else, often thousands of miles away, and has nothing to do with us—easy, but wrong. This Bill should provide a shot in the arm for the battle against corruption, which is a proclaimed and worthy objective of successive British Governments but has so often fallen short in the execution; just look at the reports of Transparency International if you doubt that. Russia’s aggression against Ukraine, in contravention of its international obligations from the UN charter onwards, is a salutary reminder of the urgent need for us to defend the rules-based international order.
This Bill is part of that defence but mere words will not be enough, especially as, only yesterday, on our Order Paper was another Bill—the Nationality and Borders Bill— that seeks to allow the Government to act in contravention of the 1951 refugee convention. It is, frankly, Orwellian to assert that Parliament alone has the right to interpret what is and what is not in conformity with the convention. That is the language of President Putin and not ours.
Lord Londesborough (CB)
My Lords, as we know, Russia’s invasion of Ukraine has triggered the fast-tracking of this Bill to address the burgeoning and multifaceted industry of economic crime. If this Bill is viewed as a quick fix to address the UK’s shameful and enabling embrace of corrupt oligarchs, we should note that the so-called London laundromat has also been exploited by kleptocrats across a wide range of nationalities, not just Russians.
The British sense of fair play is an expression we hear less of these days. That is not hard to understand when you read the Treasury Select Committee’s somewhat embarrassing but honest sizing up of economic crime in the UK:
“It seems that it can reasonably be said to run into the tens of billions of pounds, and probably the hundreds of billions.”
The actual cost to the UK economy of serious and organised economic crime is conservatively estimated at £37 billion per year. That is more than three times the expected increase in revenues generated by the new rise in national insurance contributions.
Given the urgency, this Bill is necessarily narrow in scope, with a focus on the registration of overseas entities and land and property ownership. However, as we know, UK service firms and their clients have been involved in a whole range of enabling activities across numerous sectors, including banking, private company investment, consulting and advisory services, estate agency, sportswashing and lifestyle management.
This Bill seeks to address the troubling issue of unexplained wealth given that we have become a magnet for rich businessmen from poor countries with abnormal levels of wealth. I include Russia as a poor country; last year, its GDP per capita was just over $11,000 and it was ranked 85th in the world. This year, it is likely to fall below 100th, yet it boasts 117 billionaires; that is the fifth-highest number in the world. My point is that you do not need to be a forensic economist to spot unexplained wealth.
I witnessed this at first hand 15 years ago. A Russian media company launched an unsolicited takeover offer for an information business that I was running at the time. The offer was way in excess of the fair market value and the company conducted zero due diligence. We resisted after discovering that our suitor had powerful political connections in both Moscow and Beijing, and had a seemingly bottomless war chest despite never having generated a penny of profit in its history. The most unedifying site was the long line of British advisers, lawyers and accountants acting on its behalf. I see much in this Bill aimed at the sources of dirty money but little to address the enablers.
Turning to the Bill’s specifics, I have four brief points to make. First, as many noble Lords have already pointed out, shortening the transition period for overseas companies to register their beneficial owners from 18 months to six months is inadequate. I suggest that three months strikes the right balance between urgency and the important aspect of allowing bona fide beneficiaries the time to register.
Secondly, fines need to be proportionate and a deterrent. The average property transaction value for oligarchs in the UK is around £15 million, so fines of £500 or £2,500 a day are insufficient. I suggest that, for the first day of contravention, a fine of around 1% of the property value would be more appropriate.
Thirdly, I am an entrepreneur, not a lawyer, but the drafting of the overseas property legislation seems to need tightening up. I believe that individuals would still be able to hide their true identities through nominee agreements with professional service firms. Closing the “no person of significant control”, or PSC, loophole is another key priority.
Finally, as many noble Lords have pointed out, enforcing the new rules of the Bill requires proper resourcing. Our spending for national agencies fighting economic crime is around £850 million per year, set against the money laundering cost to the UK economy of perhaps as high as £100 billion. No wonder conviction rates have been so low.
This Bill is far from perfect but I will support it, mindful that the Government are planning to bring in a second economic crime Bill in the next parliamentary Session that should—indeed, must—address the many other issues of a complex and menacing industry.
Viscount Colville of Culross (CB)
My Lords, I was the BBC’s Moscow producer for “Newsnight”. I have been back many times to make television programmes in Russia. Throughout that time, Russians often spoke admiringly of the UK as a bastion of political stability and democratic freedom. It is ironic that the British ideals and institutions they so admire have been repeatedly traduced by the Russian elite. Few Russians have had the political influence and absolute ruthlessness to become oligarchs, but they have been drawn to the great honey pot of the City of London to hide their wealth and live lives of unimaginable opulence. Many are people who surround Putin.
They live in stark contrast to the vast majority of Russians, who are desperate pawns in his heinous plans. As if proof was needed, only yesterday, the mothers of Russian soldiers fighting in Ukraine told how their sons had been forcibly signed up to the army for a salary of £180 a month—a subsistence wage that barely helps you live in rural Russia. They even had to buy their own uniforms. One mother said that she had a text from her son Nikolai two weeks ago saying that he was on a drill and was going to continue drilling. Since then, she has not heard from him and fears the worst.
I am pleased that our Government have started to sanction Putin and the elite who surround him. I hope that this Bill will be used to extend sanctions to at least 1,000 people around Putin—not just Ministers but members of the Duma, all the military and security service leaders and, most importantly, their families. Putin does not care what happens to the people of Russia but he does care about what happens to those around him. I, like many noble Lords, welcome the Economic Crime Bill and add my calls for its companion Bill to follow shortly.
According to Transparency International—it has been mentioned many times in this debate—hundreds of oligarchs from around the world own property in the United Kingdom, many of them Russians. If you count corrupt politicians and public officeholders, the figure is higher. The NGO calculates the known value of assets in the UK bought with suspect wealth to be at least £6.7 billion, although it adds that this is likely to be the “tip of the iceberg” given how little we know.
I welcome the property register of oversea entities set out in this Bill. It is good to know that the United Kingdom Government have finally decided to track down the beneficial owners of so much property in this country. My concern is that much of it is held by companies registered in the Crown dependencies and overseas territories.
The sanctioned oligarch Alisher Usmanov, said to be worth £13.4 billion, bought the grade 2 listed Beechwood House in Hampstead in 2008 for £48 million. It is owned by a company called Hanley Ltd, based in the Isle of Man. Likewise, the industrialist Oleg Deripaska, who is sanctioned in the United States—but not yet here—for close links to President Putin, has a multimillion house in Belgrave Square. It is owned by Ravellot Ltd, registered in the British Virgin Islands. Transparency International estimates that £1.5 billion-worth of London property is owned by Russians, 55% of it registered in the CDOTs. I am pleased that the new register will identify the true beneficial owners but, like my noble friend Lord Faulks, I am concerned about what happens if they decide to sell the company’s shares to a new owner, possibly another friendly oligarch. The new beneficiary will have to be notified in the register, but only during the annual update. That gives the original beneficiaries plenty of time to salt away their wealth from the shares they have sold. I ask the Minister to consider more frequent updates of true beneficiaries on the register.
The registers of companies established in the CDOTs allow UK authorities only to make a search on individual companies, but many oligarchs and money launderers hide their money in a web of companies. The only way this can be uncovered is for the Government to request full access to their registers so that authorities can take an overview and piece together the web. At present, the registers will be open in over 21 months’ time. Some overseas financial centres such as the BVI, however, already have a professionally maintained up-to-date BOSS register. It would take only a short time for that to be made public. I ask the Minister to ensure that the Government do everything in their power to open these registers this year and uncover the truth about the wealth of so many Russian oligarchs, including Putin and his friends.
The other area which concerns me is the huge growth in SLAPP orders, so eloquently described by the noble Lord, Lord Thomas of Gresford. Recently they have been used aggressively by oligarchs and corrupt players around the world to close down exposure of their wealth and, in the case of many Russians, their links to the Kremlin, by journalists and writers in this country. I am proud to have helped shape the Defamation Act 2013. Its threshold of a publication that
“has caused or is likely to cause serious harm to the reputation of the claimant”
was successful for a time in controlling libel tourism. But new threats of defamation, breach of privacy and data protection are being used by British lawyers to intimidate journalists and writers. These cases can be time-consuming and costly, involving an expensive and lengthy disclosure process, continuing for many years and dragged out by rich claimants. The noble Lord, Lord Thomas, mentioned the cases of Catherine Belton and Tom Burgis, to name but a few.
In researching this speech, I have spoken to a number of journalists writing about Russian wealth, who have received very aggressive legal letters. Not only do they threaten a list of legal actions, but even the letters themselves are secret. The recipients were threatened with actions for breach of confidentiality or even copyright if they made the letters public. I have obtained one such letter from a leading London law firm to a freelance journalist who exposes corruption on a regular basis. They were threatened with breach of privacy and given severe warnings against mentioning the law firm unfavourably. I fear that these SLAPP orders pose a chilling effect on free speech in this country. During the debate on the Bill in the other place, the Minister announced that Dominic Raab has made a call for evidence. I hope that this includes setting up a bespoke judicial mechanism tailored to look at these orders at an early stage to decide whether publication is in the public interest. I also support the noble Lord, Lord Thomas, if his Private Member’s Bill comes before the House. Meanwhile, can the Minister confirm the scope of this call for evidence and when it might conclude its findings?
We need to rid this country of its reputation as a safe haven for corruption and criminality. We need to clamp down on the activities of Putin’s people and their families. I look forward to a second Bill coming before the House very soon to close the other glaring loopholes, especially at Companies House.
Lord Rogan (UUP)
My Lords, the scenes in Ukraine that the world has observed in our newspapers and on our television screens over the past two weeks—
Lord Sharpe of Epsom (Con)
I am afraid that the noble Lord was late to the start of the debate.
Baroness Bennett of Manor Castle (GP)
My Lords, I will set out the context for the Bill and look at some of the bigger ways forward, while my noble friend Lady Jones of Moulsecoomb will concentrate more on its details.
Baroness Bennett of Manor Castle (GP)
I am sure she will.
Unoriginally, I begin by noting that a year is a long time in politics. In January 2021, we had Second Reading of the Financial Services Bill in your Lordships’ Chamber. The noble Lord, Lord Agnew of Oulton, was on the Front Bench, proclaiming with apparent pride that the UK had
“unwavering commitment to high-quality, agile and responsive regulation”.—[Official Report, 28/1/21; col. 1810.]
I said:
“We are a major global centre of corruption. The City is an Augean stables and the Bill is clearly sparing in its distribution of shovels.”—[Official Report, 28/1/21; col. 1861.]
It is clear that Greens lead in recognising problems, with others following eventually, and we offer solutions. I have joined many others—I note the leadership of the noble Lord, Lord Wallace of Saltaire, in particular—in calling for an end to golden visas, a long and disgraceful saga threading through Governments of three political hues that eventually, very late in the day, has finally been cut off.
The noble Lord, Lord Agnew, is no longer sitting on the Front Bench. It was the Government’s refusal to tackle another, largely unconnected corruption issue that led to his dramatic resignation. Our issue with corruption is clearly not contained to one sector, area or type. It is a pervasive UK issue.
As a nation, we are today like a guilty individual hastily pushing an illicit lover out of the window of their bedroom as the world’s media comes storming through the front door, this Bill being scanty garments hastily donned in ill order. The world, with its attention focused in particular down the road on the City of London, will clearly not be deceived about our state of disarray. According to the International Monetary Fund, as much as 5% of the world’s GDP is laundered money, and only 1% of it is ever spotted. Collectively, developing countries have lost $16.3 trillion to illicit leakages since 1980. A very significant chunk of that flows just down the road from here. The Thames is dwarfed by a far dirtier and deadlier stream of corruption, as the right reverend Prelate the Bishop of Leeds noted.
It is worth noting that we are here today because of President Putin. His actions forced our Government to react. We should not be reacting; we should have been proactive many years ago. As the right reverend Prelate said, we should not need this spur, yet clearly the Government are like a horse that has been baulking at the gate, not wanting to be pushed away from a lush, tasty pasture even when it has been made deadly ill by the colic of ill-gotten gains.
Colic is not a contagious disease, but our corruption is. Look at how Russia got to the state it is in today; back in the time of President Yeltsin, the guidance for reshaping the post-Soviet economy was largely handed to western lawyers, accountants and businesspeople. The Russians were told that the neoliberal market model was the way forward, and it actively encouraged what amounted to a 19th-century robber baron-dominated wild east, with what had been Soviet-era senior apparatchiks almost seamlessly switching to champions of the market. We still see some of them today, very close to home.
Of course, the oligarchs bear responsibility for their choices and actions, but so do those who encouraged and enabled them. The sicknesses of our society are many. We often talk about our productivity problem and our labour crisis, but what if the bankers, instead of serving the oligarchs, put their talents to optimising the outputs of our manufacturing? What if the accountants were tracking the movements of nutrients and micro-organisms, with the aim of producing good, healthy food? What if the lawyers were caring for our old and sick?
I am indebted to the noble Lord, Lord Sikka—I am very sorry that we will not hear from him shortly—for the figure that there are around 400,000 professionally qualified accountants in the UK. That is the highest per capita figure in the world. We have an economy that focuses on spreadsheets, not on the quality of our society. And what have we done in terms of delivering the rule of law? It is frequently claimed that we are at the centre of the camp defending it, but we have actually been leading its absolute undermining.
A book entitled Butler to the World: How Britain Became the Servant of Tycoons, Tax Dodgers, Kleptocrats and Criminals will be published tomorrow. It is definitely in the contest for the best-ever timed publication of a book. The author, Oliver Bullough, notes that we do not just need changes to legislation—we need changes to enforcement, as many noble Lords have noted, and to culture and politics.
In 2016, the Government estimated that the amount of corrupt money flowing into the UK had reached £100 billion a year, and Transparency International has identified at least £1 billion of suspect property bought with Russian money alone. But the flow is not just of money; of course, there has been a massive flow into the West of Russian oil and gas. The trashing of our planet and our economic and political systems are all intimately interlinked. The impoverishment of many and the destruction of our environment are linked to the benefit of the few.
I have some specific proposals and questions for the Minister. First, will the Government now reconsider their plan for freeports? Studies by the European Parliament and the Financial Action Task Force, among others, have shown that the secrecy and extraterritorial nature of freeports are a magnet for money laundering and tax evasion. These are the kind of things we are supposedly trying to act against.
Secondly, in terms of the Russian targets for these sanctions, we are talking about an opt-in system, identifying those oligarchs that are apparently close to Putin and his regime. Robert Reich, the former US Secretary of Labor and now a professor of public policy at the University of California, suggested the freezing of all offshore holdings of Russian nationals in excess of $10 million. He estimates that this would affect 10,000 to 20,000 Russians—those who, by definition, have benefited most from Putin’s rule. How about an opt-in system instead of an opt-out one?
Thirdly, due to the prod that led us to this Chamber today, we are of course focusing on Russia, but what about many other parts of the world? I think it was the noble Lord, Lord Carlile, who referred to the vicious actions of the Saudi state and our friends in the Middle East and arms customers. What are we going to do to address where Saudi money is in London and where it has come from?
I also stress to the Minister that the problem is not only people in the global south or in places that speak different languages or have different cultures from our own. There are also the tech billionaires and mining magnates, with their overweening wealth, tax dodging and exploitation of their workers. Illegally acquired wealth is far from our only problem. Unexplained wealth orders are meant to tackle that, but I suggest that we also need “all too well explained” wealth orders—you might call it a wealth tax. Many noble Lords have focused on the need to fund far better the enforcement of our laws; perhaps some of the money from a wealth tax could go towards that.
I have a final, practical question. The proposed registration will apply only to property bought in England in the last 20 years, or since 2014 in Scotland. Why not look at what is concealed by previous arrangements? Is it to be considered laundered clean, rather than just more dirty washing? Maybe there is not much desire to go further back. How much of the wealth of people in a place like this has deeply corrupt origins, stolen in the colonial and post-colonial periods?
The Greens can do nothing but support this Bill, which is a small step in the right direction. You can, however, sail even a modestly scaled superyacht through the gaps in it. I thank the Minister and his colleagues for a useful briefing that focuses on the need for a second Bill as soon as possible, but we need much more, and an acknowledgement that the problem is not simply the narrow legal framework, or individuals; the problem is our system.
Lord Cromwell (CB)
My Lords, although it does not say so on the Bill, it was perfectly clear before we even started, and has become manifestly clear throughout, that this Bill is largely about Russia. For that reason, I declare my interest as a director of the Britain-Russia Centre and British East-West Centre, an NGO set up in 1959 during the height of the Cold War. All noble Lords will agree that our disagreement is with the regime and particularly the man who leads it; it is not with the people of Russia, who suffer under that totalitarian system. We need to remember that, because many Russians are fed up with being referred to as “mafiosi” just because of their nationality.
As has been eloquently said by many, this Bill has been long awaited. It has been rapidly adapted in the light of current concerns about Russia and Ukraine, so it inevitably has gaps and shortcomings. We are told that ECB 1, if I may call it that, is going to be followed soon by ECB 2. I hope so, and that, in winding up, the Minister will assure us that the issues addressed today and by the NGOs, and the wider set of issues that have been identified, will be picked up in ECB 2 rather than it having a narrow focus.
I would like to spend what remains of my time—so many good points have already been made that I am skipping through my remarks—on the theme that compliance begins at home. The right reverend Prelate made a point about ethics; if he will forgive me for saying so, the only way is ethics.
Enablers such as law firms, accountancy firms and, if we are in a confessional mood, banks—I am a former banker—working with international clients whose source of wealth is opaque, have many questions to answer. The temptation of substantial new fee-earning opportunities has led some firms to take an accommodating, light-touch approach to anti-money laundering regulations—just within the letter of the rules, although sometimes not even that, and largely on a self-regulating, self-reporting basis: what we might call “marking your own homework”. Some enablers, as part of their onboarding process, actually coach clients in how to answer. They are tactical in what they ask—and do not ask—of clients, or accept pretty modest levels of proof, or even provide clients with services to mask their wealth and ownerships, or distance themselves from a rather disreputable hinterland.
I had hoped that the unexplained wealth orders that feature in the Bill would address this, and perhaps interim freezing orders, which do not seem to have been touched on tonight, might address some of the issues about the short notice required. But they appear to be directly almost exclusively at PEPs, politically exposed people, and those involved in serious and organised crime, which is not really defined in the Bill. I am not sure what “unserious and disorganised” crime would look like.
In asking Ministers about this narrow scope, I was told that existing anti-money laundering requirements on lawyers, banks and so on already require them to determine a client’s source of wealth and that they cannot take on clients who do not meet those requirements. “There’s no such word as can’t” is a weary old adage for anyone like me who had an old-fashioned upbringing. There are firms that can—and some of them do. Working in a private bank, it used to baffle me how we never took on Russian clients because it was just impossible to get them through all the tests, and yet I knew people who worked in other banks that were eagerly taking them on. I could not understand how they were doing it, but I think I know now.
For the past 25 years, I have worked with countries across the former Soviet Union, particularly Russia. Subsequently, for a period of about nine years, I worked in the private banking world, which bears out some of the points I have just made. For some, an occasional fine is just the cost of doing business. I do not know the full details but I noticed that, on Monday, the FT reported that an ex-partner of a leading firm was fined a mere £17,500 for lack of adequate due diligence in Russian transactions. That is a derisory amount.
The Bill needs to be strengthened in this area in two ways. First—this was touched on by the noble Lord, Lord Vaux—we want a named, senior-level sign-off by an enabler firm’s management to confirm that all wealth has been properly explained and evidenced, in compliance with the regulations. Given the existing rules, that may sound like belt and braces to some, but my goodness, that simple addition is needed. There is nothing like having a senior person sign off and remain on the hook. Could this perhaps be introduced as a modest but vital amendment to either this Bill or its successor, which, we are told, is imminent?
Secondly—this has been touched on by other noble Lords—with responsibility must come transparency. I am in no doubt that, unless there is properly resourced enforcement, abuse, rule-bending and blind eye-turning will continue. The National Crime Agency and others are almost on their knees from being understaffed; they are struggling and underresourced, as many noble Lords have said. Resourcing was also raised via amendments in the other place; I hope that this issue will be taken up by the Government to ensure that compliance is not only said to be done but regularly, independently and forensically checked. I would be grateful for the Minister’s commitment to that in winding up.
Finally, I want to touch on one aspect of the enablers’ work that has become a stain on the reputation of the UK. Many noble Lords have touched on this, notably the noble Lord, Lord Thomas—I look forward to supporting his Private Member’s Bill if we get the chance. Some call it strategic litigation against public participation. If you have a lisp, as I do, that is extremely difficult to say. I prefer to call it what it is: lawfare. It is the deliberate use of UK legal firms to intimidate and overwhelm authors, publishers, journalists and others who seek to bring into the light matters of public interest concerning the origins of unexplained wealth. Everyone has the right to defend their reputation robustly but what we have here goes way beyond that.
Examples abound but let me cite just one tactic. No matter how hard they have sought to engage with the parties they are reporting on, a journalist finds both themselves and their publisher receiving, at the last moment before publication, voluminous—there is sometimes truckloads of it—complex and menacing correspondence from heavy-hitting law firms threating ruinous legal action. Being on the receiving end is not only extremely intimidating; it also requires delay and specialist work that few can afford. It is indeed a brave journalist or publisher who, faced with this inequality of arms, still proceeds. Many, of course, do not. I also highlight—I do not think that we have touched on this tonight—that there are cases where human rights defenders, for example, working in other countries have, as a means of intimidating them, been sued or threatened with being sued in the UK courts.
UK firms have been systematically involved in these practices for far too long. I understand that there is a consultation going on; Dominic Raab’s work was mentioned earlier and I look forward to seeing the results. There are lessons that I believe we could learn, for example, from Australia’s model litigant principles in this area, which I will not elucidate now.
In closing, I ask the Minister: is he able to confirm, or at least offer some guidance on, whether the Government recognise the problem that I have highlighted, which arises directly from UK firms taking on wealthy clients of the sort that this Bill seeks to address? Will the Government, in ECB 2, include appropriate curative measures?
Lord Clement-Jones (LD)
My Lords, I draw attention to my entry in the register of interests. This is important and welcome legislation, which rightly we want to see pass through the House as a matter of urgency. But it must have teeth. As someone who, I confess, until recently held a solicitor’s practising certificate for 45 years, I say that it is toothless in a major respect, which has been touched on all around the House today. Whether under the beneficial owner register requirement, the unexplained wealth orders or the sanctions regime, there is a lack of provisions which comprehensively tackle enablers—the professionals used by those seeking to evade the impact of these provisions. A number of noble Lords, starting with the noble Baroness, Lady Chapman, have raised this.
As Edward Lucas put it in the Times last week:
“Putin’s ‘enablers’ live and work among us. They include bankers, lawyers, accountants, fixers and political bigwigs. Seemingly the epitome of respectability, for three decades they have prospered mightily, laundering Kremlin cronies’ fortunes and reputations.”
We have heard from my noble friend Lord Thomas of Gresford how they try to gag brave journalists, such as Catherine Belton, the author of Putin’s People, through what are called strategic lawsuits against public participation, also mentioned by the noble Lord, Lord Cromwell. But it goes much further than that. These professional advisers provide nominee and shell companies to hide disclosure of beneficial ownership of property and other assets; help to shelter unexplained wealth and freezing orders; and evade other tax, money laundering and economic crime legislation. They intimidate regulators with a mounting burden of costs if they are challenged.
As the OECD report Ending the Shell Game: Cracking Down on the Professionals who Enable Tax and White Collar Crimes, published last year, puts it:
“Over the last decades, the world has witnessed increasingly sophisticated financial crimes being perpetrated across borders—and the public interest in addressing such issues has also grown, as has been evidenced in the media through widely publicised leaks such as the Panama and Paradise Papers … These crimes are often facilitated by lawyers, accountants, financial institutions and other professionals who help engineer the legal and financial structures seen in complex tax evasion and financial crimes. The small segment of professionals that generate opportunities to facilitate the commission and/ or concealment of such crimes undermine not only the rule of law, but their own profession, public confidence in the legal and financial system, as well as the level playing field between compliant and non-compliant taxpayers.”
The report makes a very clear call to OECD countries to adopt strategies to address these issues in relation to professional enablers. But I see very little sign that such a strategy is being adopted by our Government. Last December’s Chatham House paper, The UK’s Kleptocracy Problem, makes very similar points. Where are the legal sanctions for professional enablers? Where are the measures to prevent abuse? Where are the mandatory disclosure rules? Where are the penalties for false statements? Where is the necessary whole-of-government approach that is recommended in this respect? The Prime Minister seems to think that regulation by the Solicitors Regulation Authority is a sufficient deterrent.
What is in the Bill as regards legal costs is fairly feeble too. We should be limiting costs payable by law enforcement bodies and regulators acting in the public interest in all civil cases under the Proceeds of Crime Act, as with criminal proceedings. These can represent a severe detriment to enforcement action, and I am very grateful to Spotlight on Corruption for pointing out, for instance, that the costs order against the NCA was in the region of £1.5 million in the case of the Aliyev unexplained wealth order—that is £1.5 million out of the total annual anti-corruption budget of £4 million. It is totally unacceptable. The courts should, of course, still be able to award costs against a law enforcement body or regulator where it has acted unreasonably in bringing or defending proceedings and the interests of justice or fairness would be offended, so there will still be some protection.
I will be tabling amendments in Committee which I hope noble Lords will support. We must tighten the net around these enablers. If not now, when?
Viscount Waverley (CB)
My Lords, as a brief declaration I remind noble Lords that I introduced a debate on relations with Russia in January 2018, then Salisbury occurred. Shortly thereafter, I introduced a debate on relations with Ukraine. In the same spirit, I also state that in 1997, I travelled in a delegation made up of Europeans to explore mechanisms to have Ukraine admitted to the European Union. I regret that that initiative did not advance.
I welcome the Bill. However, while the catalyst for it has been the war in Ukraine, it is a much-needed staged process, having been on the drawing board since 2018, to usher in overdue fiscal discipline to the United Kingdom. Once again, it is an illustration of the type of principled country we should be.
Put into context, the Bill has three elements—tactical, strategic and political—which should be considered. First, I shall deal with the tactical. The current draft leaves the door open to companies that hold UK property claiming they have no beneficial owner. This is already a common problem with the company register. The number of companies registered using overseas addresses that have been dormant since conception surprises me. It was explained to me that overseas people can have an accountant register a company and open a bank account; once established, there is an exchange of shares to the actual and final beneficiary. Alternatively, the horses have bolted, and I am told that moveable assets have already taken flight to such destinations as Hong Kong or Nauru in the Pacific.
Some 1,892 property titles were purchased by overseas companies before January 1999. These would be exempt from having to declare their owners under the current drafting. I favour research being done retrospectively, asking questions where concerns arise. There are concerns that the legislation will allow individuals to hide ownership of companies through nominee agreements with professional services firms. Such agreements could allow the true owners to claim that the offshore companies are controlled by, for example, a nominated law firm which is named on the register, rather than the true owner.
The Chartered Institute of Taxation, which sent a note to a number of your Lordships, raised a central point, however: it believes there is a lack of clarity over what the Government are trying to achieve. The Government might want to respond specifically to that point. If the Government’s aim is, as suggested in some government statements, revealing the real identity of foreigners who own UK properties, the institute does not believe the Bill will achieve this. This is because the legislation, as currently drafted, does not require the disclosure of the ultimate beneficial owner of the property, but rather disclosure of the beneficial owner of the overseas entity which, in turn, owns the property. Its response is that if a separate nominee company is set up for the particular beneficial owner, then it thinks they would be caught. But if a non-UK law firm’s general nominee company is used and acts for hundreds of different clients, it will be difficult to see that any one of them exercises significant influence or control of the nominee company. So says the Chartered Institute of Taxation.
The combination of the imposition of fines for sanctions breaches and the expansion of the unexplained wealth order regime should be a central plank, however, as they will be effective in allowing the NCA and other prosecutors to disrupt criminal activity.
It is with some trepidation, in the presence of such fine judicial minds, that I venture to move on to my next point. Clause 49 amends Section 146 of the Policing and Crime Act 2017, introducing a strict liability offence for the breach of financial sanctions. Significantly, the individual or entity did not, therefore, have to know, or have reasonable cause to suspect, that they were breaching a financial sanction. A defence is to illustrate that appropriate policies are in place that illustrate compliance with the law, as is the case under the Bribery Act 2010.
Secondly, on the strategic element, the Bill probably shall not decisively weaken the Russian regime. It is wrong to believe that kleptocracy measures equate to a massive blow to the Russian leadership. The relationship of many oligarchs with the Putin power structure is often ambiguous. If anything, the proposed measures will be vocally lauded by much of the Russian public. The power structure of the regime is based on the siloviki, translated literally as “the powerful ones”, consisting of the intelligence apparatus, the higher echelons of the military structure and the deep-state bureaucracy at federal and local levels. They are the people who need to be followed: they are estimated to be around 1% of the population. These people—and it is they who will decide the future of a Putin presidency—are normally not allowed to travel abroad or own any assets overseas. They are the people the Government need to keep an eye on.
Other measures will affect Putin’s cost-benefit analysis on the war in Ukraine, with a notable measure being the announcement that Russia’s central bank would have its foreign reserves frozen. The banning of all transactions with the Russian central bank, with the United States establishing the list of specially designated nationals, which would prevent financial brokers and central security depositories dealing with it, will have considerable effect.
Thirdly, on the political element, while this Bill is introduced in the context of Russia’s attack on Ukraine, it is important to note that its impact will not be limited to Russian entities or persons but will affect all non-UK entities and individuals in Britain. The purpose of this Bill is not to disrupt legal arrangements in our haste to target certain Russians.
Any law is only as effective as its enforcement. The provisions in the new Bill will make little difference unless authorities are provided with additional resource to enforce them. The UK already has strong tools to target illicit funds, but law enforcement agencies have struggled to make full use of them because of resourcing issues.
The Bill will place additional administrative burdens on Companies House and the Land Registry. Will the Government confirm today that funding for the enforcement of new powers—including the enforcement of the register of overseas entities and the sanctions proposed in the Bill—will be put in place?
In conclusion, and more generally, I will focus on what has brought us together this evening. Consequences for sanctions are a small price to pay for the blockades, the bombing of population centres, the targeting of hospitals, the abuse and mining of humanitarian corridors, the destruction of essential infrastructure and food supply disruption.
The situation is sickening, and those responsible must be held to account. The building blocks and justifiable slow drumbeat of a European war, defending our values and Ukraine, are possibly just on the horizon. President Zelensky’s call to arms to Parliament may be a precursor to Britain’s accepting engagement. Ukraine’s war is our war.
Baroness Jones of Moulsecoomb (GP)
My Lords, I am going to say something that I do not think I have ever said before: I have really enjoyed this debate. Virtually every noble Lord who has spoken has said, “I support this Bill but …”—and then has proceeded to give a list of reasons why it really is not a very good Bill. My noble friend Lady Bennett suggested that I was going to go into detail but, until this debate started, I thought I was going to follow the noble Lord, Lord Sikka, who has written an excellent 11-page briefing on the Bill, with three and a half pages that outline all the problems with it. I recommend that the Minister takes my copy afterwards and does something over the weekend to brush the Bill up a little.
The past two weeks have been very stressful, even being on the sidelines of watching a European war, and this seems to be the least we can do to actually fight part of that war for Ukraine. We all know that global capitalism is out of control—at least we really ought to know that by now. The mega-rich have been able to abuse their power and their wealth for far too long through investor visas, complex trusts and corporate structures, political donations—more of that in a moment—private schools, aggressive tax avoidance and legal tax loopholes. The mega-rich are actually able to pick and choose whether they obey the same rules and obligations as the rest of us have to do. It seems to me that we really need to get to grips with this. Governments all around the world allow them to get away with it. Worse, they lay out the red carpet and cut the red tape to try to attract them. We are told that cracking down on such people will just create unintended consequences and force them to flee to other countries. Well, we can hope.
These problems have been obvious for a long time, and this Government have ignored them for their 12 years in office. While I also welcome measures in the Bill and accept that it is urgent—because of course it has been urgent for quite a number of years—the Government have to face the shameful fact that they have dithered and delayed, until they have been forced to act by an illegal war. When a hard-line version of Brexit was pushed through Parliament in 2020—and I voted for Brexit; I did not realise that any Government could mess it up to this extent—we had 14 Ministers in Boris Johnson’s Government who had received donations from individuals or companies linked to Russia. Is that the reason why this economic crime Bill is so late and the measures in it so limited? Do the £3.5 million in Russian donations in the decade following 2010 explain why we have ignored Russian interference in our politics, why our intelligence services were not allowed to dig deep into the network of rich Russians and Conservative Party politicians, and why Parliament failed to push forward with the concerns brought to light by the Russia report?
I asked, I think last week—time goes so strangely here—what Russian donors to the Conservative Party get for their money. This is a question that the whole country would like to know the answer to. Is that money stopping the Government putting sanctions on large numbers of rich people who are close to Putin? Do the donations explain why we have fewer sanctions on Russia than the EU, Canada or even Switzerland? There are only just over 300 UK sanctions against Russia, 35 of which have been introduced since 22 February; and, before that, so few. By comparison, the US has sanctioned almost 1,200 individuals and companies, and a fifth of those sanctions have been introduced in the past two weeks.
So London is still a playground for oligarchs, oil barons and outright financial fraudsters—and, as has been said, it is not just Russians; there are unsavoury elites from almost every country on earth. This new legislation has to be used against all illegitimate, dubious members of the global elite, not used simply as a political tool against whoever we think our enemies are at that particular point. There has to be a constant tightening of the laws that constrain the mega-rich. The Government cannot be allowed to rest on this singular piece of legislation—or this double piece of legislation—and say, “We did it”. I regret that there is no sort of sunset clause so that we can look beyond this—the Bill definitely needs better writing.
The Bill can only be a starting point. The upcoming Queen’s Speech must include a raft of legislation to take these issues forward further and faster than many Tory voters or Back-Benchers might feel comfortable with. We really have to do more, and the Bill is only the start. The noble Lords who have explained this evening where we should be going really have to be listened to.
Baroness O’Loan (CB)
My Lords, it was a privilege yesterday to listen to the brave and compelling words of President Zelensky on the situation in Ukraine. We are at a pivotal moment in the history of this world and we stand again at an abyss. Brave people in Russia are trying to stand up against the invasion of Ukraine by their own leaders, but their efforts are being ruthlessly suppressed. We should pay tribute to those who go out on the streets of Russia to protest, knowing that there is no right of freedom of speech in that country and that their actions will inevitably attract sanctions.
President Zelensky asked that we do all we can to increase the sanctions against Russian kleptocrats and other criminals. The economic crime Bill is but one small measure that will allow that to happen; we must not escalate the conflict, but this measure should help a little. There is a widespread view that its effects need to be more immediate. I welcome the Bill, limited though it is, as so many noble Lords have observed.
I want to make one small point. Clause 48 creates a more robust power to impose monetary penalties by amending the Policing and Crime Act 2017 so that a person will be liable to sanction if a breach of a prohibited act or failure to comply with an obligation can be proved. Whether they had knowledge or reasonable cause to suspect that their actions were in breach of a sanction is irrelevant. If there has been a breach, fines, which can be very substantial, may follow. The clause enables greater flexibility in the decision-making process, permitting decisions to be made by other officials in the department rather than a Minister. It could be argued that the power in this section is so extensive that decisions should continue to have to be made by Ministers. At the very least, guidance should ensure that any official given such a power should be of an appropriately senior level.
Taken together, Clauses 48 and 46—the latter changes the costs regime following enforcement action—may give rise to questions about the Government’s assertion that the safeguards available in the legislation fully protect a person’s rights. There is an urgent need to prevent the kind of money-laundering activities to which the Bill is directed. Judges will have discretion as to the kind of costs orders that are made. It is important, though, that the procedures we adopt are capable of withstanding scrutiny and challenge.
Clause 46 amends the Proceeds of Crime Act 2002. Of course, that Act has many deficiencies, not least that the person subject to the inquiry and to the POCA proceedings sells the property identified, often at a price significantly lower than the normal market price. However, this is an amendment to the Proceeds of Crime Act relating to who bears the costs of proceedings, as other noble Lords have stated, associated with unexplained wealth orders, where a person who is not found guilty of any breach or any offence may have to pay very substantial costs, possibly greater than any fine, unless they can prove that the enforcement authority acted either unreasonably or, alternatively, dishonestly or improperly—whatever “improperly” may mean. Notwithstanding this, there are concerns that, given the complex and sensitive nature of such proceedings and the investigation that precedes them, it could prove profoundly difficult to meet this test of improper behaviour, dishonesty or unreasonableness.
I ask Her Majesty’s Government whether they can assure the House that these provisions fully protect a person’s rights not to find themselves with a very large costs bill resulting from an unfounded allegation or action, so that those with legitimate funds to invest in the UK will not be deterred from so doing. In saying this, I do not in any way detract from the condemnation of what is happening in Ukraine at present.
Lord Empey (UUP)
My Lords, there have been many excellent speeches this evening from people who have pointed out deficiencies in the legislation. I sincerely hope that the Government, over the weekend and before Committee, will listen to what has been said and make running repairs as required. If ever there was a case of closing the stable door after the horse has bolted, this is it. We have known for years what people were up to in this city and this country, and we have turned a blind eye. Now, it has come back to haunt us. I must point out to colleagues that the warning signs have been there. We know that this legislation, however belated, is fundamentally the right way to go, and I support the principle of it. However, I sincerely hope that the valid points which have been made in some excellent speeches will be listened to and acted upon as we move towards the conclusion of the Bill’s legislative stages.
I was privileged to serve on your Lordships’ Select Committee that undertook post-legislative scrutiny of the Bribery Act, under the chairmanship of the noble and learned Lord, Lord Saville of Newdigate. We were looking at how the legislation had been operating over a five-year period. In some respects, we probably should have looked at it at a slightly later stage. However, one thing which stood out from our committee’s inquiry—and which is again before us tonight—is the total inadequacy of the enforcement resource involved and required. We were looking at bribery in the context of ordinary commercial activities. We were not looking at it in terms of something very specific, as we are tonight. At that stage, we had representatives come before the committee pointing out that they just did not have the resources. We all know that if you are going to carry out an inquiry—whether it involves the police, the National Crime Agency or another organisation—it takes time. But we are giving half a year for people to go and do what they do best. I do not believe for one minute that, if they ring up or knock on the door of some of the professional houses in this city, they will be turned away for advice or help. They will get the best that money can buy. I sincerely ask the Government to look very closely at that.
In her opening remarks, the Minister referred to legislative consent motions from the devolved jurisdictions. I understand that the timescale was such that this has not been possible. However, can the Minister assure the House that we will not be leaving any back doors open as this legislation proceeds, so that part of our country could be used in a roundabout way to thwart its purposes? I hope that we can have an assurance to that effect.
The Minister will also be wearing his other hat, as Energy Minister. The war has been possible because it has been funded by the sale of fossil fuels by Russia, which accounts for some 65% to 70% of its economy. Unfortunately and understandably, we had COP 26 and a general view in this country and around the world that we must move away from our dependency on fossil fuels. As a former Energy Minister, I fully understand and accept that. However, we have not advanced to the point where we can survive in this country without almost 100% fossil fuel back-up, because wind is not dependable in all circumstances and we have not sufficiently developed wave and tidal power. These are 10 to 15 years away.
I understand that, being a relatively small country geographically speaking, things like fracking and the development of resources on land and in our own North Sea are controversial. But the fact remains that next week, we are going to pump concrete into wells in the north-west of England, which means that it will no longer be possible to extract gas from them. At the same time, we are leaving ourselves and our European partners very dependent on gas. There have been some disastrous decisions, particularly in Germany regarding the development of its energy policies. I ask the Minister to address that issue, because although it is not quite within the remit of the Bill, it is fundamental. Where are we going to get our resources from? They are not going to appear out of nowhere.
I support the fundamental principle of the Bill, but please can we have some clarity—if not tonight then as we move through the remaining stages—on what plan is in place to ensure that the bodies being given a role under this legislation will have the resources to investigate and enforce? Those are roles that bodies such as Companies House do not have. Where are the people who will be doing this work going to come from? Who, on the Monday morning after the Bill is passed, is going to open the file and start an inquiry? Where are they? That is very much the message that we in the post-legislative scrutiny committee got from looking at the Bribery Act: that the resources are not there to match our ambition. I hope the Minister can reassure the House when he winds up.
Lord Macdonald of River Glaven (CB)
My Lords, the noble Lord, Lord Carlile of Berriew, mentioned Alexander Litvinenko, and I should like to do so too. I was serving as Director of Public Prosecutions when he was murdered in London, dying of radiation poisoning in University College Hospital, a stone’s throw from here. Those of us charged with investigating and assessing this crime were left in no doubt at all that there had been Russian state involvement in its conception, planning and commission, most likely at the very highest levels. We believe that this was a state execution, carried out in the most public way possible, on the streets of our capital city, of a man under the protection of the British state.
I recall having a conversation at the time with the head of my counterterrorism division, in which we agreed that from this moment, everything had changed. If the Russian dictator was prepared to do this, where in future would the line be drawn? Perhaps we felt, “nowhere”. Nothing that has happened since then—Syria, Salisbury and a multitude of other provocations and crimes—has changed that view. In a real sense we may conclude that the invasion of Ukraine was inevitable; it was an outcome hiding in plain sight, and one which we, frankly, did too little to anticipate or prevent. Clearly, though, this also a watershed and time for us to reassess the way we have responded—or failed to respond—over the years to Putin, to his enablers and to their Russian money.
I support the Bill so far as it goes but I believe that it must presage a much broader and deeper rebalancing and retooling of our defences against the violence of the Russian regime and the financial corruption it brings in its wake. That corruption, in the form of looted funds, has found a home in London. We all know that. We all know that London has been the playground and piggy bank of choice for oligarchs, including those who owe their wealth to Putin and give him their public fealty. Beyond them, of course, are those who are less connected to the dictator but who, for the sake of their riches, agree not to challenge him and pay court at the Kremlin in a more surreptitious but equally shameful form of support.
It seems that we all now agree that the unfettered ability of these people to conceal their property and wealth in the United Kingdom beyond any sensible scrutiny is contrary to our national interest—good. Particularly welcome in this Bill, therefore, are the provisions in Part 1 around the transparency of property ownership. They are long overdue and urgent but we cannot delay. Six months is too long; it would defeat the very purpose of the Bill. Transparency of ownership is the most basic anti-corruption tool, and the Government have resisted it for far too long. It is beyond time for us to discover which parts of our cities and countryside these people own but we will not discover anything unless we move quickly and—as the noble Lord, Lord Eatwell, said—unless verification is effective.
Let me turn to the question of lawyers, which has occasioned much comment, including in the other place. I start by confessing that, as a criminal lawyer, I have represented many men and women over the years whom I would not invite home for tea. However, in matters of litigation, it is equality of arms that is the real problem. Oligarchs are rich; they can afford the very best advice. The risk is that, in doing so, they can out-gun enforcement bodies, not because their cases have merit but because they are rich. This is not necessarily to criticise their lawyers; it is to criticise the system for having no solution to this conundrum.
Having run the main prosecuting authority for five years, I know how pressing this problem can be. A single case lost against the richest of opponents can take a huge chunk out of your budget in costs orders. This has been a critical issue in the area of unexplained wealth orders. Frankly, it has helped to hobble them. Going for one is simply too financially risky: if you lose it, it costs you a small fortune. That is one reason why there have been so few, but it is not the only reason. I absolutely promise the Minister that, without properly funded enforcement agencies, we will make no progress—costs orders or no costs orders. This reform is toothless on its own. The NCA needs to be funded to conduct this work. It needs to employ the right people and it needs to have confidence that the Government will back it in doing so by putting their money where their mouth is.
Finally, let me deal with the question of our adoption of sanctions measures imposed by allied states with due process-compliant justice systems, dealt with in Part 3 of the Bill. I have heard many civil liberties lawyers complain about this proposed provision but I have no difficulty with it at all. We are talking, in essence, about the Five Eyes countries: the United States, Canada, Australia, New Zealand and the European Union. These are democratic societies and long-standing allies of the United Kingdom—our very closest allies—and each is demonstrably attached to the rule of law. In a moment of exceptional international crisis in which we all stand together, this is a proportionate—indeed, laudable—proposal.
From Alexander Litvinenko to Salisbury, the shelling of Kharkiv and the destruction today of a children’s hospital, the Putin regime has proved itself to be utterly contemptuous of the law. In the face of this, we must use ours more intelligently. I am glad that the Government have brought forward this Bill—it has my support—but Ministers should be under no illusions: there is much more left to do.
Lord Fox (LD)
My Lords, it is a pleasure to follow the noble Lord, Lord Macdonald. I think it is the first time I have ever had to do so; it is quite a daunting prospect having heard such an important speech. We on these Benches welcome the belated realisation by this Government that the City of London and other parts of the economy in this country need to be cleaned up. Just as the noble Baroness, Lady Williams, asked, we certainly aim to support this Bill practically.
This has been a strong debate. Some of your Lordships—the noble Lords, Lord Faulks and Lord Rooker, and the noble Viscount, Lord Waverley, to name but three—have, with justification, been able to say that this issue has been on their agendas for some time. Others, such as the right reverend Prelate the Bishop of Leeds, have highlighted the purpose of and focus on ethics that we should also dwell on. There was a sense of frustration in all the speeches that it has taken the terrible events in Ukraine—the onslaught on civilians—to cause this Government finally to act. They are acting, and we should take advantage of that, but it is awful that it has taken that to get to this point.
In welcoming this Bill, we are not blind to its shortcomings. Your Lordships have been wise to set out whole areas of action that need to be resolved before we can start the process of cleaning out the dirty money in the United Kingdom’s economy. I will not seek to paraphrase everything that was said but we heard about SLAPPs and the use of lawfare from the noble Lords, Lord Thomas and Lord Cromwell, and the noble Viscount, Lord Colville. We heard about company shells from the noble and learned Lord, Lord Garnier, and about trusts, freeports and whistleblowers from my noble friend Lady Kramer. The need to be more deeply retrospective was introduced by the noble Viscount, Lord Waverley, and the noble Baroness, Lady Bennett, as well as the issue of speeding up disclosure from Crown dependencies and overseas territories. Those are just some of the issues put by your Lordships before this House.
Virtually none of those substantive issues appear in Part 1 of this Bill. It seems that most of them might turn up in Part 2 but we heard the curriculum that the noble Baroness, Lady Williams, is putting forward for that part: limited partnerships, crypto assets, money laundering and Companies House. To digress on Companies House, the noble Lord, Lord Eatwell, very much paraphrased the issue: this is not just about resources. The cultural change required to make that organisation in any sense capable of doing any of the things that this legislation asks of it is huge. By the way, it is not just Russians; if Companies House had been doing what it should have, literally billions of pounds would not have been defrauded from taxpayers during the Covid crisis. A small fraction of that money could have been used as seed to produce a Companies House that is fit for purpose. Now we have lost that money but we still need to do the job.
Coming back to the Bill, all the issues that have been set out need to be tackled in its second part. I am looking for the Minister to acknowledge that, although the four issues set out by his colleague, the noble Baroness, Lady Williams, are important, a number of really important issues need to be added to that list. If it becomes an even bigger and more complicated Bill, I guarantee that those on these Benches will work hard to make sure that we can get that legislation through as quickly as possible. As the noble Lord, Lord Vaux, and the noble and learned Lord, Lord Garnier, said, we also need a process that reviews how Part 1 is getting along because it is clear that the speed with which this legislation is being implemented—and, indeed, the fact that it was written for one purpose and is being delivered for another—will inevitably mean that there are things not right with it.
We will work to help ensure that when the final Act—this part of the process—emerges, the Government will get the tools they say they need. When they get those tools, there will be no excuses for not following up on the people we have heard described to your Lordships this afternoon. As we have also heard, to do that will take well-resourced, highly qualified and motivated people to investigate and prosecute. The noble Lords, Lord Macdonald, Lord Carlile and Lord Empey, to name but three, set out the issue here. Unless the agencies tasked with cleaning up the kleptocrats have the resources and the support, the Bill does not amount to a hill of beans.
To date, this is an area the Government have been defunding. For example, the National Crime Agency—the principal body leading this fight, as we have heard—has seen its overall budget fall in real terms. The last inspection by Her Majesty’s Inspectorate of Constabulary and Fire & Rescue Services in July 2021 pulled no punches and highlighted how resource limited the NCA is. Further, the inspection also noted the difficulty in recruiting staff for investigating roles. There are remuneration and status issues around why that is not happening. It gets worse: within the NCA, the body specially configured to investigate kleptocrats is the international corruption unit. As we know, the ICU’s role is to investigate money laundering resulting from corruption by high-ranking overseas officials, bribery involving UK-based companies or nationals that has an international element, and cross-border bribery where there is a link to the UK. I am afraid the ICU seems to have fared even worse. Can the Minister confirm that it has had its budget slashed by 13.5% this year?
Meanwhile, over the past couple of weeks the Government have said they will set up a new kleptocracy cell within the NCA to target sanctions evasion and corrupt Russian assets hidden in the UK. The press release said that oligarchs in London will have “nowhere to hide”—there is a joke in there, but I decided not to use it. How exactly will the new NCA kleptocracy unit mesh with the existing ICU? For that matter, how will the kleptocracy unit relate to the complex web of underfunded joint committees and task forces that litter this area of investigation? The agencies we have are underfunded and there is a confusing web of different organisations and crossing accountabilities. Together, this adds up to the enforcement agencies being massively outgunned by the oligarchs, as we see and have heard from your Lordships. Is it any wonder that so few unexplained wealth orders have been issued?
The Government do not have to wait for the passage of the Bill. They could say now that they are going to reverse their defunding of the international corruption unit and announce now a funding boost for the NCA. We do not need a new unit or a new invention. We need the organisations that we have to be properly funded, targeted and supported to deliver the outcomes that I think your Lordships all hope for.
Next Monday we will have the opportunity to address the Bill before us in some detail. One thing is clear: the Government should embrace the issue of enablers more firmly. As we have heard, these are the lawyers, estate agents and accountants helping the kleptocrats. This theme, among others, was picked up in the Chatham House paper entitled The UK’s Kleptocracy Problem. It noted:
“Financial and professional services firms have long made the UK a comfortable home for dirty money.”
That is Chatham House, not some campaigning organisation that people might feel free to dismiss.
This Bill needs to explicitly target those professional services that knowingly create the comfort that has been enjoyed by Russian kleptocrats, and indeed by other thieves from around the world. They need to feel the heat. This is an issue that we will come back to on Monday, following up the excellent speech by my noble friend Lord Clement-Jones and the amendment that I know he has tabled.
Then there is the self-created loophole that was referred to by the right reverend Prelate the Bishop of Leeds: Clause 18. This allows all aspects of the register to be ignored if the Secretary of State decides that it is in the interests of national wealth to hide an oligarch’s assets. How big does the factory have to be for the theft to be ignored? How many jobs can a kleptocrat wash their soul with in this country? That is the nature of that clause—it hits right at the heart of what the right reverend Prelate had to say. It is, frankly, a continuation of what happens now; in other words, “The money is all right, so we won’t look at where it has come from.” My noble friend Lady Kramer was very strong on that issue. If we are to allow this line to continue in the Bill, it would essentially mean selling our moral soul in a different way—and it would put it into statute. We will have to address this issue when we get there.
There are issues that, following the debate in the Commons, we are looking forward to seeing how the Government will address. One is whistleblowers and another is freezing assets. We are looking forward to the Minister responding on that today or tabling some amendments before close of play tomorrow so that we can see where the Government are headed.
Finally, I know that the noble Lord, Lord Callanan, is an experienced Minister who knows how to read a room. If he is reading this Room, he knows that six months will not wash with your Lordships; that is very clear from almost every speaker, for lots of practical reasons. Money is already moving; the kleptocrats are cutting and running. To give them another six months’ head start essentially makes most of this pointless. I am sure that noble Lords on the adjacent Bench will be bringing forward an amendment, which we will certainly support when it comes before your Lordships’ House.
As the noble Lord, Lord Carlile, put it, in participating on this Bill in the way that we are—speeding it through Parliament—we are putting a lot of trust in the Government. We hope that trust is justified. We look forward to further constructive discussions on this Bill on Monday.
Lord Coaker (Lab)
My Lords, it is a pleasure to wind up for Her Majesty’s Opposition on this incredibly important debate and indeed to follow the noble Lord, Lord Fox, who made a powerful speech. I agreed with everything, really; there were other things that I might have highlighted, but I thought it was an excellent speech. It followed on from the many excellent speeches that we heard from across the House.
I start by setting the context because, as we debate this Bill in the Chamber, we are united in a common cause: to defend freedom and democracy and to stand shoulder to shoulder with Ukraine and its people against the illegal and immoral invasion by Russia of their territory. I highlight the speeches of the noble Lord, Lord Macdonald, and the noble Viscount, Lord Waverley, for pointing out and reminding us so powerfully of that. It really set the context for this debate and discussion today.
Many noble Lords have reminded us of this context, and indeed the Government themselves have said that the Bill is in part an urgent response to the Ukraine crisis. Our political outlooks may differ, but we all share a common belief about injustice, and there can be no bigger injustice than an unwanted invasion of a country’s sovereign territory. I remind us all of that, because it is why there is wide and general support across this House—and, I would say, within the country—for this economic crime Bill being rushed through in the way that it is. I say “rushed through” not as a criticism to the Government, but as something that it is important to do.
We as Her Majesty’s Opposition welcome it and, as we did in the other place, will support the Government in taking this through as quickly as we can. Although, as the right reverend Prelate the Bishop of Leeds, my noble friend Lord Rooker and the noble Lord, Lord Empey, and others have argued, should we not have acted before now? If money is dirty, then it is dirty. We must crack down; the UK’s role as a global centre for Russian money laundering has to stop. As the noble Viscount, Lord Colville, reminded us, Russian oligarchs secretly hiding money—as with all dirty money from anyone from anywhere—has to be stopped. There must be no hiding place or safe haven with hidden investments.
I say to the Minister that all the questions and challenges from me and other noble Lords are because we want the Bill to work. We want the sanctions to work and this economic crime Bill and the one that will follow it in due course to succeed. We all want the Government to succeed in this. It is not in any of our interests for the Government to fail or for these measures not to work. As the right reverend Prelate the Bishop of Leeds said, let this be the beginning of the new economic and monetary framework because it is ethically the right thing to do.
Turning specifically to some of the measures in the Bill on registration, these target those who exploit the UK property market by establishing a public register of beneficial ownership of overseas companies which own or want to buy real estate in the UK. Many noble Lords, including the noble Lords, Lord Macdonald, Lord Vaux, Lord Thomas of Gresford and Lord Faulks, the noble Baroness, Lady Kramer, the noble and learned Lord, Lord Garnier, pointed out the importance of this. We all welcome the reduction of the transitional period for certain overseas entities registering as such from 18 months to six months.
However, I do not think anybody who has spoken does not believe that six months is too long. As the noble Lord, Lord Fox, pointed out, we will table an amendment in Committee to further reduce that period. I think it was the noble and learned Lord, Lord Garnier, who pointed out that if you have six months to register it, it can be moved. I am not a genius in legalese and moving property, but if you have time to move the money we are trying to find out about, I suggest that many of these people—if they are bright and can pay for the advice, which they seriously can—will be able to do that. I say to the Minister that this is not out of anything other than that we do not believe six months will work in the way the Government want it to. I hope the Government will be able to listen to my remarks and those of noble Lords across this Chamber.
The noble Lord, Lord Carlile, and my noble friend Lord Eatwell pointed out Companies House. How will we ensure that it is fit for purpose? Companies House is essential to the functioning of the Bill. It is essential that Companies House works and is fit for purpose. In a brilliant speech, my noble friend Lord Eatwell—who brings an experience far beyond mine and that of, I suggest, many noble Lords—asked how the data will be verified. If the data is not verified as accurate, how can Companies House work effectively? Again, my noble friend Lord Eatwell is not bringing that forward to undermine the Bill or make a political point; he is bringing it forward as a man with all the experience in these areas that he has. He says to the Government that without the verification of the data, we cannot achieve. Without embarrassing the Minister, I think I am right in saying that my noble friend Lord Eatwell pointed to a book, or a preface to an article, that the Minister had written saying exactly the same thing. I hope the Minister can explain that and see how it will be done.
Unexplained wealth orders—again, measures to pursue and investigate unexplained wealth where property has been acquired with illegitimate cash—raise a question. We have had unexplained wealth orders; we all want to know what will make this version of them work this time, when the unexplained wealth orders that exist currently have not worked. Again, we all want them to work; but why will these work when others have not? The noble Lords, Lord Empey, Lord Carlile and Lord Macdonald, have again raised the issue of resources for the NCA to take the necessary action, as did the noble Viscount, Lord Waverley. If we are to have unexplained wealth orders, let them function in such a way that people who have unexplained wealth are fearful of the state taking action. At present, they do not fear it at all and do not expect anything to happen. We all want to see a solution to the issue of resourcing for the NCA.
The noble and learned Lord, Lord Garnier, in another powerful speech, noted that we must ensure that these measures are implemented sufficiently quickly to prevent people who have unexplained wealth shifting it before an order has been made affecting them. Again, that is an important point.
On sanctions, we have heard about the NCA, but the Government also talk about improving the Office of Financial Sanctions Implementation, giving it intelligence and information-sharing powers as stronger tools to carry out enforcement action. I had never heard of OFSI and had to look it up—it is in the Treasury—but these are people we will give stronger powers to. I have heard of the NCA, but what is happening with respect to giving these extra powers to OFSI?
As for sanctions, as the noble Baroness, Lady Bennett, and the noble Lord, Lord Hannay reminded us, how the Bill is enacted and enforced is essential, or else it is just warm legislative rhetoric. What we want to see is action. The noble Lord, Lord Clement-Jones reminded us that the Bill cannot be toothless. The Minister needs to reassure this Chamber that we have a Bill that will work and will carry sanctions with sufficient clout to take on the enablers and others.
As the noble Lord, Lord Fox, the right reverend Prelate the Bishop of Leeds, and the noble Baroness, Lady Kramer, mentioned, the Government need to explain the provision that someone will not be sanctioned if doing so is not in the economic interests of the country. The Bill as currently drafted appears to read as though there will be exemptions for occasions when it is not in the economic interests of the country for us to take action against a company or individual. Are we really saying that? Some clarification on that from the Minister will be welcome.
In his response, can the Minister explain and answer these comments made to him, and say who in government has ultimate responsibility for this legislation and its enforcement? Which Minister and which department will drive this forward? Will the resources to do it be made available? What further amendments are the Government considering and when will they be published? Will they be ready for Committee next week? What measures are the Government considering in their second economic crime Bill?
To conclude, we of course hope that this crackdown on Russian oligarchs and Russian dirty money will help undermine the regime and play its part in ending the war in Ukraine. The Bill allows us to take action against those who flaunt their wealth, predominately in London and the south-east, as the noble Lord, Lord Macdonald, reminded us. As the noble Lord, Lord Cromwell, said, however, it is those who are criminal whom we must act against, to stop them acting with impunity. Yes, the economic crime Bill is overdue, but it is a way we can act against Russia and those who support Putin now. Let us all hope that it plays its part in the defeat of Russia and the ending of the invasion of Ukraine, but also perhaps opens up the prospect of a more transparent financial system, not one so dominated by oligarchs with dirty money. We support the Bill and want it to work. It is in all our interests that it does.
The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)
I start by thanking all noble Lords for their constructive engagement in advance of and during today’s debate, and for the support generally expressed for the swift passage of this Bill. The noble Baroness, Lady Jones, was right—she is occasionally—that this was a good debate with many insightful points. I would not go so far as to say that I enjoyed it but it was nevertheless a good debate. It has underlined the importance of taking action on the dirty money flowing through the UK, following Russia’s brutal and barbaric invasion of Ukraine. I totally agree with the noble Lord, Lord Coaker, that it is more important than ever to ensure that we have the powers we need to take swift action to tackle economic crime. In doing so, we should ensure that the UK remains the place for legitimate investment to flourish. I am confident that this legislation strikes the right balance.
I know that many noble Lords—the noble Lord, Lord Fox, in particular—have a strong interest in Companies House reform and limited partnership reform. So do I, as the Minister responsible for implementing these important policies. Let me assure the House that these measures will be included in a wider Bill in the coming months. They will come alongside new powers to make it easier to seize crypto assets from criminals and measures to provide businesses with more confidence to share information on suspected money laundering.
Lord Callanan (Con)
I may be about to address some of the noble Lord’s points about Companies House reform so let me finish this paragraph; if I do not address his points, I will come back to him, if that would be helpful.
I can say to the noble Lords, Lord Fox and Lord Coaker, and others that reform is already under way at Companies House. It has received £20 million for this financial year. A further £63 million was announced at the spending review. However, the full Economic Crime Bill will be very significant. I understand why noble Lords are questioning me about why it is not being included at this time; to be frank, it is purely a matter of drafting time. This will be the biggest change to our system of company registration in some 170 years—the biggest change to limited partnership law since 1907. Drafting has already begun and I can assure the House that we will bring it forward as soon as we possibly can in the next Session. I hope that what I have been able to say will provide some reassurance to the noble Lords, Lord Eatwell and Lord Coaker, the noble Baroness, Lady Jones, and the House as a whole.
Lord Eatwell (Lab)
Given the wide level of expertise evident in this debate, will the Minister commit to pre-legislative scrutiny of the new economic crime Bill? That would be the way both to exploit the talents available in this House and to ensure that the Bill, when it arrives on the Floor, will have a smooth passage.
Lord Callanan (Con)
Let me come back to the noble Lord on that. I certainly commit to full scrutiny of the Bill when it is ready, which I think the noble Baroness, Lady Chapman, also asked me about. It will not be emergency legislation; we expect it to have the full scrutiny of this House. I think that pre-legislative scrutiny would probably be a bit time-consuming; it is probably better just to bring the legislation forward, then it will get its full scrutiny. However, as I say, we are getting it drafted as quickly as possible. It is something like 150 pages of legislation so it will be substantial.
Lord Fox (LD)
About that: with many other Bills, the Government go out for consultation for six or eight months, redraft the Bill, then have two more White Papers. Then, sometime after three Christmases, we get the Bill. So, does “as quickly as possible” mean a few months or weeks? Are we looking at the latter half of the next Session, or are we looking at it being one of the first Bills to come out in the next Session?
Lord Callanan (Con)
I cannot win on this one: if I give too much time to pre-legislative scrutiny, for consultation et cetera, I will be criticised. I cannot give the noble Lord, a definitive time because, of course, it is not purely in my hands; it depends on parliamentary time, on the Whips, on the usual channels and on the availability of the House of Commons. It is certainly my intention to get it in front of noble Lords in a matter of months but I cannot be more specific than that. It will depend on when it gets drafted and when we can get parliamentary time. It is a firm commitment that we will bring it forward in the next Session—ideally towards the start of the next Session, if that helps the noble Lord.
I welcome the support from across the House, particularly from the Opposition Front-Benchers—I thank them very much. As I just said, I can reassure the noble Baroness, Lady Chapman, and the noble Lord, Lord Vaux, that the economic crime Bill will progress under normal procedures. I am sure there will be a full and detailed discussion about it. I will speak later to some of the points of the noble Baroness, and the noble Baroness, Lady Kramer. The noble Baroness, Lady Kramer, also raised the subject of the Crown dependencies. I can tell her that I spoke to the Crown dependency Ministers earlier today, just before I came in for this debate, and they are also fully on board with these measures, looking to help wherever they can and to progress similar measures in their own jurisdictions.
Moving on, many noble Lords, including my noble and learned friend Lord Garnier and the noble Lords, Lord Rooker and Lord Faulks, raised the legitimate question of why it has taken the Government so long to introduce the legislation. I can assure them it is not for the want of trying on my part; it is purely about the pressure on the legislative programme. They, as well as the right reverend Prelate the Bishop of Leeds, stressed the importance, and I totally agree, of stopping dirty money flowing from Russia and, indeed, other countries. This is not just about Russia. It benefits us in terms of Russia but, frankly, this reform is long overdue and it will also help us in the fight against money laundering from other jurisdictions. What matters is that, despite the long delay, we are now urgently bringing this legislation forward. We were planning to put this in the wider economic crime Bill but we decided to introduce these measures earlier, to put them into effect shortly. I am grateful for the support of the Opposition in doing that, and the wider economic crime Bill measures will follow in due course.
I take the opportunity to thank my noble friend Lord Faulks again, for all his work to develop the legislation and for some of the powerful points he made today. I reassure him that since we took the measure thorough pre-legislative scrutiny, we have been able to improve the legislation to reflect some of the pre-legislative scrutiny committees’ recommendations and to align it with the broader reform of Companies House, which I completely agree we need to do, to make the measure effective. I think the legislation as a whole will be more effective as a result of the scrutiny that has taken place. This has been central to ensuring the new requirements are workable and proportionate and that the register strikes the right balance between improving transparency and minimising burdens on legitimate economic and commercial activity.
I thank the noble Baroness, Lady Kramer, the noble Lords, Lord Hannay and Lord Vaux, and my noble and learned friend Lord Garnier for their points on the transition period. I think the noble Lords, Lord Coaker and Lord Fox, made similar points. Let me explain our logic on this. We have already reduced the transition period from 18 months to six months. I understand the importance that noble Lords attach to this, but it is important to remember that the majority of properties held via overseas entities will be owned by entirely law-abiding businesses and people. To give noble Lords an idea of the scale, we are talking about roughly 95,000 properties in England and Wales owned by some 32,000 overseas entities. It is a fact that only a tiny fraction of these are likely to be held by criminal or corrupt interests.
The transition period is an important protection for the rights of those legitimate owners of property and we have to be careful about interfering with individuals’ property rights, interference that could not reasonably have been expected when those rights over the properties within scope of the register were originally acquired. This legislation has considerable retrospective effects. We have to ensure that we are respecting those rights in a way that cannot be challenged—not least under human rights legislation. No doubt, those who wish to avoid these requirements and are able to afford expensive legal teams will take advantage of any opportunity to do so.
Many of the ultimate owners will be law-abiding British companies that have adopted these structures for legitimate commercial reasons. They could include real estate investment trusts, which are public companies whose core business is to manage and own properties that generate income, or particular pension schemes that hold land and properties. Others will be British nationals who have adopted the arrangements for legitimate reasons of privacy—a point made from the Cross Benches but I forget who made it. That may involve, for instance, celebrities who do not want their address to be known publicly.
As the noble Lord, Lord Fox, observed, I am aware of the strength of feeling expressed that corrupt people must not be allowed to sell up and escape the transparency that the register will bring. The Government see merit in requiring all those selling property to submit a declaration of their details at the point of transfer of land title during the transition period. This would mean that a zero-day transition period to provide certain information immediately would be given to anyone selling. They would have to register ownership if selling, and that way we either get their ownership details immediately or, if they do not sell, we get it at the end of the transition period but in a way that still protects legitimate owners. We are urgently looking at this idea and giving it some serious consideration, but we need to get the drafting right and legally watertight, so that it is workable, effective and achieves what we want to achieve. Officials are working on this at the moment and I hope to get the proposal to noble Lords for consideration before we reach Committee.
Although the register will not be operational immediately, we expect the measures to have an immediate dissuasive effect on those who are intending to buy UK property with illicit funds. I can assure the noble Lord, Lord Faulks, that work on implementing the new register will begin as soon as we have achieved Royal Assent, and we will look to have the new register in place as soon as practicably possible—as soon as this House is able to consider and pass the relevant statutory instruments, and when some of the other measures are put in place. I should also add in response to many of the comments that all conveyancers and estate agents are already required to assess transactions for money-laundering risks and to alert authorities about suspicious activity.
I turn to the question from the noble Baroness, Lady Bennett, on the retrospective application of the register. It will apply retrospectively, thereby compelling overseas entities to register if they have property bought since January 1999 in England and Wales and December 2014 in Scotland. Those dates have been selected because they relate to when jurisdiction of incorporation was originally required by Her Majesty’s Land Registry and the Registers of Scotland when registering title documents for land. This information has never been recorded by the Northern Ireland land registry, so we are unable to make any retrospection apply there.
As set out in the Bill, if a foreign company does not comply with the new obligations, every officer in default can face criminal sanctions, including fines of up to £2,500 per day or a prison sentence of up to five years. We have also included a power to make secondary legislation that can allow the registrar to impose financial penalties for non-compliance without the need for criminal prosecution. Critically, non-compliant overseas entities will face significant restrictions over dealing with their land. That is important because by their very nature, it might be difficult to impose criminal penalties on people who are overseas. But a restriction on them being able to deal with and dispose of their land will be particularly important because that will in effect prevent sales and render the property worthless.
I thank noble Lords and others who have made insightful and important points on the importance of robust supervision and the need to tackle the so-called professional enablers. Those noble Lords include the noble Baroness, Lady Bennett, the noble Lords, Lord Londesborough and Lord Cromwell, the noble Baroness, Lady Chapman, the noble Lords, Lord Faulks, Lord Carlile, Lord Thomas and Lord Rooker, and others.
The UK supervisory regime is comprehensive. The UK regulates and supervises all businesses most at risk of facilitating money laundering, including accountants, estate and letting agents, high-value dealers, trust or company service providers, the art market and so on. We strengthened the money laundering regulations in June 2017, thereby bringing UK legislation in line with the latest international standards. This includes requiring estate agents to carry out due diligence on both buyers and sellers of property.
To be very clear to the noble Viscount, Lord Waverley, any money obtained through corruption or criminality is not welcome in the United Kingdom, including that linked to Russia or other countries. That is why we are at the forefront of global action, spanning the operational, policy and diplomatic communities to target the money launderers and enablers who underpin corrupt elites and serious and organised crime.
Baroness Kramer (LD)
I am sorry to intervene, but perhaps the Minister could explain why, if there is such an effective system in place, we have a problem today. Surely there is a flaw.
Lord Callanan (Con)
This is what we are attempting to address in this legislation. We are trying to make the system as transparent as possible, to improve the action on unexplained wealth orders, et cetera.
Lord Clement-Jones (LD)
My Lords, the noble Lord has contradicted himself. He said that there was a robust system in place, but he has just talked about money laundering for enablers.
Lord Callanan (Con)
I said there was a robust system in place under the money laundering regulations in response to the various points that were made about financial services professionals, estate agents, et cetera. That is not to say that we cannot improve the system; we certainly look to do that. Providing information and transparency on property ownership, unexplained wealth orders and the sanctions regime, which is what we are doing, will help to supplement that system.
In July 2021, the CPS amended its legal guidance on money laundering offences for prosecutors to make it clear that it is possible to charge someone under Section 330 of POCA, which relates to the failure to disclose money laundering in the regulated sector. This closes a long-standing gap in law enforcement’s toolkit, which will better enable us to tackle the small minority of complicit professional enablers.
In addition, the Solicitors Regulation Authority—the largest legal PBS which supervises approximately 75% of regulated legal service providers in the UK—undertook a broad range of enforcement action in 2021. This included issuing 14 fines totalling £163,000, suspending membership three times and cancelling membership 13 times, effectively preventing an individual conducting regulated activity.
To take another example, the Institute of Chartered Accountants in England and Wales—the largest accountancy PBS—undertook a broad range of enforcement action. This included issuing 59 fines, totalling £178,000, and cancelling the membership of firms six times—again, effectively preventing an individual conducting regulated activity.
The noble Lord, Lord Carlile, suggested that we should consider how we can make legal professionals report matters relating to national security in a structured way and without the benefit of legal professional privilege. This is a complicated matter and not for this Bill, but I certainly welcome his contribution and his engagement, and we will certainly look at that.
The noble Baroness, Lady Kramer, raised an important point on protecting whistleblowers. We recognise how valuable it is that whistleblowers are prepared to shine a light on wrongdoing and believe that they should be able to do so without fear of recriminations. The whistleblowing regime enables workers to seek redress if they are dismissed or suffer detriment because they have made a so-called protective disclosure about wrongdoing. It is right and proper that the Government review the whistleblowing framework once we have had sufficient time to build the necessary evidence of impact of the most recent reforms. We are considering the scope and timing of a review.
A number of noble Lords—the noble Lord, Lord Macdonald, in particular— raised an important point concerning the wording “knowingly and recklessly”. The wording is drafted on precedent, coming from the Companies Act. This clause is intended to provide a necessary and proportionate deterrent to those who may otherwise provide inaccurate or misleading information on the register of overseas entities. This was debated at length in the other place and the Government have already made a commitment to reconsider the drafting. I also welcome the comments of the noble Lord, Lord Macdonald, on the sanctions proposals.
The noble Baroness, Lady Kramer, and the noble and learned Lord, Lord Garnier, asked about the issue of the register and trusts. If the assets are owned via an overseas legal entity, then this entity is within the scope of the draft Bill and will be required to register the trustees as beneficial owners with Companies House and state the reason that they are the beneficial owner—that is, because they are the trustees of that trust.
Her Majesty’s Revenue and Customs introduced a register of trusts in 2017. Trustees of trusts that acquire UK land or property are required to register and provide information on the beneficial ownership of the trust. The information on the register can be shared with law enforcement authorities and enables them to access information on the trustees and beneficiaries of all trusts. Reforms to unexplained wealth orders will also allow law enforcement to investigate the origin of any property held via trusts.
I now turn to the points raised by the noble Lords, Lord Vaux and Lord Eatwell, on verification. Clause 16 requires the Secretary of State to make regulations requiring the verification of information before an overseas entity makes an application for registration, complies with the updating duty or makes an application to be removed from the live register. To ensure that regulations are laid in a timely way, we have added a requirement for regulations to be made before applications may be made for registration in the register of overseas entities. We expect that UK anti-money laundering supervised professionals may have a part to play in this, and we will set out details on the verification scheme in regulations. Overseas entities will be required to update their information annually, and Companies House will be given broad powers to query information it holds via the further legislation to come later in the year. Also, the very public nature of the register means that there will be many eyes viewing the data, which will of course aid in identifying any inaccuracies. I thank my noble and learned friend Lord Garnier for his comments on whether we are capturing the ultimate beneficiaries of property. This is an important point.
Lord Vaux of Harrowden (CB)
The Minister has not answered the question about why the register is updated annually, not 14 days after a transaction in the way that the PSC rules have to be updated.
Lord Callanan (Con)
I will come to that in a second. The new register is designed to allow investigators to get behind opaque companies. Whether a title is held by a company or an individual, the noble Lord is right that there may be a different beneficiary of the property. That is something investigators may explore further. The task of this register is to look through the company, and that is where we are focused in scope. The question of recording the ultimate beneficiaries of property is a far wider point and would apply to properties held by individuals and UK companies too.
I thank the noble Lord, Lord Carlile, for sharing his experiences with Companies House. We have outlined in the White Paper, published last week, what we are proposing to do under register reform. We are seeking to limit the risk of the misuse of companies by ensuring more reliably accurate information on the companies register, reinforced by identity verification of people who manage or control companies and other UK- registered entities. We will give greater powers to Companies House to query and to challenge the information it receives, and we will give enhanced protection of personal information provided to Companies House. There will be more effective investigation and enforcement and better cross-checking of data with other public and private sector bodies. Companies House will be able to proactively share information with law-enforcement bodies where they have evidence of anomalous filings or suspicious behaviours.
I move on to unexplained wealth orders. I thank the noble Baroness, Lady Chapman, the noble Lords, Lord Vaux and Lord Carlile, and my noble and learned friend Lord Garnier for the points that they raised on the use of UWOs. The threat of substantial legal costs has been a barrier to the use of UWOs. Likely subjects of UWOs are the most litigious persons. To ensure that unexplained wealth can be investigated in the maximum number of cases, we are reforming the cost rules to ensure that agencies will not be burdened with high legal costs if they act with integrity. If an agency acts dishonestly, unreasonably or improperly, it may still be ordered to pay the costs of those subject to a UWO, which is to ensure fairness. An important point to raise regards the changes to the cost rules to limit law-enforcement liability following an adverse court ruling. Protection from costs means that the court has discretion to award costs against an enforcement agency only if it acted dishonestly, unreasonably or improperly. This will remove a key barrier that has discouraged the use of UWOs, while of course providing a safeguard against arbitrary use of the powers.
The noble Lords, Lord Vaux and Lord Carlile, expressed concerns relating to resourcing for law enforcement agencies. The Government have developed a sustainable funding model that demonstrates our commitment to tackling economic crime. The combination of this year’s spending review settlement and private sector contributions through the levy will provide economic crime funding totalling around £400 million over the spending review period. That includes the £63 million that I mentioned earlier for Companies House reform. Since 2006-07 nearly £1.2 billion of the assets recovered under the Proceeds of Crime Act has been returned to law enforcement agencies, prosecutors and the courts to fund further asset-recovery capability or work that protects the public from harm.
Account freezing and forfeiture orders are a hugely impactful tool in the law enforcement toolkit. AFOs have proved their worth in a wide range of cases and are seen by law enforcement agencies as a quick and effective method of disrupting criminals and recovering their assets. In 2020-21 just under £219 million of the proceeds of crime were recovered within England, Wales and Northern Ireland. This continues the general trend of improved performance since 2016-17.
The noble Baroness, Lady Kramer, raised an important point on Clause 18 of the Bill and the exemptions for which it provides. The phrase used in the draft Registration of Overseas Entities Bill, published in 2018, was that the Secretary of State may exempt a person from the requirement to register only for “special reasons”. This was intended to mirror the wording used in the Companies Act 2006 in respect of the persons with significant control regime. However, the pre-legislative scrutiny committee that examined the draft Bill in 2019 was of the opinion that the reasons why an exemption could be granted should be explicit in the Bill. The Government accepted the committee’s concern that otherwise the power may be too wide, and we amended the Bill accordingly—I think that also addresses some of the points made by the noble Lord, Lord Carlile. The circumstances outlined in the Bill have been carefully considered to provide clarity but also flexibility for unforeseeable but legitimate scenarios. Given that the key objectives of this register are to improve transparency and combat money laundering, these exemptions will be used very carefully, and only for evidenced and legitimate reasons.
The noble Baronesses, Lady Bennett and Lady Kramer, raised the subject of freeports. Throughout the bidding prospectus and subsequent business-case processes, prospective freeports were required to set out how they would manage the risk of illicit activity. Those plans were scrutinised by officials in Border Force, HMRC, the National Crime Agency and others. The Government already require each freeport governance body to take reasonable efforts to verify the beneficial ownership of businesses operating within the freeport tax site and to make that information available to HMRC, law enforcement agencies and other relevant public bodies. Given the nature of the information, we do not think it would be appropriate for the freeport governance body to release that information publicly because it is a third party and does not have the locus to release such information about a business to the public. Furthermore, the requirement would also partially duplicate the people with significant control register at Companies House, where there is already an onus on the company itself to provide information.
I fear that I am running out of time—
Viscount Waverley (CB)
My Lords, I apologise. Would the Minister consider this as a subject for the upcoming Commonwealth Heads of Government Meeting in Kigali? Will he represent the Government in fully engaging with all Commonwealth countries, including the Overseas Territories, so as to encourage the English-speaking world to understand fully all these measures, because they should all engage with this, and we do after all share a common judicial system?
Lord Callanan (Con)
I am sure we will want to engage with all other parts of the world, not just the English-speaking world, through the Commonwealth Heads of Government Meeting. We will want to engage with as many countries as possible to see that this regime is extended.
I apologise; there were a number of other points made that I wanted to answer, but I have run out of time. However, I shall pick up one point made by the noble Lord, Lord Empey, about Northern Ireland. We are working with Northern Ireland Ministers on the devolved matters in the Bill. As he will be aware, due to the ongoing situation with the Northern Ireland Executive we are unable to formally seek a legislative consent Motion, but the noble Lord can be assured that we would not proceed without the support of Northern Ireland Ministers. I have had meetings with Ministers from Northern Ireland and from Scotland to discuss this matter.
I know I have not addressed some points, but I am sure we will examine them in Committee. I have already been speaking for 30 minutes, the hour is late and the Chief Whip is getting unsettled, so I will draw my remarks to a close. We have to respond to this illegal invasion and the Bill enables us to do so. We need to rid this country of dirty money, and I am greatly encouraged by the support given to us by all parts of the House. I apologise for taking a long time over my response, but I commend the Bill to the House.
Economic Crime (Transparency and Enforcement) Bill
(2 years, 9 months ago)
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Lord Callanan
That it be an instruction to the Committee of the Whole House to which the Economic Crime (Transparency and Enforcement) Bill has been committed that they consider the bill in the following order:
Clauses 1 to 4, Schedules 1 and 2, Clauses 5 to 32, Schedules 3 to 5, Clauses 33 to 65, Title.