Grand Committee
Arrangement of Business
The Deputy Chairman of Committees (Lord Duncan of Springbank) (Con)
My Lords, shall we begin? Noble Lords know the drill already but we are not expecting any votes in the main Chamber; if there is a vote, I will of course leap into action and adjourn the Committee. Otherwise, let us kick off.
Financial Services and Markets Bill
Tuesday 21st March 2023
(1 year, 9 months ago)
Grand CommitteeRead Full debate Financial Services and Markets Act 2023 View all Financial Services and Markets Act 2023 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 80-X Tenth marshalled list for Grand Committee - (21 Mar 2023)
Baroness Kramer
“Limitation on the powers of the PRA
The PRA may not accept an application from any insurance undertaking, reinsurance undertaking or third-country insurance undertaking for the application of a matching adjustment to a risk-free interest rate term structure for a portfolio of assets with a rating of less than BBB by Standard and Poors Global Ratings or its equivalent.”Member’s explanatory statement
This amendment seeks to prevent a matching adjustment being applied to a portfolio of high-risk and/or illiquid assets.
Baroness Kramer (LD)
My Lords, I start by thanking your Lordships for your patience in putting up with me being gone over the past few weeks following surgery. Noble Lords from all sides of the House have been so kind; I have appreciated it very much. It is lovely to be back in this company today. Special thanks go to my colleagues who have carried the burden that I should have been here to carry.
In a way, it is almost ironic that the three amendments in this group are all in my name. Amendment 216 deals with insurance and matching adjustments; Amendment 241C deals with the ring-fencing brought in following the 2008 financial crash; and Amendment 241D deals with the senior managers and certification regime, which is also a feature of the remedies proposed after the financial crash. When I tabled these amendments, a number of people pointed out to me that they did not seem particularly pertinent to the time—what a difference two weeks make. We have had three mid-sized banks fail in the United States and HSBC has had to step in and take over Silicon Valley Bank’s UK arm. Of course, we have also had the debacle of Credit Suisse, now part of UBS.
All that underpins the consistent jeopardy and risk that exists in the financial services industry and, to my mind, underlines the importance of having proper regulatory mechanisms in place to remove that risk in the first place, deter risky behaviour and provide a resolution mechanism for when things go wrong, as they always will. I regard the three amendments in my name in this group as rather crucial.
Earlier in Committee, we discussed the concern that the new secondary objective of international competitiveness could compromise the primary objective of financial stability. However, in many ways, that was an abstract discussion. These amendments in these three crucial areas of the financial services sector—all are areas where the Government have clearly signalled both their intention to allow, indeed incentivise, a significant increase in risk and their determination to use the law to prevent regulators limiting that risk—provide us with something much closer to real-life examples.
I start with Amendment 216, which addresses the insurance industry. Of course, this also encompasses many people’s pensions; in a sense, that was clarified in the Budget by the Chancellor, who talked about, in essence, opening up defined benefit pension plans to holding illiquid high-risk assets, in the same way as he anticipates Solvency UK opening up insurance companies to holding a far greater portfolio of illiquid high-risk assets. Under the EU regime, Solvency II, insurance companies are required to build a capital buffer based on the risks in their investments—their asset portfolio. The provision is designed to provide a safeguard if an insurance company fails, protecting both policyholders and the taxpayer. Solvency II allows an insurer to reduce its buffer where the insurance company is holding long-term assets that match the cash flows of its life and annuity insurance and its reinsurance obligations. That relief is called the matching adjustment. It allows adjustment to the discount rate that the firm is required to use to value its cash flows in order to determine the size of the buffer.
With Brexit, Solvency II is being replaced by Solvency UK. No one, including me, denies that Solvency II is probably overly restrictive and requires a degree of reform. I have not objected that Solvency UK is reducing the level of capital—the sort of raw capital buffer—by 65% for life insurers and 35% for general insurers. But the Government are now choosing to go much further. At present, the matching adjustment, which, as I said, has the effect of reducing the buffer even further, applies only to long-term assets held by the insurance company that qualify as investment grade. The change now proposed allows long-term, high-risk, illiquid, sub-investment grade assets—subprime is another word that is often used—to get the benefit of the matching adjustment. There is nothing that the regulator can do about it.
Why would the Government take such a risk? I think the answer is sheer desperation. They are hoping that the insurance companies and the defined benefit pension funds, to which we now know that this will extend, if they do not need to hold much of a buffer, will invest much more in the scale-up of innovative businesses, because scale-up money is hard to find in the UK. Unfortunately, scale-up is the phase at which many companies fail. The standard rule of thumb is that 40% of companies scaling up fail.
The Government are also hoping that the money will go into infrastructure. I should explain that many infrastructure projects are investment grade. TfL bonds, for example, are investment grade, as are the bonds for the M6 toll road; they qualify for the matching adjustment. But many infrastructure projects are high-risk and the bonds they issue are very illiquid. Just look at the pattern for most major infrastructure projects, and small ones as well. There have been delays and overruns in Crossrail, HS2 and pretty much every nuclear power project anywhere in the world. The worst part with infrastructure is that you rarely know that it is in trouble until it is very close to its official completion date. The matching adjustment would apply a far more extensive range of sub-investment grade investments. I know from talking to many companies that they see this as their way to get back into subprime mortgages and subprime property arrangements.
I am very old-fashioned. I believe that the primary purpose of an insurance company is to pay its policyholders on time and in full, and the primary purpose of a defined benefit plan is to pay its pensioners on time and in full. As I said at Second Reading, many people point out that these are pools of money and that the equivalent pension funds in Canada invest heavily in global infrastructure. I point out yet again that, if anyone reads the comments of the rating agencies on those Canadian pension funds, they will become very aware that the Canadian Government are regarded as a backstop should those funds collapse.
That is very different from the situation that we have in the UK, unless the Minister is about to tell me that the UK taxpayer is now willing to become a backstop for pension funds and insurance companies in the UK. The only example that I know about is one that we discussed earlier—Equitable Life. We know that nearly a million policyholders lost more than three-quarters of their investments when Equitable Life failed and that the Government did not bring them back to full recovery, even though the financial ombudsman found serial maladministration by both the Treasury and the regulator. I would very much like to know from the Minister, as we look at Solvency UK, which is enabled by the Bill, whether the Government now propose to give an equivalent backstop to that provided by the Canadian Government.
My amendment basically says that:
“The PRA may not accept an application from any insurance undertaking”—
I will not give you the rest of the details—
“of a matching adjustment to a risk-free interest rate term structure for a portfolio of assets with a rating of less than BBB by Standard and Poors … or its equivalent.”
This is my attempt to stop that reduction in the capital buffer for illiquid, high-risk investments.
I will try to be briefer in dealing with the other two amendments in this group. I shall take Amendments 241C and 241D together. These amendments sprang from the Chancellor’s speech on the Edinburgh reforms. I have referenced before my concerns, which are shared by many who, like me, sat on the Parliamentary Commission on Banking Standards, that we are seeing the rollback of the safeguards that followed our commission’s report Changing Banking for Good. Let me quote from it:
“An important lesson of history is that bankers, regulators and politicians alike fail to learn the lessons of history … measures that are implemented while memories are fresh will be at risk of being weakened once the economic outlook improves, memories fade, and new, innovative and lucrative approaches to global finance emerge.”
That is exactly what we are seeing today, and the past two weeks have illustrated it in spades. The failure of three significant mid-sized banks in the United States was enabled by the rollback of regulation, a rollback that had been sought by the siren voices of the industry. Those same siren voices are currently extremely influential in the Treasury, and I am hoping that we will hear from the Minister that she will go back and look at the decisions to weaken that regulation in the light of the reality that we have seen over the past two weeks and the experience in the United States. Many of these regimes, particularly the senior managers regime, are now to be carried over into the shadow banking world. I am sure that is a good thing, but it is very concerning if those projects are watered down before they are carried over.
I am very concerned about the watering down of ring-fencing. Today, I asked some questions in the Economic Affairs Committee, and it is clear that the Chancellor intends to make changes to the ring-fencing regime. I accept that there are times when one could claim that ring-fencing has been overzealous with small and medium-sized banks and there are some arguments for the need to change MREL, but it is shocking to see that the Government are backing the recommendation of the Ring-fencing and Proprietary Trading Independent Review that if a bank is deemed “resolvable” its ring-fencing features can be removed.
The proposition behind ring-fencing was that retail banking is an entirely different animal from the casino banking of investment banking. It is essentially in many ways a utility, and it needs to be kept safe and separated by the virtues of the ring-fence. On the commission we also saw constant cross-contamination—in other words, risks being taken within the retail bank because of the impact in the universal banking model of their investment banking colleagues. Things such as PPI and various other forms of general abuse of customers clearly sprang from the internal pressures that were created by the overall culture of the combined firm. We could also see that many of the risks that the investment bankers tended to take were fuelled by their access to retail bank accounts that paid no or very little interest and were protected by insurance and which almost, in a sense, provided a honeypot that incentivised the taking of undue risks and played a very significant role in the kind of failures that led to the crash.
To quote Paul Volcker,
“it is the damage that it does to the culture of the whole institution … Trading operations and impersonal proprietary trading operations are simply different from a continual banking relationship.”
In other words—of which there were many—the linkage between retail banking and investment banking contributes fundamentally to all kinds of abuse of customers and small businesses, from PPI, the asset stripping of RBS GRG and the mis-selling of interest rate swaps. It also lay behind the complete collapse in credit standards and the short-term funding strategies that sank HBOS. Ring-fencing is a vital tool to provide for financial stability. With the plans to remove the cap on bankers’ bonuses, which the Government and industry treat as one of their highest priorities, it is even more important that this protection stays in place. My Amendment 241C would prevent any such destruction of the ring-fence without a decision by Parliament in primary legislation.
Baroness Noakes (Con)
My Lords, the banking commission did sterling work in the years after the banking crisis, helping shape the content of the banking reform legislation. However, I cannot support these amendments because they are trying to set the findings of that conclusion in concrete, to apply for all time. One thing we know is that times change—sometimes for the better, sometimes for the worse. Having constantly to hark back to what the banking commission said before any sensible changes can be made under the existing available rules seems the wrong direction of travel.
If there was one thing that the HSBC/Silicon Valley Bank episode showed, it was the rigidity of the ring-fencing rules, which were effectively one of the great successes of the banking commission in making sure that rigid rules were set in statute. What had to happen to facilitate HSBC’s acquisition and takeover of Silicon Valley Bank were special statutory exemptions via a statutory instrument. The result was that HSBC now has permanent changes to the ring-fencing regime for it alone, which may well end up with it having permanent competitive advantage over its other rival ring-fenced banks in the UK.
We need to learn lessons from what has happened over recent weeks; the noble Baroness, Lady Kramer, is absolutely right about that. I would be interested if my noble friend the Minister could give more of an idea on the timing of when we might get a lessons-learned report—I think she spoke about that when she first spoke at the Dispatch Box about the HSBC takeover. The answer is not necessarily that we should be taking less risk and making things more difficult to happen, as that is not necessarily the right conclusion from what went wrong.
I hope that the Government will not be frightened by the recent events into not carrying out some reforms of ring-fencing. They have shown themselves willing to consider some sensible reforms to make sure that ring-fencing works well, particularly with regard to small and medium-sized banks. Only a few weeks ago in Committee the noble Baroness, Lady Kramer, agreed that the MREL rules caused a particular problem in the UK; indeed, she said that she constantly reminded the chief executive of the PRA about that. There is an issue about how the rules apply to small and medium-sized banks in the UK. We have to remember that the thresholds used to establish what is a small and medium-sized bank in the UK are way below the thresholds which were increased by the Republicans and which may well have contributed to the problems with Silicon Valley Bank in the US.
I hope that the Government will press on with their consultation on ring-fencing and on the senior managers regime. Having been on the receiving end of the senior managers and certification regime for the nine years that I was on the board of what is now NatWest, I know that it is very bureaucratic and inefficient, and it does not necessarily target the kind of things that people thought it was going to be targeting at the time. It is therefore time to step back and ask whether this is the best way of achieving the objectives, which are to ensure that people take responsibility for their actions. What this has ensured is that there is a whole industry of chopping down forests, in order to fill files of evidence that you have taken reasonable steps to carry out your responsibilities, and I do not think that was the intended outcome of the reforms at the time.
I therefore make a plea: let us not get panicked by what has happened in recent weeks into not accepting that there is a good case for reviewing both the ring-fencing and the SMCR rules. I have nothing to say on insurance because it is not my specialist subject.
The Archbishop of Canterbury
My Lords, I have added my name to Amendments 241C and 241D tabled by the noble Baroness, Lady Kramer, and wish to speak briefly in support of them here. I am particularly grateful to the noble Baroness, Lady Noakes, who made some very helpful and powerful points.
As the noble Baroness, Lady Kramer, said, this marks 10 years since the publication of the Changing Banking for Good report from the parliamentary commission, on which I sat with her. The two amendments to which I have added my name are probing amendments to stress the importance of not forgetting the lessons of 2008-09, because people and sectors entirely can have very short memories.
As the noble Baroness has explained, the amendments seek to prevent alteration to two elements of the banking reform Act 2013 by statutory instrument without proper debate in Parliament, and to prevent changes which go against the recommendations of the parliamentary commission. Our memories have certainly been refreshed this week. If the debate on this group had been held when it was first scheduled two or three weeks ago, I think we would have had a very different reception. If one is grateful for anything in the present crisis, it is that we have been so warmly reminded of why we need a clear memory.
The ring-fence was first recommended by the Vickers commission in 2012, and it was “electrified”—in the words of the noble Lord, Lord Tyrie, in the Parliamentary Commission on Banking Standards report—to address the issue of banks seeking to test it. In our first report in 2012, we commended the coalition Government’s intention to introduce the ring-fence but said, as has been quoted, that it would be worn down in time, and that it had to be
“sufficiently robust and durable to withstand the pressures of a future banking cycle.”
After 10 years, we are now in a future banking cycle. We have gone through a long period of very easy money in which the banks have been able to make a great deal of money and to recover and increase their capital to much better standards than were around in 2008.
The very rapid increase in interest rates right across the western economies—particularly in the United States, which has the fastest increase for 50 years—has resulted in, as usual, the exposure of risks being taken that had not been foreseen. It is the “had not been foreseen” and possibly the “unforeseeable” that are important to stress when looking at this.
Electrification gives banks a disincentive to test the limits of the ring-fence. It is human nature—especially in a corporate entity—to test the limits of any regulation and see if they hurt when you hit them. But 2008-09 hurt far more people than simply the banks. It caused a global recession, and it hurt the poorest in the land more than anyone else. At that time, I was working in Liverpool and living in Toxteth, and we saw the impact on those who were least able to live with it. It is still hurting the whole economy, because for at least a generation after a financial crisis, as opposed to a normal economic recession, there is a deep fragility in confidence. The ring-fence and the other regulation of banks and higher capital are all about maintaining confidence, not about making it impossible for people to go bust.
The recent failure of SVB in the US, and the ease with which what is by global standards a major bank was reclassified as a systemically important bank and thus eligible to be rescued—even though there is a system for resolving banks which is meant to be robust—demonstrates that the issues of systemically important banks are very difficult to handle. Again, the problem is one of confidence: we are talking about the contagion of a lack of confidence, and not simply about the failure to observe rules and regulations.
The resolution of banks is part of the system in the USA. It applied to SVB and to Credit Suisse, but it was not enough to protect the taxpayers of the US or Switzerland from having to put in significant implicit and explicit support. This is all about confidence. If we go on bailing out the system as it is, one of the unintended consequences is likely to be further damage to confidence.
For me, one of the most memorable moments of the banking standards commission was hearing the very broken and tragic testimony of a former head of a global bank outside this country. He was a man of absolute integrity who had been brought to the point of complete breakdown—I suspect my colleagues remember it—by the impact of the failure of the bank he led. Right at the end of his testimony, I asked him, “When you wake in the night, what do you remember and wish you had done differently, because we all do that over events in our past?” He said, basically, “That’s easy. I remember that you can run a small, complicated bank safely, or a big, simple bank safely, but you cannot run safely a big, complicated bank”.
The Archbishop of Canterbury
Going back to the fiscal event, a lot of the pension funds almost went bust. We learned a lesson from that, quite rightly, and I think it is a lesson that will be kept.
The ring-fence and the SMCR have been important for encouraging—not solving—improved standards and culture in the banking sector and for protecting the public from bearing the brunt of future banking failures. We cannot forget the lessons learned with such pain for so many outside the banking sector, who had no idea what goes on in banking but found that life suddenly just did not work any more.
I hope that the Government take a further look, certainly through the consultation, at the lessons of the last few weeks, and that the ring-fence is strengthened, not weakened, and improved. I agree with the noble Baroness, Lady Noakes, about both the ring-fence and the SMCR. Both are cumbersome and need rethinking, but not abolishing.
When asked why he had changed his mind, John Maynard Keynes—apocryphally, I think—replied:
“When the facts change, I change my mind. What do you do, sir?”
Given that the facts have changed over the last few weeks, the Government need to ask themselves whether they are going to change their minds and think harder about adequate protection for the basic financial structures that protect the weakest in our society.
Lord Eatwell (Lab)
My Lords, these three amendments project a peculiar background, which is an issue that this Committee debated in an earlier session—that of accountability. The first amendment of the noble Baroness, Lady Kramer, Amendment 216, is too detailed for primary legislation. On the other hand, I sympathise entirely with the noble Baroness’s goals. In a principles-based system, I would have expected these goals to be expressed in the principles and achieved by the rule-making regulator but, given the lack of accountability with which the Government seem so comfortable—I was impressed by the noble Baroness’s argument on Amendment 216—we cannot be confident that changes will be made at the necessary points. There is no vehicle for Parliament to ensure or inspect the rule-making of the regulators.
I think Amendment 216 is necessary because the Government are so weak on accountability. If we had strong accountability, whereby we could hold the rule-makers to account—both positively, in the sense that you are doing something that you should not be, and negatively, in the sense that you are not doing something that you should be—amendments such as this would not be necessary. Amendment 216 is necessary in the way so carefully described by the noble Baroness, Lady Kramer, simply because of the lack of accountability in the system.
This also applies to the other two amendments in this group. The noble Baroness, Lady Noakes, powerfully pointed out that, because of the peculiar circumstances in which it took place, the resolution of SVB UK required a relaxation of the ring-fence. I am entirely sympathetic with the goals of these amendments, which address the overall structure of the industry and therefore the overall risk appetite of this country for banking and financial services. That is what the ring-fence and the senior managers and certification regime are about.
The “but” is the important case highlighted by the noble Baroness, Lady Noakes, where some modification was necessary. If we had proper accountability, this could come to Parliament, which could then examine this example of relaxation to discuss whether it is appropriate to extend it to other banks, so that there is this mythical level playing field in the competitive relationships between them.
I am enormously sympathetic to the goals of these amendments: to the first because it is a practical issue of excessive risk-taking by insurance companies and, as we have seen, pension funds; and to the other two because they refer to the structure of risk which Parliament has decided is appropriate in this country’s financial services industry. It should not be modified wilfully—I am thinking of the marriage ceremony—and without due consideration of the consequences. Therefore, the Government would once again be well advised to reconsider the issue of accountability, which they have brushed away so casually, because it would provide the flexibility for Parliament to be involved in changing the risk appetite of the country as a whole.
Viscount Trenchard (Con)
My Lords, I again declare my interest as a director of two investment companies, as stated in the register. I will speak about all three amendments.
In Amendment 216 the noble Baroness, Lady Kramer, seeks to prevent a matching adjustment being applied to a portfolio of assets with a Standard & Poor’s rating of BBB or less. Does this mean a portfolio of assets comprising at least one holding of BBB paper, or a portfolio consisting exclusively of holdings rated BBB or worse? Either way, I welcome the Government’s proposal to remove the disproportionately severe treatment of assets with a credit rating of BBB or below, which will reduce the incentives for insurers to sell BBB assets in a market downturn. These reforms would encourage insurers to revise their investment strategies and risk appetites for investing in sub-investment grade assets, increasing funds available for investment in beneficial infrastructure projects, for example.
In any case—here I agree with the noble Lord, Lord Eatwell—is this attempt to constrain the powers of the PRA not too specific, and the kind of very precise regulation that we want to get out of primary legislation so that we can give discretion on this kind of thing to the regulators? I therefore cannot support this amendment.
I tremble in my shoes to disagree with the good intentions expressed by the noble Baroness, Lady Kramer, the noble Lord, Lord Tunnicliffe, and the most reverend Primate the Archbishop of Canterbury in seeking, in their Amendments 241C and 241D, to make it very difficult to weaken the ring-fencing provisions or change the senior managers and certification regime. It is clear that she and her co-signatories are among those who believe that the introduction of ring-fencing has reduced the risks to which bank customers’ deposits are exposed and that it is therefore important to make it very difficult to weaken the ring-fencing regulations in any way.
Baroness Bennett of Manor Castle (GP)
My Lords, in rising to follow the noble Viscount, Lord Trenchard, I have to comment on a couple of the points that he made. When he referred to Amendment 216 and suggested that we could rely on the discretion of the regulators, I regretted that the noble Lord, Lord Sikka, was not here, because I am sure that he could have given some extensive account on that basis. We have cause for concern about the actions of the regulators. The noble Viscount also suggested that the relaxation of the ring-fence in the case of SVB, allowing its purchase by HSBC, was not important or significant. Of course, relaxation of rules under emergency weekend conditions is reminiscent of stopping contagion—rather like the kind of emergency steps we took in the face of the Covid-19 pandemic, where lots of things were done that would not be seen as viable under normal conditions.
On Amendment 216, I confess that I can see the arguments for why this should be considered too technical. However, the points made by the noble Lord, Lord Eatwell, about the fact that we do not have sufficient controls otherwise make the case for it.
On the points made by the noble Baroness, Lady Kramer, we have a problem where the primary purpose of insurance companies and pension managers has been chasing after massive profits, not looking to long-term security. While we are in that situation, we need find rules to manage it.
Responding to the comments of the noble Baroness, Lady Noakes, again suggesting that what has happened in recent weeks suggests that the ring-fence is not working, I think that a military analogy might be quite useful here. If you are in a city under attack and your walls are very nearly overtopped by the enemy, you do not at that point pull the walls down and start reconstructing them. You reinforce those walls. The events of the past couple of weeks have demonstrated that what we have now is not enough of a security system—that is patently obvious—but the answer is reinforcement rather than pulling everything down and starting again, because we saw fit to take actions after 2007-08 which we are hoping will make those defensive walls hold this time.
I would have attached my name to Amendments 241C and 241D had I been able to keep up with the flood of legislation we have before us. In reflecting on them, I want to quote an economist on the New York Times, Ezra Klein:
“Banking is a critical form of public infrastructure that we pretend is a private act of risk management.”
That is the context in which I hope the Minister can today reassure us that, as we come towards the end of Committee and in the new environment in which we find ourselves, the Government will seriously rethink this Bill, particularly key elements of it such as competition and ring-fencing, before we get to Report. I have to borrow from a letter in the Financial Times this weekend —I am relying on this as a source—the fact that apparently the correct name for a group of black swans gathered on the ground is a bank.
Baroness Bowles of Berkhamsted (LD)
My Lords, I did not prepare a speech on this, but recent events and the speeches have moved round to what a fundamental issue we are approaching here. One important issue, which underlines the Government’s changes on Solvency II, is how to get investment into our economy. That is a fundamental need that we have. It is possibly intertwined with how much national risk we are prepared to take. I do not intend to try to solve that now.
If we look at recent events and the responses to them, we see that we have different risk appetites in different countries, in how they will accept failure and what, in essence, they are prepared to bail out. As my noble friend Lady Kramer said, it appears to be the assumption that the Canadians would bail out the pension fund. Maybe they think that is a decent quid pro quo for getting a large amount of infrastructure investment and other investments. That is a balance that it is legitimate for a country to make, but I do not think it is one that we have made here in the UK. We have said “No more bailouts”. That may be something that can never be absolutely held to, as we know, but we do not operate on a principle that it is going to be the case.
Let us look at what happened with Silicon Valley Bank in the UK, where there was not really a great deal wrong other than it suffering the repercussions of what happened in the US and a bank run through co-ordination and a loss of confidence. What does that say about our challenger banks, if people are not prepared to rely on the amount of the deposit guarantees that we have? For industry, we have next to nothing. The Americans are talking about raising their amounts of guaranteed deposits because they realise that businesses will not trust smaller banks with large deposits if there are not higher guarantees. That worries people in the United States, because they do not want to lose their regional banks and to have everything go into large systemic banks. It should worry us that we have lost a challenger bank and that it has gone into a large systemic bank.
We may have to re-examine what our risk appetite is around things such as deposit guarantees. It is not pertinent to these amendments, but we have the same kind of risk issues when we expand and try to get insurance money into more risky investments. The same can be applied to what we want to do with pension funds. I suppose I had better declare my financial services interests as in the register again, just for the record. The recent history is that our institutions are not very good at investing in UK assets. Of the fallout from LDI, one of the things that is already under way is that pension funds will invest less in gilts. They will want to invest in something else—something that they can repo. They will therefore invest in corporate bonds but, to get the liquidity to be able to repo, they will be US corporate bonds. We will have yet another shift from investing in something in the UK. Even if that was the systemic risk concentrations of gilts, nevertheless it is a shift away from investment in UK assets, or not taking an opportunity for a switch in assets to be able to invest in those in the UK. Some of this is to do with our size. Maybe the Canadians have thought about that; I do not know. I am just sort of tossing these thoughts in. They are not hugely relevant to these amendments, but they are hugely relevant to the big issue that underlies the change on the matching adjustment —that is, how do we get investment into the UK economy? I should think absolutely every person in this Room wants that. It is hard to do it in a piecemeal way by changing the eligibility to the matching adjustment.
I do not fully trust the consultation process that we have in this country, because the pre-consultation process is dominated by an industrial lobby which knows what it wants. The consultation responses are weighed, and they are inevitably heavy with what the industry wants and why, and there is much less that comes in to counteract that. Therefore, we go down the track of accepting the proposals of the Government and getting what the industry says—but where is the backstop? This is where we come to the backstop that my noble friend has put in. The backstop is that it is for Parliament, through primary legislation. She does not say in her amendment, “Thou shalt never amend ring-fencing” or, “Thou shalt never amend the things that the Parliamentary Commission on Banking Standards did”. It says that it requires primary legislation. It says that this should go back to the body—albeit different people at a different time—and that there should be that analysis. This is the same sort of thing that the noble Lord, Lord Eatwell, was saying. Maybe you could get legitimacy from Parliament through a better accountability mechanism but, absent that, the only one we have is that it has to come back to primary legislation. With a Whip system and a government majority, that does not necessarily guarantee anything, but it will get at least a thorough airing and, in normal circumstances, you would get some toing and froing and some reasonable amendments if necessary.
Lord Tunnicliffe (Lab)
My Lords, I thank His Majesty’s Treasury for sharing its policy on the Edinburgh reforms last month. This Government, following their initial floating of the HMT intervention powers, have given parliamentarians serious cause for concern regarding their judgment. We should be slow to trust that they have the judgment and operational competence to implement the changes in the Edinburgh reforms safely and effectively. Could the Minister give an indication of the Government’s intentions and/or direction of travel concerning both ring-fencing and the senior managers and certification regime?
We heard from the Bank of England governor this week that the Government’s version of Solvency II reform increases risks for insurance firms by 200% more than the Bank’s preferred option. I think we are vindicated in our general concern about the Government’s gung-ho approach to financial stability. Sweeping changes to ring-fencing and the senior managers and certification regime are too important to be left to statutory instrument. The amendments from the noble Baroness, Lady Kramer, are sensible safeguards that the Government should consider thoroughly.
We have seen chaos in two banks this week—Silicon Valley Bank and Credit Suisse. What is the Government’s assessment of whether other systemically important banks are safe and sound? Did we see SVB and Credit Suisse coming? Did the regulators? What are they proactively doing to protect UK consumers and investors?
My view on Amendment 216 is not yet fully formed; I want further discussions with colleagues. I agree with the general view on Amendments 241C and 241D that the issue is really about scrutiny and accountability. In my view, it is impossible to argue that a relaxation of either ring-fencing or the senior managers and certification regime is other than very significant. The present method of accountability through an affirmative instrument is clearly insufficient and I commend the device of the noble Baroness, Lady Kramer, which she has included in these two amendments. The Government should support them.
The Parliamentary Secretary, HM Treasury (Baroness Penn) (Con)
My Lords, I will speak first to Amendment 216, which pertains to the Government’s announced reforms to Solvency II, made possible through the Bill’s revocation of retained EU law.
The Government are reforming Solvency II, the rules for prudential regulation of the insurance industry currently set by the EU, to reflect the UK insurance market’s unique features. These reforms will provide incentives for insurers to increase investment in long-term productive assets by more than £100 billion. They will also benefit consumers by increasing insurers’ ability to provide a broader range of more affordable products.
The Government have committed to make changes to the matching adjustment, an accounting mechanism whereby insurers can match their long-term liabilities with long-term assets and hold less money to pay out claims. These reforms will incentivise firms to invest significantly more in long-term productive assets such as infrastructure. This investment will support growth across the UK and the Government’s climate change objectives.
The noble Baroness’s amendment would instead result in a stricter treatment for some assets than under current rules. I reassure noble Lords that the Government’s reforms to Solvency II strike a careful balance between boosting growth across the economy and maintaining high standards of policyholder protection. Insurers will still be required to hold extra capital to safeguard against unexpected shocks, they will still have to adhere to high standards of risk management, and they will still be subject to comprehensive supervision from the PRA, our world-class independent regulator.
The noble Baroness, Lady Kramer, asked whether we would replicate the Canadian Government’s position with regard to pensions and insurance firms in this context. She referred to statements in the Budget about pension funds—although I think they were focused more on defined contribution pension funds than defined benefit pension funds. I do not know the detail of the specific Canadian regime, but the reforms proposed here do not pose risks to financial stability. As I said, each insurer must still hold enough capital to survive a 1-in-200-year shock over one year. Insurers will still have to adhere to the high standards of risk management. The Government and the PRA have announced a series of additional supervisory measures that the PRA will take forward to ensure that policyholders remain protected. For example, the PRA will now require insurers to take part in regular stress-testing exercises.
Lord Eatwell (Lab)
May I comment on the issue of stress tests, which the Minister also raised during Questions this afternoon? You can stress test only risks that you know are there. It depends on the underlying model that you create to examine in your stress tests. Thus stress tests did not pick up the LDI problem at all because it was not there in the models that were used. In financial services, risks appear in entirely unexpected places, and relying on stress tests is, and has been demonstrated to be, a very weak answer. She should reconsider her reliance on this argument.
Baroness Bennett of Manor Castle (GP)
Since it is related, I also question the readiness for a 1-in-200-year shock. We have seen very similar kinds of mathematical approaches, if you like, taken to issues such as flood risk and other climate risks, and they have been found to be very ineffective in dealing with problems. They only increase the failure to understand risks.
Baroness Penn (Con)
I would point to stress tests as one of the tools that the Bank of England, including the FCA and the PRA, has in its toolbox for securing financial stability. It is not the only tool that it uses. The noble Lord is right that it tests against certain scenarios, which are updated each year to take into account the changing picture around the world and look at different risks, but it can test for only the risks that we have thought about. It is a tool in the toolbox, not a solution to everything.
The noble Lord mentioned LDI. The picture there is mixed. It was identified as a source of risk by the Financial Policy Committee but the extent of movement in gilt prices that it was then stress-tested against was far greater in the scenario that we saw unfold. It may be a good example of the benefits of being able to horizon-scan and look for risk—risk was identified—but also of the limits of some of that work. I completely acknowledge that. The same applies to the point made by the noble Baroness, Lady Bennett.
Amendments 241C and 241D relate to important regulatory reforms introduced following the global financial crisis and the recommendations by the Parliamentary Commission on Banking Standards. I pay tribute to the important work of that commission and to its members who are here today. It has had a lasting legacy in improving the safety and soundness of the UK’s financial system.
Amendment 241C relates to the ring-fencing regime, which, as we have heard, is a major post-crisis reform separating retail activities from investment banking activities in large banking groups. As required by the Financial Services (Banking Reform) Act 2013, the Treasury appointed an independent panel, chaired by Sir Keith Skeoch, to review the ring-fencing regime. The legislation required this review to take place after the regime had been in operation for two years; that review concluded in March 2022. I say to my noble friend Lord Trenchard that the Skeoch review looked at the questions about the effectiveness of the ring-fencing regime, and it is in the context of that review that we are discussing the way forward.
In December, as part of the Edinburgh reforms, the Chancellor announced a series of changes to the ring-fencing regime. These broadly follow the recommendations made by the independent review. It concluded that the financial regulatory landscape has changed significantly since the last financial crisis—a point made by my noble friend Lady Noakes. UK banks are much better capitalised and a bank resolution regime has been introduced to ensure that bank failures can be managed in an orderly way in future, minimising risks to depositors and public funds.
In the light of these considerations, the independent review concluded that changes could be made in the short term to improve the functionality of the regime. Crucially, the panel stressed that these could be made while maintaining financial stability safeguards. The panel also recommended that, over the longer term, the Government should review the practicalities of aligning the ring-fencing and resolution regimes. I assure noble Lords that the Government remain firmly committed to the objectives of the ring-fencing regime: to protect core banking services, such as retail deposits, from risks elsewhere in the financial system while minimising risks to taxpayers in the case of a bank failure. As recent events have shown, it is critical that the Government and regulators have the necessary powers to act decisively in pursuit of these objectives.
In response to the review, the Government have announced their intention to consult later this year on a series of near-term reforms to the ring-fencing regime to implement the independent review’s recommendations. The proposed reforms will make the regime more adaptable, simpler and better placed to serve customers, while maintaining important protections for depositors and financial stability. Alongside this, and in response to the review’s longer-term recommendations, the Government recently published a call for evidence that explores how better to align the ring-fencing regime with the resolution regime. I assure all noble Lords that, in the context of that longer-term call for evidence, no decisions have been made on the longer-term future of ring-fencing. The call for evidence is seeking views on a wide range of options including the possibility of disapplying the regime where banks are deemed resolvable, which was one of the Skeoch review’s recommendations. It also seeks views on retaining or further alternative options for reforming the regime.
Baroness Kramer (LD)
My Lords, I thank everyone who has spoken. When I originally drafted these amendments, they were genuinely probing amendments. I felt that I had stumbled on some issues that, if I was correct, would surely be of such significance that they would have been brought before the House and widely discussed. They changed two of the absolute pillars of our financial regulatory regime: ring-fencing and the senior managers regime. It is evident to me that this is a relatively new topic for most noble Lords here, who are the core of those in this House who engage on these issues. I am therefore very troubled that this has not been part of a broad, in-depth discussion between the Government and Parliament.
I very much agree with the noble Lord, Lord Eatwell. If we had a working accountability system, there would be a mechanism to help deal with all this, but we do not have one. Frankly, I do not want to wait until we do, unless we agree something on that in this Bill, because these fundamental changes have such a possibility of putting our financial stability in jeopardy that we cannot simply sit back and treat them as if they are fairly minor adjustments. They are fundamental to changing the guard-rails that have protected us for the past several years.
I very much agree with the noble Lord, Lord Eatwell. Stress testing is not a litmus test; it is simply a tool to try to expand one’s thinking and to try to identify potential possibilities. The Government have treated it as if it was some kind of litmus test: if it comes up red or blue, or whatever else it is, you have passed and everything is fine. That is not what it is about—in fact that is an abuse of the whole concept of stress testing.
I am extremely worried about the changes to Solvency II as it moves to become Solvency UK. I should say to the noble Baroness, Lady Bennett, that I do not have a quibble with the regulator—the regulator has been shut out of this process. This is a government decision that the matching adjustment will be allowed to apply to illiquid high-risk investments because those are the kind that the Government wish to see increased in our economy. I am happy to see them too but, frankly, I would like somebody in the financial capital market who understands the risk and is willing to take the risks to put money in, whether it is scale-up or infrastructure. The idea that this will now become the norm for pension funds, where basically the policyholders will have absolutely no say and I suspect very little understanding of the level of jeopardy in the fund to which they are contributing on a regular basis, bothers me hugely.
I will be very glad if someone else can come up with some mechanisms. The mechanisms that I used here of parliamentary accountability have been my attempt to deal with what seemed like a problem that was not being discussed. However, the excellent speeches that we have heard today, and indeed the Minister’s reply—it did not suggest that we have been exaggerating the situation, but confirmed the problems—mean that we will have to try to find some mechanism, and quickly, to deal with this range of issues. The last two weeks have made it clear that it is complacency to think that we have in place the kind of structure that genuinely protects us from financial risk, and complacency is exceedingly dangerous. I beg leave to withdraw the amendment.
Lord Holmes of Richmond
“Digital identification
(1) Within six months of the passing of this Act, the Secretary of State must publish the Government’s plans for the development and deployment of a distributed digital identification (“Digital ID”) for individuals and corporate entities in the financial sector.(2) The digital IDs should be—(a) scalable,(b) flexible, and(c) inclusive.(3) The Secretary of State must also undertake a public engagement campaign around Digital IDs to raise awareness and participation in the process with regard to the financial sector.(4) In this section—“digital ID” means a set of attributes related to an entity, as according to the International Organization for Standardization and International Electrotechnical Commission framework 24760-1;“flexible” means capable of resilience and workable as technologies develop and evolve;“inclusive” means capable of including all entities and individuals, not least, in respect of their protected characteristics as set out in the Equality Act 2010;“scalable” means capable of national deployment.”
Lord Holmes of Richmond (Con)
My Lords, it is a pleasure to move Amendment 218 in my name and to speak to this group of amendments. In doing so, I declare my financial services and technology interests as set out in the register. I will speak to Amendments 218, 220 and 221 in my name and will also speak briefly to the remaining amendments in the names of my noble friends Lord Bridges and Lord Forsyth respectively.
Amendment 218 is about perhaps one of the most significant things that we could do to transform financial services in the United Kingdom. Whether we are talking about fraud, operational efficiency or whatever measure or element of financial services we are considering, to have a form of digital ID would transform the current situation. It is vital that the Government strongly consider and move forward with such a system of ID and, in doing so, fully engage the public on this. Understandably, if the public one day wake up and find that they need a digital ID to access their banking services, why would they think that is a good thing if they had not been involved at any stage in the creation and the deployment of such an ID?
To put it in a non-financial services frame, if I wanted to have a pint—not now, obviously, although the previous group perhaps took longer than we were expecting—I might be asked for a passport. What is the purpose of that? Why should the bartender see my name, my date of birth, my passport number, where I was born, et cetera? All that is required for that pint to be put in front of and consumed by me is that, at the point when I order and consume the pint, I am over the age of 18. Nothing more needs to be known.
The same credential-led approach is what we require in financial services—not a huge giveaway of data with the potential for businesses to grab everything about us, as has happened in other sectors of the economy. Put simply, we need a particular credential that is within an individual’s control and can be put across to enable a transaction or inquiry, whatever it may be, to take place. I ask my noble friend the Minister to comment on the need for the Government urgently to engage and to increase the work that is happening in other departments on a general digital ID to be particularly applicable to the financial services sector.
Amendments 220 and 221 concern artificial intelligence. It is worth me making a few preliminary points before I go into the specific elements of the amendments. A helpful Bank of England paper on this subject was put out on 11 October last year, lest anybody think that AI is something for the future and not for us to worry about in the Bill. In the paper, 72% of financial services businesses said that they already use, or are about to use, AI. None of them said that they believed that the current way in which they used AI was high-risk, while more than half said that they were currently constrained in their ability to deploy AI fully because of current regulations on the PRA and FCA approach to the subject. That is some of the backdrop. To put my own cards on the table, lest anybody think otherwise, I am neither Panglossian nor po-faced about AI or, indeed, any of the other new technologies that we have in our hands. Yes, they are incredibly powerful technologies, but they are in our human hands in terms of how we design and deploy them. Thus I describe myself as rationally optimistic about their potential.
Amendment 220 brings this to life, I hope. It is a real opportunity for the UK, not just in financial services but across the whole of our economy and society, if we have an approach to ethical AI. The UK could be world-leading in the deployment of ethical AI; financial services is as good a place as any to have such an approach. I reference the Centre for Data Ethics and Innovation in this amendment; I am not wedded to it. Other organisations, such as the Alan Turing Institute, also have a role to play but the key is that there is an agreed underpinning.
For example, when we did the Lords Select Committee AI report in 2018, we set out five ethical principles; I do not want to give them any more concretion, to reference a previous group, but I say to my noble friend the Minister that one of the key architects of those ethical principles was the right reverend Prelate the Bishop of Oxford, who was a member of the committee. One therefore understands that they have behind them more than just the weight of the mere mortals here today.
Amendment 221 seeks to build on the ethical AI deployed in financial services institutions, and to have in every such institution a member with a responsibility for AI, in the same way that we have a money laundering reporting officer. Obviously, specific to the size of the organisation, it does not need to be an individual who performs only that role, but somebody in every financial services institution in the UK needs to be a designated AI officer. Does my noble friend the Minister agree?
Lord Forsyth of Drumlean (Con)
I apologise for not being able to attend the Committee last week because I was not in the Lords. I have been asked to speak to Amendment 241F, which was tabled by the noble Lord, Lord Bridges, who is currently in the Economic Affairs Committee interviewing the Chancellor. I shall speak also to my Amendment 241FD. I am grateful for the support of my noble friend Lord Holmes for the idea that there should be primary legislation in respect of any CBDC.
The Committee might be relieved to know that I am not proposing to go through the merits of CBDCs. I am very happy to do so if the Minister would like it, but the arguments are well set out in the paper, which was produced by the Economic Affairs Committee that I chaired, published on 13 January 2022 and entitled Central Bank Digital Currencies: a Solution in Search of a Problem? That might give noble Lords an idea of the conclusions of the committee.
The Government and the Bank of England are not convinced. They are still in search of the problem and the solution and a lot of work is being carried out on this. I do not propose to get into whether they are right or wrong about that, but I commend the committee’s report and the Government’s response, which was a letter to me dated 9 March 2022 which ran to all of seven pages—a commendable example of brevity from the Treasury.
On the first page of the letter, the then City Minister, John Glen, said:
“No decision has been taken by the government and the Bank of England as to whether to issue a UK CBDC, which would be a major infrastructure project.”
Indeed, it would. He went on:
“A decision will be based on a rigorous assessment of the overall case for a UK CBDC and will be informed by extensive stakeholder engagement and consultation. Exploring and delivering a UK CBDC, if there were a decision to proceed, would require carefully sequenced phases of work, which will span several years.”
Noble Lords will note that there is no mention whatever of Parliament in those considerations.
In their response, the Government acknowledged that there was
“a broad range of opportunities and risks, which require careful evaluation.”
In response to the committee’s request to get a commitment from the Government that this would require parliamentary approval, the sentence which stands out is:
“The government expects to fully engage Parliament—including through any possible legislation—in an open and transparent manner to ensure that there is a full and proper scrutiny of any proposals over the coming years.”
I am prepared to bet any Member of the Committee a bottle of champagne that, when the Minister replies, we will hear exactly the same words.
The problem with those words is that they are not a commitment to parliamentary scrutiny; they are not a commitment even to secondary legislation, which my noble friend Lord Bridges’s amendment calls for. They are certainly not a commitment to introduce primary legislation to implement something of this scale and importance, which is what my amendment calls for.
My noble friend Lord Holmes mentioned that the Chinese were keen on CBDCs. I am not surprised: they are a means of controlling and knowing what every citizen is doing with their money and how much of it they have. Although the Bank of England will say that its system would be devised in a way which acknowledges the privacy issues arising from CBDCs, I do not for a moment imagine that there will be any such undertakings in China. I can see the attractions of it; there are huge civil liberty and privacy issues at stake here.
There are also substantial risks to financial stability arising from a CBDC and how it is constructed. On the one hand, if you go the whole hog and everyone’s cash holdings are held digitally by the central bank, that clearly has all kinds of implications for privacy and stability. If, on the other hand, it is argued that the commercial banks will carry this out and you would be allowed to hold only a certain amount in a central bank digital currency, it rather defeats the object of doing it in the first place.
If there is the ability to move money into your CBDC account on any scale, in circumstances such as those that have occurred in recent days with some banks, where people fear stability, they will move their money out of the banks into the central bank digital currency, which is clearly a safer haven. That could create huge liquidity problems for the banks. Depending on how it is designed and operates, we could see ourselves moving towards the nationalisation of credit. At this point, I should declare that I have an interest as chairman of Secure Trust Bank.
All of this, we are told, is going to take a lot of time and require a lot of consultation. However, it seems to me that something as fundamental as this cannot be left for the Bank of England and the Treasury to cook up without proper consideration by Parliament, given the issues that are involved.
In paragraph 13 of its equally lightweight response to the committee’s report, the Bank of England states:
“The Committee cites privacy and identity as key considerations related to CBDC and points out potential reputational risk to the Bank of being drawn into controversial debates on these issues. The Bank recognises that these are important topics for the design of any CBDC system and that appropriate safeguards must be ensured if CBDC is to command users’ trust and confidence. These matters are being looked at as part of the Taskforce’s exploratory work and will be taken forward in the Consultation Paper.”
Then there is the important part:
“The Bank also recognises that these issues extend beyond the remit of the central bank. As such the Bank will closely support the work being undertaken by, and take its lead from, HMG”,
not Parliament. Once again, as with the previous set of amendments and as so often in this Committee, we are wrestling with the question of accountability and accountability to Parliament. Here, we are looking at a major change with huge risks to personal privacy, financial stability and the cost and availability of credit. The notion is that this can all be done without proper consultation by Parliament.
In speaking to these amendments, I am a reasonable person. My noble friend Lord Bridges’ Amendment 241F simply requires a vote in Parliament and looks to secondary legislation. I would support that, but I would prefer that if the Bank of England and the Treasury decide, having carried out their consultations, that they wish to proceed with this it should be the subject of primary legislation and subject to extensive debate.
Again, we have not made a lot of progress today, so all I ask of the Minister is for her to fill in the blanks in the undertaking that was given to the committee of this House. It was an all-party report, supported by the members of the committee. They included the noble Lord, Lord King of Lothbury, who knows a certain amount about central banking, and several members of the committee have great experience. I hope that the Minister will be able to say that she can give an undertaking on behalf of the Government—if not at this stage, certainly at a later stage, but ideally at this stage so that we will not have to discuss it again later—that there will be primary legislation and that the Government will instruct the various committees of the Treasury and the Bank of England to proceed on the basis that it will require primary legislation, a draft Bill and an undertaking to deal with the many issues that arise from a central bank digital currency, which I will not bore the Committee with now.
There has been a lot of talk about what caused the financial crisis in 2008 and the risks that occur. In my experience, the really dangerous thing in financial services is groupthink and belief in models. This is an absolutely classic example of thinking, “The Chinese are doing it and others are doing it so perhaps we need to do it as well. What is going to happen in future?” That is fair enough—have an eye to the future—but just because everyone else is going to do something that might increase risk is not a reason to copy them.
I have a simple request for the Minister: will she please give an undertaking that we will have legislation should the Government decide to go down this course in future?
Baroness Bennett of Manor Castle (GP)
My Lords, I rise briefly out of a sense of obligation and with a sense of déjà vu because on the previous financial services Bill I recall that I was the only Back-Bench speaker addressing a group of amendments from the noble Lord, Lord Holmes of Richmond, on digital issues associated with the financial sector. As then—having written a thesis on artificial intelligence 20 years ago, when we were said to be almost reaching it—I argue that we are no closer now than we were 20 years ago. We now have big data, not genuine, rich artificial intelligence. If noble Lords do not believe me, they should try putting mathematical questions into ChatGPT and see how far they get. What they will get is plagiarism and statistics, not understanding.
Lord Sharkey (LD)
My Lords, I will speak briefly to the amendments in the names of the noble Lords, Lord Bridges and Lord Forsyth. I agree with the analysis by the noble Lord, Lord Forsyth, of the dangers of having Parliament bypassed in the creation of a CBDC, but I will mention two things to which he may not have given enough weight.
The danger crystallises in the possibility of the disintermediation of the retail banking system, which would have incalculable consequences. Given the difficulties people have in dealing with their own banks at the moment, imagine the difficulty of trying to deal with the Bank of England about your personal account when things go wrong or you do not understand what things are doing. Given banks’ habit nowadays of closing people’s accounts without notice or reason, I wonder whether the Bank of England would take the same view if it had that power.
Like the noble Lord, Lord Forsyth, I would prefer any such creation—although I am not sure that I want one—to be via an Act of Parliament rather than regulation. However, regulation is tempting because I notice that proposed new subsection (3) of the amendment tabled by the noble Lord, Lord Bridges, finds a way of amending secondary legislation. With a bit of luck, we will deal with my amendment tomorrow, which does exactly the same thing in exactly the same kind of words but with broader application.
It is dangerous in the extreme to have Parliament excluded on the central bank digital currency, as the Government clearly intend at the moment. We ought to be very careful about that. When it comes to Report, where we need to think about what amendments we press, I would be very tempted to suggest to the noble Lord, Lord Forsyth, that he presses his amendment.
Lord Eatwell (Lab)
My Lords, I will make two general comments about these amendments—first, on Amendment 218 in the name of the noble Lord, Lord Holmes.
When I was chairman of the Jersey Financial Services Commission and therefore the regulator in Jersey, I was continually lobbied about the issue of digital identification simply because of the high cost of repetitive KYC investigations that institutions had to go through. It seems that the possibility of having a system of digital identification which would be generally acceptable and generally accepted within financial services would significantly reduce the costs of KYC and would provide a much sounder foundation for the credibility and respectability of the individuals attempting to transact within financial services. So this is broadly a good idea. It is very complicated, as I discovered when I tried to introduce it in Jersey, and it raises very important privacy issues, but, none the less, this is the way that the world is going and we need to think this through extremely carefully. It could be of great benefit to the whole KYC problem.
With respect to digital currencies, the one comment I will make is to remind the Committee of the debate that we had about the decline in the acceptance of cash and the fact that a significant number of people in our country are being deprived of money, since cash no longer works as money—it is no longer generally acceptable in discharge of a debt, which is the definition of money. Therefore, there will be a responsibility for the state to provide a digital form of money, because digital payment, as the noble Baroness, Lady Noakes, argued strongly at the time, will become the standard form of payment and cash is basically going to disappear —apart, perhaps, from the Tooth Fairy.
The issues of digital currency and digital identification are both hugely important for our future and, as the noble Lord, Lord Forsyth, argued—I agree with him most strongly—they require very careful parliamentary consideration.
Lord Tunnicliffe (Lab)
My Lords, on the digital pound, we support the Bank of England’s work exploring the potential benefits of a safe and stable central bank digital currency, but the Government’s overall approach to crypto remains unclear.
With the collapse of FTX, it is clear that crypto can pose a real threat to normal people in the real economy and therefore may pose a systemic risk in future. The approach HMT has taken to the digital pound is a welcome contrast to this Administration’s eagerness to lean into a crypto Wild West in the recent past. We need to get serious about attracting innovative fintech companies to the UK by safely harnessing the potential of new technologies. How will the Government do this?
On the amendments in general, the issue of accountability has come up once again. The concept of using primary legislation to have a check on these ideas is clearly practical and therefore very attractive, but it will have problems. If the Government would only embrace our concerns about accountability and come forward with a proper and comprehensive accountability structure, perhaps we would be able to develop a more sophisticated approach than the rather raw power of primary legislation. However, as a fallback it is very attractive.
Baroness Penn (Con)
My Lords, the Government have been transparent about their plans to enable the use of digital identities in the private sector, including in financial services, and we are committed to ensuring the scalability, flexibility and inclusivity of secure digital identities.
The Government initiated their digital identity programme following industry calls for the Government to take the lead in developing common standards for digital identity across the whole economy. We continue to believe that a whole-economy approach is the right way forward, and we are working with stakeholders to deliver this at pace.
For example, the UK digital identity and attributes trust framework has already enabled right to work, right to rent and criminal record-checking processes to be digitised, making these checks quicker and more secure. In addition, measures in the Government’s Data Protection and Digital Information (No. 2) Bill, which was introduced to Parliament on 8 March, go further by securing the reliability of digital identity services across the economy for those businesses and consumers who wish to use them. The Government also recognise that greater clarity with respect to how digital identity services certified against the digital identity and attributes trust framework support requirements under the Money Laundering Regulations will be key for market uptake. As set out in the Government’s 2022 Money Laundering Regulations review response, we have committed to considering this too.
I hope that I have reassured my noble friend Lord Holmes that the Government remain committed to enabling the use of secure, reusable digital identity products across the UK economy and that Amendment 218 is therefore not necessary.
Turning to Amendments 220 and 221, also from my noble friend, the Centre for Data Ethics and Innovation guidance has not been designed to form the basis of regulatory requirements relevant to financial services and is unlikely to address AI risks specific to that sector. Appropriating CDEI guidance for the basis of regulation that is aimed at the wider governance of AI through non-regulatory tools and industry-led techniques is therefore likely to lead to unintended consequences; however, I appreciate my noble friend’s point that he used the CDEI for illustrative purposes.
I assure my noble friend that the newly created Department for Science, Innovation and Technology is already developing a cross-economy, pro-innovation framework for AI regulation, underpinned by a number of cross-sectoral principles to strengthen the current patchwork approach to regulating AI directly. Further proposals for the new regulatory framework will be published in a White Paper in the coming weeks. Through our proposals for a new AI regulatory framework, we are building the foundations for an adaptable approach that can be adjusted to respond quickly to emerging developments. The vast majority of industry stakeholders we have engaged with agree that this strikes the right balance between supporting innovation in AI while addressing the risks.
Furthermore, the FCA, the PRA and the Bank of England recently published a discussion paper on how regulation can support the safe and responsible adoption of AI in financial services. Therefore, to avoid unintended complications with the use of digital identities and artificial intelligence in the financial services sector, I hope that my noble friend will not press his amendments.
Finally, I turn to the important topic of central bank digital currencies and Amendments 241F and 241FD, both ably introduced by my noble friend Lord Forsyth. The Government have been clear that they consider that Parliament will have a vital role to play in the future of any digital pound. As I set out to my noble friend Lord Bridges in a previous debate in the Chamber, when we discussed the findings of the report to which my noble friend referred, the Government expect to fully engage Parliament, including through any possible legislation, in an open and transparent manner to ensure that there is full and proper scrutiny of any proposals over the coming years. As the joint Treasury and Bank of England consultation paper published on 7 February set out, the legal basis for the digital pound will be determined alongside consideration of its design; this is the subject of ongoing work.
Lord Forsyth of Drumlean (Con)
Could my noble friend the Minister just define what “vital” means? Does it mean primary legislation?
Baroness Penn (Con)
As I said, the approach we take will be determined alongside the consideration of any design of a central bank digital currency. The decision to move ahead with a CBDC has not yet been taken; however, we do believe that it is likely to be needed in future. Although it is too early to commit to build the infrastructure for one, we are convinced that further preparatory work is justified. Therefore, that definition will become clearer as the design of the approach also becomes clearer—but the commitment at the outset to parliamentary engagement is there.
Lord Vaux of Harrowden (CB)
The Minister just made a statement that it is likely to be needed in future. Can I ask a very simple question: why? Why is a CBDC likely to be needed in future? That seems a fairly bald statement.
Baroness Penn (Con)
My Lords, we may not wish to repeat the debate that we had in the Chamber earlier this year, but I was going to address my noble friend’s question about retail versus wholesale and the point from the noble Lord, Lord Vaux, about the use case for a CBDC.
The noble Lord, Lord Eatwell, made one of the points in relation to a CBDC. We want to ensure that central bank money, which is currently available to the public only as cash, remains useful and accessible to the public in an ever more digitalised economy. We have heard about access to cash in our debates earlier in Committee.
The Deputy Chairman of Committees (Baroness McIntosh of Hudnall) (Lab)
My Lords, I am sorry to interrupt the Minister but there is a Division in the Chamber. The Committee will adjourn for 10 minutes, after which we will resume and allow the Minister to finish what she had to say.
Baroness Penn (Con)
My Lords, I was explaining why we think that the UK may need a digital pound in future. The central point is that we want central bank money, which is currently available to the public only as cash, to remain as useful and accessible as ever in an ever more digitalised economy.
I was going to address my noble friend Lord Holmes’s question about whether the work we are taking forward is focused on a wholesale or retail central bank currency. The proposal being considered is potentially to introduce a retail CBDC at some point in the future. With regard to a wholesale CBDC, banks have access to electronic central bank money in the form of reserves; we are open to exploring innovative ways in which wholesale firms could use reserves. There is a programme for reform under way on electronic central bank money in the form of reserves that will bring similar benefits to those that we see for CBDCs in the retail space.
Lord Forsyth of Drumlean (Con)
Is there going to be a limit on the amount that people can hold in this retail central bank digital currency? Does the Minister accept that, if there is no limit, that will have major implications for financial stability?
Baroness Penn (Con)
These are some of the questions that we want to consider through the consultation that is currently open and any further work. That consultation recognises the financial stability implications of developing such a proposal; we will want to consider them as we take this work forward.
Lord Tunnicliffe (Lab)
I hope that the Minister anticipates consultation and research. To me, “consultation” means coming back to the industry. The industry comes from a perfectly respectable position but it is one position. We need basic research, modelling and all the various techniques to explore the potential risks.
Baroness Penn (Con)
The noble Lord is right that the public consultation phases of this work are one element of the work that will be done by the Treasury and the Bank of England in developing this concept. There are many other strands of work that will also be undertaken. As we discussed in the previous debate, any such project would be a significant infrastructure project with significant financial implications so we would need an appropriate approach acknowledging that.
We are at an early stage of this work. As I said, we have not taken the decision to go ahead with a CBDC but we think that there is sufficient evidence to justify further exploratory work. At this stage, it would be premature to include any provision in the Bill. I reiterate my previous statement that the Government expect to keep Parliament fully engaged in this work as it progresses. I therefore hope that my noble friend Lord Holmes will withdraw his Amendment 218.
Lord Tunnicliffe (Lab)
That word, “engaged”, flummoxes us all. We do not see a mechanism in our system. Will the Minister write to us and spell out what “engaged” means?
Baroness Penn (Con)
I can look to write to noble Lords on this question but I am not sure that I would be able to add more to my response at this stage, which is that the Government expect to fully engage Parliament, including through any possible legislation, in an open and transparent manner to ensure that there is full and proper scrutiny of any proposals over the coming years. As the joint consultation paper set out, the legal basis for the digital pound will be determined alongside consideration of its design; that is subject to ongoing work. If I wrote to noble Lords at this stage, I think I would be saying exactly that but, if there is anything further to add, I would be happy to do so.
Lord Sharkey (LD)
I just want to make sure that I understand exactly what the Minister is saying. If the Government decide to bring in the digital pound, will they commit to bringing it in via legislation?
Baroness Penn (Con)
I am afraid that I have gone as far as I can in detailing the approach that we would take to Parliament. We expect to engage Parliament fully. However, the legal basis for the digital pound will be determined alongside consideration of its design. Work is not yet at the stage where we can provide that further clarity.
Lord Holmes of Richmond (Con)
I thank all noble Lords who have participated in this debate and my noble friend the Minister for her response. At this stage, I beg leave to withdraw the amendment.
Earl Attlee
“Money laundering regulations: exports to Ukraine
(1) Within three months of this Act being passed, the Treasury must take all reasonable steps to make regulations to amend the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (S.I. 2017/692) so as to secure that they do not prevent a supplier of financial services to a relevant person from supplying financial services in the relevant conditions.(2) For the purposes of this section, a relevant person is a small or medium-sized enterprise which exports armoured vehicles or other military equipment to Ukraine for the use of Ukrainian defence forces, or the agent of such an exporter.(3) For the purposes of this section, the relevant conditions are that an export licence has been granted to a relevant person under the Export Control Act 2002 for the export of items on the United Kingdom Military List of controlled goods to Ukraine for the use of Ukrainian defence forces, and the relevant person is in the process of supporting the export of those items for which the licence has been granted.(4) Regulations under this section are subject to the affirmative procedure.”
Earl Attlee (Con)
My Lords, in moving my Amendment 223, I will speak to my Amendment 241FB. They both deal with the unintended and undesirable effects of the anti-money laundering regime in the UK. I do not profess to have any expertise here; my relevant experience is in defence and security.
I fear that I am obliged to weary the Committee with a little detail. Russia has launched an unprovoked attack on Ukraine and, presumably, HMG have an absolute minimum strategic objective of preventing Ukraine being defeated. Failure to achieve this would result in significantly increased world insecurity and the need at least to double UK defence expenditure. EU and NATO Governments have been providing Ukraine with a range of armoured fighting vehicles—AFVs—through Government-to-Government arrangements. Armoured personnel carriers and armoured reconnaissance vehicles allow troops to move around the battlefield without unnecessarily falling victim to artillery or small arms fire.
To supplement Government-to-Government arrangements, the Ukrainians, through commercial agents and UK SMEs, have also been buying up privately and commercially owned AFVs in the UK. There are only a few businesses and individuals in the UK who can efficiently acquire and export these privately owned AFVs. They are generally small. To undertake this activity, they need to have the necessary technical knowledge, workshop facilities, ingenuity, innovation and contacts; have finance and premises; be seen as a fit and proper person to be granted an export licence for controlled goods on the military list; and, most importantly, be trusted by both Ukrainian buyers and UK private sellers.
The Committee needs to understand the facts of the real world. These small businesses simply do not have the resources to perform due diligence on Ukrainian businessmen and their intermediaries. Even if they could, the Committee will recognise that they would soon find red flags galore. However, the Government have the ability to check that the export of these AFVs is in line with their overall strategic objective.
The Export Control Joint Unit at the Department for International Trade grants export licences for controlled goods on the military list, among other things. So far as I can discern, it is doing a very good job. It is important to note that the Export Control Joint Unit has all the facilities of HMG at its disposal to determine whether military equipment should be exported to a certain customer or not. The money laundering regulations add nothing useful to this process.
I now turn to the mischief which my amendment seeks to address. During our debate on Ukraine on 9 February, I explained the problems that “Peter”—not his real name—is experiencing with the provision of banking services in the context of his exporting AFVs to Ukraine. I will continue to use his pseudonym for continuity reasons. I understand that Peter has export licences for around 100 AFVs and has already delivered a considerable number. Although the high street bank’s name is in the public domain, I will not name it, as it has done nothing wrong and has been extremely helpful. Apparently, in these circumstances, MPs will just get stonewalled by the banks, but I have very good relations with Peter’s bank.
On 20 December 2022, Peter’s bank wrote to him, closing his accounts with the bank without any explanation why. Peter was going to completely lose his banking services on 20 February. This would have put him out of business, as he cannot secure banking services from any other provider, and he would not be able to export any more AFVs to Ukraine. Other banks will not step in because they will have the same difficulties as Peter’s current bank. Peter’s bank made it clear to him that it was not prepared to discuss the matter further. This is standard practice, and I understand why. However, I have found out that the problem is that Peter’s current bank cannot accept the regulatory risk of supplying banking services involving large sums of money when Peter does not have the correct anti-money laundering systems in place. But even if he did, he would surely find red flags, as I have already mentioned, because he is dealing with Ukrainian businessmen. Fortunately, I managed to negotiate with the bank an extension to 20 March, which was yesterday.
Initially, I thought that the problem lay with an overzealous junior bank official and that a quick engagement at a senior level in the bank would get it sorted. I then discovered that it was a money laundering problem, as described, but the problem could be solved if a Treasury Minister wrote to the bank relaxing the money laundering regulations in a specific and minor way. I thought all this could be done discreetly and behind the scenes. How wrong I was. Ministers have refused to relax the money laundering regulations because, as I understand it, they believe that the complete integrity of the regulations is more important than facilitating the export of armoured fighting vehicles to Ukraine.
I repeat the question that I asked my good and noble friend Lord Ahmad on 9 February. Is it settled Government policy that the complete integrity of the money laundering regulations is more important than facilitating the export of armoured fighting vehicles to Ukraine? I look forward to the Minister’s reply. The reality is this: each and every additional armoured fighting vehicle that we send to Ukraine will give another group of Ukrainian soldiers protected mobility on the battlefield. Conversely, stopping the export of AFVs will result in avoidable loss of Ukrainian lives, which is quite immoral.
My Amendment 223 works by requiring Ministers quickly to amend the money laundering regulations so that banks do not have to suspend provision of banking services to SMEs that are exporting AFVs or other military equipment to Ukraine under a relevant export licence granted by the Export Control Joint Unit—in other words, a relaxation under very limited circumstances. Of course, my amendment is unnecessary because Ministers can simply write to the bank asking it to relax the money laundering regulations in the way that I suggest.
On my Amendment 241FB, during my investigations it became apparent that there is a wider problem with banks withdrawing provisions of financial services from aerospace and defence SMEs, for two reasons. The most important reason is again the money laundering regulations. In addition, there is a reluctance within some banks to have anything to do with the defence industry, particularly with things that go bang. However, these are highly regulated businesses, and they are dealing with other businesses and Governments, often outside the OECD. Thus the regulatory risk is far too high for the banks when the potential income is often quite small. It is simply not worth the bank’s while to accept the regulatory risk. I accept that my Amendment 241FB is imperfect and does not necessarily solve the problem. At this stage, it is only a probing amendment. I have been briefed by ADS Group, the relevant trade association, on this problem, and it is clear that it is a growing problem that will not go away.
On my Amendment 223, this is a serious and urgent matter. Clearly, the Minister intends to resist, or she would already have relaxed the regulations and saved a lot of the Committee’s time. I am afraid that thus far, I have not been able to generate much interest in this issue. His Majesty’s Opposition in your Lordships’ House do not appear to be very interested, and neither are the media. It does not currently look as if I will be able to win any Division at Report. In view of these circumstances, I was not in a position, nor was it my role, to seek a further extension of service from Peter’s bank when I could not offer any evidence that the policy was likely to be changed. As a result, Peter lost his banking facilities yesterday and will have to stop exporting AFVs to Ukraine. No one can step in, because they will experience the same problems.
The sense of the Committee will be unusually important on this occasion. Your Lordships can merely listen to an interesting debate or make it very clear to my noble friend the Minister that the Committee will not tolerate the money laundering regulations that are causing avoidable loss of Ukrainian lives by preventing the export of AFVs to Ukraine. I beg to move.
Viscount Trenchard (Con)
My Lords, I support my noble friend Lord Attlee in his amendment. His story about Peter reminded me that I have had considerable time-consuming discussions—not with my noble friend’s Peter, whose acquaintance I have not had the pleasure of making, but with another Peter. He is a person like Peter, a former military officer in the British Armed Forces of some distinction who now operates an SME and is closely connected with manufacturers of arms that the Ukrainians are importing from other sources and which they badly need, arms which our own Ministry of Defence is happy to assist in the Ukrainians receiving.
I have listened to my Peter—he is not called Peter; let us call him Jonathan—who has had a nightmare time. He is approved and holds an export licence with the SPIRE system in what is now the Department for Business and Trade; I think that the SPIRE system is the same as the export control system.
Viscount Trenchard (Con)
Thank you. So, Jonathan is licensed—and has been for many years—with the SPIRE system, formerly under DIT. This means that the security services have carried out a considerable amount of due diligence on him. Nevertheless, he found it completely impossible to persuade any bank to open an account to handle the funds necessary to enable him to assist the Ukrainians in this way, not just at the working level. The moment you fill in a form that suggests any military connection in the goods, red flags fly and bells ring all over the place.
However, these anti-money laundering regulations are considered so important that it is difficult to find any way of obtaining exemptions to go round them, even in situations such as this. It is just a pity that, even at the senior director level, banks are completely prevented under any circumstances—even when the individual is approved under the SPIRE system, as my noble friend Lord Attlee explained. I have sympathy with and support his amendment.
Lord Holmes of Richmond (Con)
My Lords, I will speak to Amendment 238 in my name. Does my noble friend the Minister agree that “know your customer” and anti-money laundering—KYC and AML—are not working optimally? There is a plethora of examples that we could look at; I will not do so. The simple truth is that they are not fit for purpose and are not achieving their aims. They are not providing the environment that we would want to conduct our financial services in. Does my noble friend the Minister not agree, therefore, that it is high time we had a thorough review of the regulations to put in place a system that works and is inclusive, efficient and effective?
If we look at some of the practical elements, to put it in terms, is it not time that we stopped messing about with gas bills? That takes us to an amendment in a previous group on digital ID, which would go far in resolving many of the issues around KYC and AML. Does my noble friend the Minister not agree? The difficulties that we have heard about and which many members of the Committee may have experienced in all areas of the financial services landscape could be effectively resolved if we resolved the current situation with KYC and AML. It is resolvable; when she comes to respond, my noble friend the Minister could simply say, “I will resolve it”.
Lord Eatwell (Lab)
My Lords, on the point made by the noble Lord, Lord Holmes, surely these regulations are derived from the Financial Action Task Force. We would usurp international agreements if we modified our regulations in a way that was outwith the positions established by the FATF.
Baroness Noakes (Con)
I completely accept that we need to comply with the Financial Action Task Force regulations but, as we discovered the other day when we were discussing PEPs, the regulations we have in the UK have in some instances gone beyond what is actually required by the Financial Action Task Force. The issue with the KYC regulations is one of immense bureaucracy and great irritation for people to no particular end. It is worth looking again at whether the way we have drafted our regulations, to the extent they go beyond what we are required to do, has in turn led to more problems for individuals.
I am sure we have all had problems but I will share one with the Committee. My husband had a very small investment—way below the level at which it would have to be declared as one of my interests in your Lordships’ House—and there was periodic updating of the know your client regulations. Because of the way that firm’s forms were comprised, it refused to accept my noble friend Lady Neville-Rolfe’s signature attesting that the document was a fair copy, because she could not tick a particular box on the form. It was completely ludicrous.
That permeates the way many financial service institutions have come to apply these rules in practice. They have become highly bureaucratic, operated by people who probably have no common sense and possibly not even a brain. To go back to the regulations and see what is absolutely required and then follow it on through the FCA seems a really important thing.
Earl Attlee (Con)
My Lords, although I agree with everything my noble friend Lady Noakes said, I point out that I have discussed Peter’s case at a very senior level with his bank and I can absolutely understand the decision the bank made. It looked at it very carefully, but it cannot take the risk because it is dealing with Ukrainian businessmen of whom it knows very little.
Lord Tunnicliffe (Lab)
There is no official Labour Party position on this, but I feel enormous sympathy for the position of the noble Earl, Lord Attlee. I hope the Minister will take this away, not as a legislative proposal but as a problem to be solved, and ensure that it is considered at a very senior level in the Treasury.
Baroness Penn (Con)
My Lords, before I speak to his Amendments 223 and 241FB, I first thank my noble friend Lord Attlee for his engagement and for bringing to my attention the specific example he has raised today as context for his amendments. I commend his staunch support for Ukraine, and the Government remain fully committed to supporting Ukraine in the face of the relentless Russian bombardment.
I reiterate to the Committee that the money laundering regulations are a vital part of the UK’s comprehensive economic crime response. The regulations are designed to combat illicit finance but should not be barriers to legitimate customers, including those connected with the export of military equipment to the Ukrainian defence forces.
As the Prime Minister has set out, the Government are fully committed to helping Ukraine emerge from the war with a modernised economy that is resilient to Russian threats. Of course it is important that those contributing towards this are not prevented unnecessarily from carrying out their business, but this needs to be balanced with the existing controls which protect this country, and international partners, from risks of money laundering.
It is important that we do not take steps that might allow the money laundering regulations to be circumvented by bad actors, even in circumstances such as this. It is therefore right that financial services firms continue to be empowered to carry out their own, risk-based due diligence when financing the export of armoured vehicles or military equipment, or individuals who are engaged in the international defence industry.
The money laundering regulations are purposefully not prescriptive and are designed to allow firms to make their own decisions about how to comply, balancing their understanding of the risk with proportionality. The Government do not and will not involve themselves in commercial decisions of individual firms but we can be clear that, where all the correct licences are in place, the money laundering regulations should not be a barrier to the financing of legitimate export activity.
Earl Attlee (Con)
I am sorry to interrupt my noble friend, but I would like to make it clear that Peter does not need any financing. The other cases that I have come across in the aerospace and defence sector are very well financed; that is why their businesses are not very attractive to the banks, which can withdraw financial services because there is no money in it. Peter does not need finance; all he needs is the bank to process the money, but the bank has a real difficulty processing money from Ukrainian businessmen.
Baroness Penn (Con)
My Lords, I was making the point that there is a wider context here that there should be no barrier to the financing of legitimate export activity.
Turning to the point made by my noble friends Lord Attlee and Lord Trenchard, the government process for the granting of export control licences focuses on the end use of goods rather than the source of funds paying for them. It is therefore distinct from the due diligence checks that a bank would carry out before conducting the transaction. I assure noble Lords that, through the Government’s engagement with my noble friend on this, we have engaged with the Export Control Joint Unit, the Financial Conduct Authority and other partners on this issue. While I appreciate the frustrations of individual cases, we are not aware of a systemic issue. The Government will continue to monitor reports of similar problems; if we identify a systemic problem, we will act to address it.
I turn to the solutions suggested by my noble friend. The noble Lord, Lord Eatwell, and my noble friend Lady Noakes are right that our obligations around anti-money laundering regulations stem from our international obligations to the Financial Action Task Force. The approach set out in these proposals would very likely be in contravention of those obligations. My noble friend Lady Noakes is right that the current version of our anti-money laundering regulations reflects our membership of the EU, which is consistent with those obligations from the Financial Action Task Force, but in some areas goes beyond them.
I turn to Amendment 238, tabled by my noble friend Lord Holmes of Richmond. The Government undertook a review of the money laundering regulations, which was published last year. This was a comprehensive assessment of the effectiveness of their implementation and whether they had led to unintended consequences for businesses or consumers. It explicitly assessed whether aspects of the money laundering regulations remain appropriate and proportionate in light of the UK’s exit from the EU and the additional flexibilities that affords us. It identified a number of areas for reform to make the regulations more proportionate and reduce unnecessary burdens on legitimate customers, which we will take forward through future updates to the regulations. These reforms will further tailor the regime to the UK’s risk profile, following the removal of specific European requirements from the money laundering regulations last year.
While the Government remain committed to ensuring the proportionality and effectiveness of anti-money laundering regulations and the regime around it, and monitor the effects on financial inclusion, the review required by Amendment 238 would largely repeat the exercise conducted last year, of which we are still to implement the full results.
My noble friend referred to the previous group on digital identity. He is absolutely right; we recognise that greater clarity on how digital identity services are certified against the Government’s digital identity and attributes trust framework would support requirements under money laundering regulations that will be key for market uptake, so we see the opportunity there and the role for government in providing assurance on that process of uptake as a potential technical solution to make some of these processes easier. As set out in our 2022 money laundering regulations review response, we have committed to consider this fact too.
For the reasons I have set out, I hope that my noble friend Lord Attlee can withdraw his amendment and that my noble friend Lord Holmes will not move his when reached.
Earl Attlee (Con)
My Lords, I am grateful for the attention that my noble friend the Minister has paid to my concerns. One thing I would like to pick her up on is that she seems to have been briefed that there is not a systemic problem with the money laundering regulations. I have found out very quickly that there is, and have been briefed by the ADS, which is the aerospace and defence sector trade association and was the Defence Manufacturers Association.
The problem is that where they are exporting around the world, especially outside the OECD, they are immediately coming into contact with money laundering problems. In fact, I had a meeting with a gentleman in Portsmouth who deals in helicopter parts and helicopters. What tends to happen is that he might spend 24 months organising a deal, and then he suddenly gets a cheque for quite a large sum of money from some far-flung part of the world; that is a huge risk for the banks. When we come to Report, I will come back with further examples from the ADS briefing, where sadly this is a systemic problem that is not going away.
I am particularly grateful for the support from the noble Lord, Lord Tunnicliffe, and do hope that the Minister pays attention to what he said. In the meantime, subject to the usual caveats, I beg leave to withdraw my amendment.
Baroness Fox of Buckley
“Freedom of expression protections for payment service users
(1) Within six months of this Act being passed, the Secretary of State must, by regulations, make provision preventing payment service providers from refusing or discontinuing access to payment services on account of a person exercising their freedom of expression.(2) In this section—a “payment service provider” and a “payment service” have the meanings given by regulation 2(1) of the Payment Services Regulations 2017 (S.I. 2017/752), anda “person” means a payment service user as defined by regulation 2(1) of those Regulations.”
Baroness Fox of Buckley (Non-Afl)
My Lords, I rise to speak to Amendment 241B in my name. After the US fintech company PayPal’s deplatforming of UK political campaigns—the Daily Sceptic, the Free Speech Union and UsforThem—last September, there was a debate about payment processing and censorship associated with this Bill. There was an amendment in the other place that received quite a lot of attention, and it led the Minister, Andrew Griffith, to note that he shared the concerns of the principal issue and potential risks of protecting customers’ freedom of expression when it came to payment providers. He assured us that it should not be possible for service providers, especially those with significant market position, to terminate customer relationships based on those customers’ views.
I was delighted when the Government confirmed that they will include this issue about the role of payment service providers in delivering services without censorship in their consultation about financial regulations enforced by the FCA. However, as I argued at Second Reading, I am not convinced that this is enough. Rather unusually for me, I would like to see more legislative guarantees.
The definition in this amendment is deliberately expansive. It goes beyond the likes of PayPal in order to cover banks and payment processers, whether they are card providers such as Mastercard and Visa or companies such as PayPal and Stripe. There are several reasons for this. The first relates back to important discussions on earlier amendments that I have sat in on and participated in. The ubiquity of electronic systems in an increasingly cashless society, and the emergence of the ubiquity of online payment, means that someone being deprived of those services or cut off from any source of funds would be akin to British Gas refusing services to a household on account of their beliefs or views or free speech that they had exhibited. We would not accept that.
Of course companies can make their own policies and contracts, and that would allow them to remove users without explanation. I understand that, but I am trying to explore whether the law can be used to prevent payment providers closing accounts on the basis of political beliefs. If we do not, global firms are likely to put their own interests—financial, reputational and political—before any moral duty to act fairly or without discrimination. I do not think we can have global tech firms, online payment services or banks deciding who they can censure or cut off from financial services because of the views they express.
This is a matter of some concern, not least because—this is the other focus that I want your Lordships to consider—at the moment, environmental, social and governance, or ESG, targets and equality, diversity and inclusion, or EDI, policies have been embraced zealously by many financial services companies. We have seen from recent controversies around failing banks that they were arguably far more concerned about ESG than whether they were banking well. We have a situation in which corporates have taken to moralising about how their customers should behave and think, which is a real and present danger.
Currently, the big tech companies in the US that deal in financial services have adopted political positions and are regulating the speech of their customers. That is considered a growing problem, as identified by a wide range of civil liberties organisations that I reeled off at Second Reading. Sadly, we know from broader cultural trends—for example, the way that cancel culture at universities started in the US—that what happens in the US should often be seen as a warning of what is likely to come.
Here in the UK, under current law, ESG has become a vehicle for companies to baldly state their right to block the accounts of those whose politics clash with their corporate values. Payment providers such as PayPal, but also high street banks, may terminate the accounts of groups on the basis of lawful speech—as long as they give adequate notice—according to the law. They can terminate accounts where views they deem unpalatable clash with those values if they include such provisions in their terms of service. Acceptable use policy often proclaims, “We will take action when we deem that individuals or organisations are involved in promoting hate or intolerance”, but “hate or intolerance” is increasingly seen as and understood to be a rather vague tagline which can be interpreted in a wide range of ways.
This was illustrated last year when Halifax was involved in a controversy after announcing its staff pronoun policy on social media—I do not know whether your Lordships remember this. We were shown a picture of Gemma wearing a “she/her/hers” staff badge; the idea was that this was a campaign that would stop any “misgendering” by the customers of Halifax. There was something of a customer backlash online, which led to Andy, the person who seemed to be in charge of Halifax’s online communications at the time, berating critics with the rather shrill
“If you disagree with our values, you’re welcome to close your account.”
As it happens, lots of people did close their accounts, because they were so outraged at being talked to in that fashion. Telling customers where to go is an unusual policy for growth for any financial service provider.
However, I think this was more than an overzealous EDI employee, because on its website Halifax says that any customers it deems to be transphobic could have their accounts closed down. Indeed, underneath the page entitled “What we stand for” it says:
“We stand against discrimination and inappropriate behaviour in all forms, whether racist, sexist, homophobic, transphobic or ableist”—
and, wait for it—
“regardless of whether this happens in our branches, offices, over the phone or online on our social media channels.”
The actions that it threatens customers with include account closure or contacting the police. Note that HSBC shared the Halifax post and tweeted it out to its 101,000 followers, saying:
“We stand with and support any bank or organisation that joins us in taking this positive step forward for equality and inclusion.”
Customers, it seems, are the target of political campaigning by financial organisations, rather than being seen as those who need to be given the very best financial services. We should also note that in 2022, when that tweet went out, Halifax cut 27 branches across the country. Never mind encountering Halifax staff wearing pronoun badges; the problem is that you would be lucky to encounter a Halifax staff member at all, badgeless or not, and there is certainly very little in the way of physical branches.
In a recent report Matthew Goodwin, politics professor at Kent University, noted that a growing number of companies and corporations are now “adrift” from the wider public by
“lecturing them about political issues and being seen to stifle their free speech and expression.”
Professor Goodwin also warns against potential discrimination against consumers and customers in this context, and account holders
“deemed to hold ‘controversial’ beliefs.”
However, as one Halifax customer noted:
“I don’t want to be having conversations about gender when I go into my bank. Frankly, I’d rather they be focused on lowering interest rates.”
Of course, we need to respect the right of private companies to choose whom they do business with, as I said. However, this rather modest amendment seeks to ensure that they are not free to discriminate because of political, philosophical or religious beliefs within the law any more than banks or online service providers would be allowed to discriminate against people on the basis of the colour of their skin. We therefore need robust measures in place to protect organisations and individuals from being punished by being cut off by those financial service providers whose EDI or ESG commitments have made them rather cavalier about going far beyond their financial remit. They should be prevented from acting against people for otherwise legal speech. Remember, we have laws in this country such as the equality law, which should not be undermined by the terms and conditions and values designed in Silicon Valley—which in many instances is what we are talking about and is exactly what happened when PayPal punished the Free Speech Union by removing any financial services from it.
I hope that this amendment urges the Government not to kick this regulatory duty into the long grass or suggest that some other piece of legislation would be appropriate. I put it forward in the spirit in which the Minister in the other place spoke about the importance of this issue, rather than it being trivial. I hope the Minister will consider accepting the terms of this amendment in any amended Bill that is brought back on Report.
Lord Jackson of Peterborough (Con)
My Lords, I rise briefly to support Amendment 241B, moved by the noble Baroness, Lady Fox of Buckley. I declare at the outset for full transparency that I am a paid-up member of the Free Speech Union. To be fully topical, I am also a graduate of Royal Holloway, which has been in the news today along with the noble Baroness on similar free speech issues. We debated this matter in the Chamber earlier.
This is a very gentle nudge by way of an amendment. Like the debate we had earlier this month on politically exposed persons, in this case, we see that a regulatory regime does not work and that we sometimes need a legislative nudge by way of something like this amendment. We could have a sterile debate about EDI/ESG and woke and cancel culture, but that is perhaps for another day. My concern is that untrammelled free speech should not be a monopoly; it is a relative concept because we have laws in this country to prevent egregious offence against certain people who have protected characteristics under the Equality Act 2010. Free speech within the law cannot be the preserve of a plutocratic, wealthy elite as represented by big financial institutions and big tech companies.
I never thought I would quote the comedian Jack Dee but, when the decision was taken by PayPal on 15 September last year to throw off the Free Speech Union, the Daily Sceptic blog and UsforThem, he quite rightly said:
“Big Tech companies that feel they can bully people for questioning mainstream groupthink don’t deserve anyone’s business.”
The offence of UsforThem was to question the efficacy of a policy of the teaching unions and, by inference, the Government not to force or even encourage children to go back to school. UsforThem felt that there was a serious public policy issue around that; it was well within its rights to debate that on the basis of empirical evidence and a well-argued case but PayPal took against it and threw it off the platform for breaching its rather Orwellian-sounding “acceptable use policy”. I do not think that is at all right.
The point that the noble Baroness, Lady Fox, made is right. In a competitive market where you have perfect competition—that is, lots of participants and allowing people to enter and leave the market—people can pick and choose which banks and tech companies they go to. However, when there is an oligopoly, as in this case, with a small number of providers of technical applications, perfect competition falls down. There is effectively a situation where people have no choice. That is why people who are not exactly conspiracy theorists, including me, worry about the idea of a cashless society because it puts absolute power in terms of business into the hands of the powerful, the influential, the wealthy, the well-connected and those who believe in and articulate groupthink.
The other thing that slightly worries me is not necessarily the overt idea of censorship, which is itself very worrying in an advanced liberal democracy such as the UK and the United States, but the concept of self-censorship—that is, you do not debate these important issues of public policy that might push against vested interests because you know that the battlefield is so asymmetrical that you do not have the funds to fight big tech or to engage civil litigation, and you run the risk of criminal penalty and sanctions should you do so. That is important. You cannot afford to take the risk so we get into this cul-de-sac of self-fulfilling beliefs and views, which were represented by PayPal.
I am glad that PayPal capitulated and surrendered, and said that it was wrong, but it did a lot of damage to the Free Speech Union, its membership base and its cash flow. Not surprisingly, Toby Young, the founder and CEO of the Free Speech Union, made it absolutely clear that he would not go back to PayPal because it had egregiously ruined his business model.
However, that is not as important as the general principle that, unless you have a bit of stick with these tech companies, they will not voluntarily eschew the concept of EDI and their fixed beliefs. Only the power of legislation can force them to comply with the basic tenets of a decent, liberal society: that free speech should be available to everyone; and that people should be able to voice unfashionable opinions. The mark of a mature and sensible society is that we allow people with whom we vehemently disagree to have a say in the public square.
To an extent, this a probing amendment, but my noble friend the Minister—incidentally, she has done extremely well in a very long and difficult Bill; I give her that plaudit, having given her a hard time the last time I was before this Committee—should reflect on it and come back with some sanction to defend the long-standing commitment that all of us, as parliamentarians and legislators, should have to the concept and practice of free speech.
Lord Harlech (Con)
My Lords, I thank the noble Baroness, Lady Fox, and my noble friend Lord Jackson of Peterborough for raising the important issue of freedom of expression and, within that, the role of payment providers.
Following PayPal’s temporary suspension of some accounts in autumn last year, to which both the noble Baroness and my noble friend referred, the Economic Secretary met PayPal and the FCA, as well as interested Members of Parliament. He subsequently set out the Government’s position on this matter on Report during this Bill’s passage through the Commons.
The Government fully recognise the importance of protecting free speech and the crucial role of payment providers in delivering services without censorship. The Government are committed to ensuring that the regulatory regime respects the balance of rights between users’ and service providers’ obligations, including in relation to protecting freedom of expression for anyone expressing lawful views. My noble friend made that distinction in his remarks.
I draw noble Lords’ attention to the letters from the Economic Secretary, the Financial Conduct Authority and PayPal regarding this issue, copies of which have been deposited in the Commons Library. The letter from PayPal explains that it re-evaluated and reversed its decision in a number of the specific cases raised. It made clear that it was never its intention to be an arbiter of free speech and that none of its actions were based on its customers’ political views.
While welcoming this clarification, the Economic Secretary expressed his concern about the importance of protecting free speech and recognising the crucial role of payment service providers in delivering payment services without censorship. As a result, he pledged to take evidence on the adequacy of the existing legislative framework through the statutory review of the Payment Services Regulations. This was published on 13 January 2023; the Government look forward to responses from all interested parties. I note for the Committee that that consultation is open for 12 weeks, meaning that it will close on 7 April. The Economic Secretary will promptly update Parliament through a Written Ministerial Statement following this review. He has committed that, if it emerges that there is a problem with the existing regime, the Government will act swiftly to address it.
In terms of going further to protect the importance of free speech, we have to understand that the Government do not believe there is evidence of a potential issue with payment services regulation beyond these few PayPal cases. The existing legal regime includes statutory minimum notice periods, rights of appeal to the Financial Ombudsman Service and the FCA’s principles on fair treatment. Users of payment services, in common with all UK citizens, benefit from a safety net of legislation such as the Human Rights Act, criminal law and court decisions, which balance the rights of people to express their ideas in a public space with the necessary limits of a democratic society, for example, to protect people from hate speech. More specifically, the Equality Act 2010 prohibits service providers in the UK denying services to users on the basis of their beliefs, including philosophical as well as religious beliefs.
Noble Lords talked about going further in this Bill. The Government’s view is that making legislative change just for payment services would not be proportionate or correspond with the requirements placed on other essential service sectors. The Government need evidence if there is a problem given the existing protections in the current legal regime for payment service users. Today I am aware of the concerns raised in relation only to PayPal, which re-evaluated and reversed its actions in several cases. The FCA has explained that it has the tools to regulate in a further specific way through its authorisation processes if there is a problem.
Lord Jackson of Peterborough (Con)
When the Minister analyses the results of the review which is concluding next month, will he also look at the slightly wider issue of barriers to entry and the possible oligopoly behaviour of payment services? That is a linked issue which is pertinent to the debate we have had today.
Lord Harlech (Con)
My noble friend makes an excellent point. I will certainly feed that back to the department in terms of the review.
To conclude, the Government already have the means to act on this issue and have made a clear commitment to do so if necessary. We are clear that we first need public consultation and an evidence base before determining the right course of action on this matter. I therefore request that the noble Baroness withdraws her amendment.
Baroness Fox of Buckley (Non-Afl)
I thank the noble Lord, Lord Jackson, and the Minister for that response. I will not keep noble Lords long. What the noble Lord, Lord Jackson, said about self-censorship was important. I mention that because I am worried that the Government are underestimating the climate that financial services providers are embroiled in relating to ESG and EDI. This is a warning shot that we recognised around PayPal, but I did not confine it to PayPal. It is just one example. There are sadly lots of recent examples, with organisations such as GoFundMe refusing to accept certain people because of their views and so on. I know that is not strictly within the remit of this Bill, but I know that the Government understand that there are tensions here. I do not want them to be too narrow and technocratic in the way they approach it by saying “Oh, there are only three examples, so what is there to worry about?” We have seen this internationally. I note that the Chinese social credit system lurks around this debate as something we want to be careful of. Big tech financial companies do not have regard for free speech as their terms and conditions will often cut against what is required in equality legislation here. That was the point I was making.
I hope that this short debate will be taken note of in that consultation. I also hope the Government do not feel that they can just deal with it simply through the consultation but will keep a close eye on what could be a dangerous and nasty situation of financially powerful organisations having an impact on individuals, frightening them into thinking that if they say the wrong thing they will not get banking. That is not the sort of society that we would like to end up with. I beg leave to withdraw the amendment.
Lord Leong
“Regulation of factoring companies
(1) Within one year of the passing of this Act, the Secretary of State must by regulations make provision for factoring companies to be regulated by the FCA.(2) Regulations under this section are subject to the affirmative procedure.”Member’s explanatory statement
This new clause would bring factoring companies, those which provide, arrange or facilitate invoice discounting or factoring, into FCA regulation.
Lord Leong (Lab)
My Lords, I rise to speak to Amendment 241E in my name. Start-up and scale-up businesses, especially small and medium-sized business, occasionally face the issue of managing their cashflow, especially when expanding. Traditional funding through banks has diminished since the 2008 financial crisis and often, in looking for a more flexible, less onerous solution, businesses look to factoring or invoice-discounting companies. I used many factoring companies when I started my businesses and when we ran into a bit of a cashflow situation.
The model for this is straightforward: the factoring or discounting company pays the client typically 80% to 90% of the value of invoices they have raised for goods or services supplied and then either assumes responsibility for the debt itself or bills the client for the amount given, plus a percentage fee, when the invoice is settled by the customer. This enables the client company to operate and expand with limited capital. It effectively does not have to wait for the normal 30, 45 or, in some cases, 60 to 90 days settlement period, which is typical for larger companies and many public sector organisations. This model is typically used in sectors with long payment cycles that require the purchase of goods or raw materials to create products and in international transactions.
However, there has been considerable growth in this sector in recent years due to the uncertainties and disruptions caused by the pandemic, Brexit and the war in Ukraine. Like any well-run financial services, when times are good, such arrangements are mutually beneficial, but if the financial crisis of 2008 has taught us anything—and I hope it has—it is that the money ultimately must come from somewhere, and problems with financial instruments often become apparent only when things go wrong.
Factoring as a concept has existed for a very long time, but its use has grown rapidly in recent years. UK Finance, the collective voice for the banking and finance industry, maintains an independent standards framework setting out and enforcing standards for its members that clients can expect from providers of invoice finance or asset-based lending. However, companies do not have to become members to operate in this sector. This is why I have tabled Amendment 241E as a probing amendment. There are concerns that factoring and invoice discounting risk becoming a scandal for small businesses equivalent to the payday loans rip-off for consumers. Unscrupulous companies can obfuscate fees, and interest rate charges of 2% to 4% for a period of 45 to 60 days seem low but equate to 18% to 24% per annum, which is a relatively expensive way to finance a business in the medium to long term.
Many companies offer their service “with recourse”, which asserts the lender’s right to be paid their fee even if the customer defaults on their invoice. This means that small companies could become liable for fees and interest charges on invoices that they have never been paid if, for example, their customer goes bankrupt. This is a rising concern, as there has been a sharp rise in insolvencies in the past 18 months and we are approaching levels not seen since the 7,000 insolvencies per quarter at the peak of the 2008 financial crisis, with almost 5,995 declarations of insolvency in the quarter ending January this year.
Dependency on the factoring model can develop; debts which have been purchased by a factoring company cannot be counted in the company’s balance sheet when applying for other financial products such as a bank loan. There is a danger that a company may find it difficult to move on to cheaper and long-term finance. There are a lot of companies operating in this space and, while many are entirely credible and reputable, we must recognise that, without FCA regulation, small businesses particularly are at risk of being exploited or taking on excessive fees or risks in their eagerness to survive and grow.
Of course, we cannot mitigate against all risks. As the very well-known fellow book publisher and former Member of this House observed, “Events, dear boy, events.” We know from recent history that clear, strong and effective regulation, such as that which can be provided and enforced by the FCA, can prevent excess and exploitation, and help us build a stronger economy in turn, with the passion, flexibility and innovation of SMEs at its heart. I beg to move.
Lord Eatwell (Lab)
My Lords, I support the amendment from my noble friend Lord Leong. I was a bit shocked to discover that factoring companies are not regulated through the FCA. My discovery of this through my noble friend’s initiative reinforces my view, which he very clearly expressed, that this is the business equivalent for SMEs of payday loans in the consumer retail sector. Given the importance of small and medium-sized enterprises to the growth of the UK economy, which he quite rightly pointed out, one of the most important elements of public policy is to ensure that they receive the best, most appropriate and well-regulated financial services, which provide them with a firm financial platform on which to grow. I hope that the Minister takes this amendment away and has a serious think about it, because this is a serious gap in the regulatory framework.
Lord Sharkey (LD)
I rise briefly to support this amendment. It was with some surprise that we also discovered that this sector is unregulated, but we entirely understand how important it is to the small business community. In that respect, it is hard to see why it is not regulated and why it should not be regulated. It is hard to see how any Government could resist the force of the noble Lord’s amendment—but we may see a demonstration of that in a moment or two.
Lord Tunnicliffe (Lab)
My Lords, I first welcome my noble friend Lord Leong to this very special club, the Financial Services and Markets Bill club. I am sorry that it is a little thin on the ground. I will say no more than that the case, as presented and supported, seems strong.
One of the sad things about occupying this position is that, every time credit comes up, you get abusers. The large companies are frequently the abusers, and payday loans are a classic example of that. Anywhere there is credit, you end up with pockets of abuse. I unashamedly believe in regulation. I do not believe in bad regulation; I believe in good regulation and I think it should enter this field. But that is not a formal position, so we will listen to the Minister before concluding our point of view.
Lord Harlech (Con)
My Lords, I thank the noble Lord, Lord Leong, and others noble Lords for their contributions on this amendment headed “Regulation of factoring companies”.
As noble Lords know, invoice factoring is a type of invoice finance where suppliers effectively sell their invoices at a discount to a finance provider in exchange for an advance. This means that suppliers can receive payments sooner, helping them to manage cash flow. Invoice factoring is an important product for British businesses, helping them to grow sustainably when they might otherwise struggle to do so. It is a relatively standardised product designed to help businesses manage their cash flow and support growth.
Businesses benefit from a diverse finance market made up of high street banks, smaller banks and a range of non-banks to ensure that they can continue to access suitable finance. This is particularly important to ensure that UK SMEs are accessing finance to support their goals and contribute to the UK’s growth agenda. We have discussed the approach to regulating small businesses in an earlier debate but, as noble Lords know, invoice factoring is not considered credit, because it is an advance on invoices already generated; therefore, any small businesses using these products do not benefit from protections such as those under the Consumer Credit Act, which apply to the smallest businesses taking out loans.
However, invoice factoring is generally used by larger SMEs that would not benefit from protections under the Consumer Credit Act in any case. UK Finance estimates that its members advanced invoice finance and asset-based lending facilities to just 35,000 firms in 2022, representing less than 1% of all UK businesses; in comparison, according to the SME Finance Monitor, 36% of SMEs—nearly 2 million of them—were using external finance in 2022.
However, the Government believe that businesses using invoice finance are well protected in other ways. The banking and finance industry has recognised that businesses should be able to use invoice factoring with confidence, so has taken steps to ensure that businesses have adequate protections. UK Finance members, representing between 90% and 95% of invoice factoring by volume, are subject to a standards framework and code, which set the standards that firms should meet when supplying invoice factoring facilities. They include an independent complaints process focusing on the requirements of those smaller businesses using invoice factoring, which might otherwise be reluctant to raise concerns about their treatment. For invoice factoring among larger firms, these businesses will have the financial and legal resource available to take action through the courts.
Bringing invoice factoring into regulation would likely increase costs for businesses. This would negatively impact the ability of these businesses to manage their cash flow in a flexible, cost-effective way at a time when it is important that they have the confidence to invest and expand. There is a fine balance between the costs and benefits when bringing activities into the regulatory perimeter. It requires careful consideration to ensure that there is an appropriate balance between several factors, including ensuring that consumer protection is in place and that businesses are allowed to innovate.
Overall, the Government believe that the current approach—enforcing standards through industry bodies and voluntary codes while facilitating innovation and competition—is more likely than new regulation to drive positive outcomes for businesses that rely on invoice factoring. I therefore ask the noble Lord, Lord Leong, to withdraw his amendment.
Lord Leong (Lab)
I thank all noble Lords who have kindly supported this amendment. Access to finance is vital to start-ups and small companies; it is one way in which they can easily get money without any security. The number of small companies that have to resort to factoring invoice discounting is on the rise because banks are becoming more and more demanding as far as security is concerned. As I said in my speech earlier, my amendment is a probing one. I want to take this opportunity to ask the Minister this: can we do some more work to see how many companies access this form of finance and how many companies go bust because they cannot afford to pay some of the rates that are being asked by these companies?
On that basis, I beg leave to withdraw my amendment.
Lord Tunnicliffe
“Defined contribution and defined benefit pension funds investment review
(1) The Treasury must publish a review of how to incentivise defined contribution (DC) and defined benefit (DB) pension funds to invest in high-growth firms and a diverse range of long-term assets in the United Kingdom, which must include green infrastructure.(2) In carrying out the review, the Treasury must consult—(a) the Department for Work and Pensions,(b) the Department for Business and Trade,(c) the Pensions Regulator,(d) the FCA,(e) the PRA,(f) pension trustees, and(g) relevant financial services stakeholders.(3) The review must consider the merits of—(a) amending the definition of “specified scheme” within the meaning of the Occupational Pension Schemes (Scheme Administration) Regulations 1996 (S.I. 1996/1715) so as to increase the threshold of such DC schemes in respect of which trustees and managers are required to produce a value for members assessment under regulation 25 of those Regulations;(b) adjusting the terms of reference for DB Local Government Pension Schemes (LGPS) funds to consider regional development as an investment factor;(c) establishing frameworks to enable DB pension funds to invest in firms and infrastructure alongside the British Business Bank.(4) The Treasury must prepare a report on the outcome of the review, and lay it before Parliament within one year of the passing of this Act.”Member’s explanatory statement
This amendment would compel the Treasury to publish a review within a year of Royal Assent on how to incentivise pension fund schemes to invest in high-growth firms and green infrastructure. The review would have to consider requiring DC schemes to assess the merits of: consolidation, establishing frameworks for British Business Bank investments (so that DB pension schemes will be able to invest alongside them), and adjusting the terms of reference for Local Government Pension Schemes (so they consider regional development as an investment factor).
Lord Tunnicliffe (Lab)
Before I start, would the Government Whip like to give us some indication as to how we are going to end this session?
Lord Harlech (Con)
The Grand Committee is scheduled to run until 7.45 pm, which gives us half an hour. However, in the usual way, if the debate has not concluded by that point, the debate on this group will continue into the next day of Committee.
Lord Tunnicliffe (Lab)
Thank you. I rise to move Amendment 241FA. Patient, long-term capital is crucial for both the growth of innovative companies and investment in green infrastructure to support the transition to net zero. One of the key sources of patient and venture capital is institutional investors, in particular pension funds in the City. Compared with our peers, such as Canada, the Netherlands and Denmark, the UK sees relatively little patient capital funding coming from pension funds; while around 70% of venture capital funding in the US comes from pension funds, in the UK, the figure is under 20%. The Government must do more to enable pension funds to invest in the British economy.
I have tabled Amendment 241FA, which would compel the Government to review how to incentivise defined contribution and defined benefit pension funds to invest more in high-growth firms and diverse long-term assets in the UK. The review would cover three areas. First, we know that a significant barrier to increasing DC pension fund investment is the relatively small size of many UK DC funds. The Government could raise the threshold at which schemes are required to produce a value for members’ assessment; they previously legislated to do this for schemes smaller than £100 million but a review could explore raising the threshold significantly —up to £5 billion, for example—to deliver real change. I would appreciate the Minister replying to the merits of this particular point, if possible, but this figure is something that the review could explore.
Secondly, we know that Local Government Pension Scheme funds have around £340 billion of assets under management, of which £30 billion is already invested in alternative asset classes such as VC. In order to mobilise some of this capital into regional green infrastructure and business, a review should look at adjusting the terms of reference for LGPS funds so that they could consider regional development as an investment factor.
Thirdly, a review should explore how the British Business Bank could put the necessary framework in place to allow DB pension funds to invest alongside it. DB pension funds have nearly £3 trillion in assets under management; unlocking even a small proportion of this would be a substantial boost to the amount of additional financing available to British companies and projects.
It is helpful that the Chancellor referenced exploring unlocking pension funds’ potential in his Budget speech. I would appreciate an update from the Minister on HMT’s work in this area. I am aware that the FCA is currently consulting on the value for money framework for DC pension schemes, for example, but does that work fit into a wider government strategy to incentivise DC schemes to invest in UK firms and green infrastructure?
I beg to move.
Baroness Bennett of Manor Castle (GP)
My Lords, I thank the noble Lord, Lord Tunnicliffe, for introducing this amendment. I have chosen to address simply the green infrastructure parts, and at this time of the evening I shall park the high-growth debate in the interests of not sidelining the main issue.
The idea of a review is useful here, because the evidence we have of other measures the Government have tried to take to encourage green investment is perhaps mixed—that is the charitable description. I refer to a survey published this month by Pensions for Purpose, which looked at the first wave of obligatory reporting of the scheme introduced in October 2021 based on the Task Force on Climate-Related Financial Disclosures being done by the larger occupational pension schemes and authorised master trusts. That study found that this introduction by the Government was having very limited effects and that it was, to a large degree, being treated as a tick-box exercise. Where it was having an impact on investments, it was not driving towards green investment but rather to a portfolio decarbonisation—a stepping away from things rather than into the kinds of investments we need. This is something we are also seeing implicitly, in that the pension regulator is about to launch a publicity campaign for pension trustees, stressing the need to look at ESG responsibilities, particularly around climate issues—that has been its responsibility since 2019. It is clearly thought necessary to have a publicity campaign about this.
We really need to see steps forward and to see things joined up here. I am reminded of a debate last week with the same Minister, when we finally finalised the UK Infrastructure Bank Bill, which, of course, is looking at another source of investment going into green. I am very encouraged by the Government’s decision to include nature-based solutions there, which is obviously a cross-reference to our need to see much more private investment in nature-based solutions as well. Dare I say it, it would be nice to see some circular economy as well—if I can just put that in there.
On the idea of a review, we desperately need to see money going into green infrastructure. All the evidence we have says that is simply not happening. I also note that the Government need to create the frameworks in other areas of policy to make this happen. I was sitting here, thinking of when I was in this very same Room a few weeks ago with the Energy Bill. One of the things that could be a very good target for investment would be that if we are to get community energy schemes up and down the land—if we get delivery of the widely-backed Local Electricity Bill, as it is in the other place—that would be a great area to see pension funds investing in and supporting. I was at an event this morning debating social value and the importance of that in procurement.
We need to tie all these things together. All these things are running off at different angles, but we are still not creating an environment where people who are putting money into their pensions, seeking to invest in their own future, will have a liveable future for that pension to pay out in.
Lord Eatwell (Lab)
My Lords, it is obvious that the issue of pension funds investing in equities and longer-term growth prospects was highlighted by the LDI crisis in the autumn. I hope that, when the Government come to consider the consequences of that crisis, they will look at the letter that your Lordships’ Industry and Regulators Committee sent to Andrew Griffith MP, the Economic Secretary to the Treasury, setting out the reasons it saw for the peculiar financial structures that led to the LDI crisis and the lack of long-term investment in equities and growth stocks by British pension funds. They traced this to the accounting regulations that are imposed on British pension funds—particularly the way in which liabilities are assessed—and noted that, since those regulations were introduced maybe 15 years ago, there has been a dramatic reduction in the investment by British pension funds in long-term equity assets and a focus mostly on rather low-yielding government securities instead.
The LDI scandal was produced by the development of a peculiar financial device using repos, which were then used to make some investment in equities. There is clearly a fundamental problem in the regulation of British pension funds, which has both reduced the returns on their investment and limited the sort of investments they might be able to make in growth assets to their benefit and that of the economy as a whole. There needs to be a major review on the regulation of pension funds, both to make them more secure—to avoid them resorting to very unstable financial constructions to try to increase their returns—and for the overall benefit of the economy.
Lord Sharkey (LD)
My Lords, I agree with everything that the noble Lord, Lord Eatwell, has said. We are happy to support this amendment. I simply have two questions and one observation about it.
The amendment says that we must include “green infrastructure”. Is there a practical, generally agreed working definition of what that actually means? I also notice that, in carrying out the review, the Treasury must consult a list of organisations. The final group of organisations is “relevant financial services stakeholders”. Is the intention also to include professional advisers? They would be a vital addition; perhaps that should be made explicit as we go forward.
My observation is that proposed new subsection (3)(c), which talks about
“establishing frameworks to enable DB pension funds to invest in firms and infrastructure alongside the British Business Bank”,
is an extremely good idea. We should make sure that this happens as soon as we can.
Baroness Penn (Con)
My Lords, the Government remain fully committed to the objective of unlocking pensions capital for long-term, productive investment, where it is in the best interests of members. High-growth sectors developing cutting-edge technologies need access to finance to start, scale and stay in the UK. The Government are clear that developing the next generation of globally competitive companies in the UK will require unlocking defined contribution pension fund investment into the UK’s most innovative firms.
That is why, in the Spring Budget last week, the Chancellor committed the Government to working with industry and regulators to bring forward an ambitious package of measures by this autumn. He also set out a number of initial measures to signal the Government’s clear ambition in this area. They included increasing support for the UK’s most innovative companies by extending the British Patient Capital programme by a further 10 years until 2033-34 and increasing its focus on R&D-intensive industries, providing at least £3 billion in investment; spurring on the creation of new vehicles for investment into science and tech companies tailored to the needs of UK defined contribution pension schemes by inviting industry to provide feedback on the design of a new long-term investment for technology and science initiative; and leading by example by pursuing the accelerated transfer of the £364 billion Local Government Pension Scheme assets into pools to support increased investment in innovative companies and other productive assets. The Government will shortly come forward with a consultation on this issue.
Lord Tunnicliffe (Lab)
My Lords, I thank all noble Lords who have spoken in this debate.
The noble Baroness, Lady Bennett, went banging on about the green issue again. In many ways, I cannot think of a better day to do so, with the report from the United Nations that came out yesterday. This is the challenge not particularly of my lifetime but of the community’s lifetime and younger people’s lifetimes—our children, grandchildren and so on. This green issue is not optional. It is central to our survival and the survival of our civilisation as we know it.
I thank my noble friend Lord Eatwell for his support. Getting this right is not trivial; you have to get the balance right. The LDI issue, as I understand it, was essentially about pension schemes wanting to nudge in this direction, discovering that they could not do it in a straightforward way then finding a way around the back without actually realising how destabilising that scheme was. We need good-quality thought in moving this forward so that we get growth, yield and safety all in the same package.
I agree with the noble Lord, Lord Sharkey, particularly on the definition of “green”. This brings me to an adjacent issue, which is the whole concept of the green taxonomy. I hope that this will develop and grow and that it will become an international standard; it will provide a basis for the development of this type of initiative and, of course, all sorts of other initiatives.
As for the Minister, I cannot see why she is not accepting my amendment. I know that the Government like to chew them up so I am looking forward to a government amendment coming forward on Report to embrace this useful and sensible thrust. I beg leave to withdraw Amendment 241FA.
House of Lords
Retirement of a Member: Viscount Falkland
The Lord Speaker (Lord McFall of Alcluith)
My Lords, I should like to notify the House of the retirement, with effect from today, of the noble Viscount, Lord Falkland, pursuant to Section 1 of the House of Lords Reform Act 2014. On behalf of the House, I thank the noble Viscount for his much-valued service to the House.
European Structural and Investment Funds and the European Agricultural Guarantee Fund
(1 year, 9 months ago)
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Lord Kirkhope of Harrogate
To ask His Majesty’s Government whether they have matched the funding previously provided by the European Union to the United Kingdom for the European Structural and Investment Funds and the European Agricultural Guarantee Fund in 2014–20; and if not, what is the extent of the shortfall.
The Parliamentary Secretary, HM Treasury (Baroness Penn) (Con)
The 2021 spending review announced the £2.6 billion UK shared prosperity fund, which improves on the European structural funds by empowering local places. The Government have also introduced farming and rural support worth a cumulative £3.7 billion annually over this Parliament and £33 million annually to support fisheries. This meets our 2019 manifesto commitments to maintain the levels of funding for farmers, fisheries and local economic growth in ways that are less bureaucratic and better targeted at local priorities.
Lord Kirkhope of Harrogate (Con)
I thank my noble friend for that partial reassurance, but I ask her to consider very carefully two elements. One is the farmers and members of agricultural communities, who are seeing an erosion of direct payments right now against a future sustainable farming incentive, and their deep concern to keep food production at a high level. The other is structural funding; many local authorities and regions in our country have had expectations for the new UK shared prosperity fund, but that is not coming in for some time. Can my noble friend give us further reassurances that these gaps will be filled?
Baroness Penn (Con)
My noble friend is right that, in both schemes, as the EU funding falls away, the UK funding comes in to replace it. We are seeking to do that in as smooth a way as possible. When it comes to support for farmers, we will continue to set out next steps on our environmental land management schemes, including the sustainable farming initiative, Countryside Stewardship and landscape recovery. On the shared prosperity fund, I reassure my noble friend that that fund is ramping up as EU funding falls away; its profile is faster than the way in which previous EU funding had been distributed.
Lord Wigley (PC)
My Lords, is the Minister aware that, when Wales first received structural funds from the European Union in 2000, that money was accepted by the Treasury in the UK and was not initially passed over to the beneficiaries, on the basis that they were already getting adequate money from the Treasury? It needed the intervention of Michel Barnier, the regional commissioner at that time, to get the Treasury to pass that money over. Will she give a guarantee that all money that is supposed to be equivalent to structural funds will be additional to the base spending for the areas that need it?
Baroness Penn (Con)
My Lords, the commitment that the Government have made is that the replacement of EU funding in each nation will meet the levels that they previously received. That is the commitment that we are delivering through the shared prosperity fund.
Baroness Randerson (LD)
My Lords, Wales was a beneficiary of EU funding, as one of the poorest parts of the EU. The Welsh Government used a big slice of that funding to support university support partnerships across Wales and beyond. Because the new shared prosperity fund is administered by the UK Government and local authorities, there is no scope for universities to benefit in the same way, leaving a big hole in the amount available for university research, which is of course essential for levelling up. Will the Minister undertake that she will, with her colleagues, examine this problem and amend the UK’s funding mechanisms in order to solve the big hole that is appearing in university research funding? I declare an interest as chancellor of Cardiff University.
Baroness Penn (Con)
My Lords, the UK shared prosperity fund was designed to give local areas more discretion about how they spend that funding, aligned with local priorities. The UK Government provide significant support to our research sector, including through universities, but I am happy to take the noble Baroness’s feedback back to the Treasury.
Baroness Ritchie of Downpatrick (Lab)
My Lords, many social economy projects in Northern Ireland have relied on the European Social Fund for many years. Because that funding is due to end next week, they face a cliff edge, and they have not received any communication about funding allocations from the UK prosperity fund. To enable such social economy projects to continue with their good work, right across the communities, will the Minister ensure that this funding is made available to such projects that do such good work for the benefit of all?
Baroness Penn (Con)
I am aware that there are elements of funding from the European Social Fund in Northern Ireland that are due to come to an end at the end of this month. The Department for Levelling Up, Housing and Communities is administering a competition to replace that funding, and it received strong and positive responses from organisations across Northern Ireland seeking to deliver the aims of that programme. It is working very hard to make the final selection decisions as quickly as possible.
Baroness McIntosh of Pickering (Con)
My Lords, does my noble friend accept that, for two categories of farmers—particularly hill farmers and tenant farmers—the level of income from the European funds is falling faster than initially expected? Will she work with Defra to ensure that their incomes are protected, and that they continue to produce the excellent food that they do for this country?
Baroness Penn (Con)
My Lords, I am sure that Defra will want to support the work of all farmers in our economy. My noble friend referred to two different categories of farmer: I know that my noble friend Lady Rock did an excellent review into tenant farmers, and a number of her recommendations have been taken forward. As Defra develops its programmes for the sustainable farming incentive and other replacements for EU funds, it will want to take into account the needs of different farmers across the UK.
Baroness Hayman of Ullock (Lab)
My Lords, the Government made a very simple promise to the nations and regions of the UK, as well as to farmers: European funding would be matched pound for pound, and the mechanisms used to allocate funds would be simpler and fairer. Several years on, we are still waiting for the shared prosperity fund, environmental land management schemes and the UK Infrastructure Bank to get fully up and running and to hit the targets they have been set. How have the Government managed to get this so badly wrong? Why is progress so slow? Does she acknowledge that this is a difficult time for farmers and that the Government really need to crack on with it?
Baroness Penn (Con)
My Lords, as I have explained to the House, as European funding tails away, UK funding ramps up. For example, the shared prosperity fund will reach £1.5 billion a year by the end of the spending review period. For each of the sectors that the noble Baroness mentioned, we have provided clarity around the funding available for the full three years of the spending review and the mechanisms by which it will be distributed. I know that my colleagues in Defra continue to work hard with farmers to ensure the successful rollout of the replacement schemes.
Lord Jones (Lab)
My Lords, will the Minister acknowledge that, in recent times, Wales has lost a great foundation industry, which was mining? It provided tens of thousands of jobs and created some prosperity. In recent times, the once mighty steel industry of Wales has also all but disappeared—it has shrunk. We are more and more in need of investment. It was from the privy counsellors’ Bench over there that former Prime Minister Harold Macmillan, Viscount Macmillan, paid tribute to the miners and steelworkers who, in two world wars, defeated first the Kaiser and then Adolf Hitler. Wales now needs more and more government funding. In the lovely heartland of Wales—cefn gwlad—there is great distress among the farming communities. We are in need of investment.
Baroness Penn (Con)
My Lords, we had a discussion last week about the needs of Wales when it came to government funding. I told noble Lords then that we took into account the greater needs of Wales as calculated by the Holtham commission. Indeed, the funding that goes to Wales is over and above the assessed needs of Wales at the present time.
Lord Hannan of Kingsclere (Con)
My Lords, will my noble friend the Minister confirm that we now have the advantage of being able to start with an identified need and then look for how to fund it rather than, as necessarily happened under the European funds, to start with a figure of money and then cast around for ways to spend it?
Baroness Penn (Con)
My noble friend is right that one of the opportunities that we have, having left the EU, is to look at programmes and make sure that they deliver against our policy priorities in the UK. That is exactly what we are seeking to do with our agricultural support schemes, for example, and we will continue to look for opportunities to do that.
International Higher Education Students
(1 year, 9 months ago)
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Lord Watson of Invergowrie
To ask His Majesty’s Government what steps they have taken to arrest the decline in the United Kingdom’s global market share in international higher education students, which fell from 11 per cent in 2008 to eight per cent in 2019.
The Parliamentary Under-Secretary of State, Department for Education (Baroness Barran) (Con)
My Lords, in 2019 we published the International Education Strategy, which commits to hosting at least 600,000 international students per year by 2030. We have met that for two consecutive years, with nearly 680,000 studying here in 2021-22—a 37% increase on 2019 and almost double the number in 2008. While the international student market is becoming more competitive, the absolute number continues to grow, which is testament to the global reputation of our higher education sector.
Lord Watson of Invergowrie (Lab)
My Lords, I thank the Minister for that reply. Three years ago, after the Government had removed all post-study work opportunities and rolled out the then Home Secretary’s policies of an unwelcoming environment, the UK slipped from second to third among English-speaking destinations for international students, with Australia overtaking us. The international education strategy to which she has referred was a response to the failure of those policies. While it has indeed reversed the deadline, Universities UK is now saying that new government proposals will restrict its ability to recruit international students. International students make a huge contribution to the economy, and surely the Government need to make more of promoting the UK as a welcoming and accessible destination for study and post study. Is it not the case that the Minister cannot deny that the Government’s policy of restricting student visas will have the opposite effect?
Baroness Barran (Con)
I really do not recognise what the noble Lord is saying. In 2019, we had 496,000 international students coming to this country; last year, there were 679,000. We have introduced a graduate route, which allows international students who are graduates to work in this country. We have increased our educational exports from this area from £19 billion to £25.6 billion and are heading to our target of £35 billion.
Lord Storey (LD)
My Lords, does the Minister agree that we should have a diverse international student population in our universities, and is she not concerned that, of the 590,000 non-EU students, those from China, India and Nigeria dominate? Is she concerned about the 120,000 Chinese students and maybe their effect on security?
Baroness Barran (Con)
The Government absolutely agree that we need a diverse population of international students. The noble Lord mentions India and Nigeria; those were two of the countries that were specifically targeted in our International Education Strategy, and we are delighted to see how successful it has been.
Lord Krebs (CB)
My Lords, it is not just international students who are important to our universities but international research funding. In this context, does the Minister agree with the analysis that shows that, in the two oldest universities in this country, Oxford and Cambridge—I declare an interest as a retired Oxford professor—funding from the European Union has fallen from £130 million a year to £1 million a year? What is the Government’s assessment of the impact of this loss of £129 million a year, and what are the Government going to do about it?
Baroness Barran (Con)
I cannot argue with the noble Lord’s figures; I do not have them directly in front of me. Obviously, the balance in the relationship between government and universities, as autonomous institutions, is a delicate one, which both sides respect. He will be aware that we are delighted at the EU’s recent openness to working with us on the Horizon programme.
Lord Forsyth of Drumlean (Con)
My Lords, would my noble friend care to reflect on the fact that in Scotland, which has St Andrews as the oldest university, the failure of the Scottish Government to have tuition fees for Scottish students has meant that there are no places for Scottish students, and the universities are having to raise the money by having more international students, at the expense of youngsters in Scotland?
Baroness Barran (Con)
I cannot really comment on the experience of youngsters in Scotland. I can say that, from our perspective in England, we believe that the presence of international students is a great source of soft power for the nation—both those in our universities here and the more than 500,000 students who study in British universities overseas.
Lord Morgan (Lab)
I am deeply grateful to the House for its delayed courtesy.
It is surely lamentable that the number of university students from, particularly, European universities, has declined in department after department. I know from my experience how enormously enriching the Erasmus scheme, for example, was. It was invented by a fellow Welshman, Hywel Ceri Jones, and we are deeply grateful for it. Furthermore, as has been said, university students from elsewhere contribute enormously to the local economy in a variety of ways. Can we not try to reverse this trend by a very much more European-focused policy in our universities, in the hope of restoring what has been lost, perhaps never to return?
Baroness Barran (Con)
I am not sure that I agree entirely with the noble Lord. We are interested in a diversity of students from different parts of the world. I am not clear from the noble Lord’s question what is particular about European students. All our international students bring cultural diversity. We welcome students from Europe as we welcome students from all parts of the world, and all contribute enormously to our economic well-being.
Lord Trees (CB)
My Lords, international students certainly enrich our academic community, but there is a danger that they can displace UK students, as the noble Lord, Lord Forsyth, said, because of the much higher fees that can be charged to them. This is a particular issue in veterinary science, in which I declare my interests. The core funding there from government is inadequate to fund the full course. Over 20% of the graduates that we produce in our British veterinary schools now are overseas students who are not destined to work in the UK workforce, at a time when we have a desperate shortage of vets. Can His Majesty’s Government please look at this issue?
Baroness Barran (Con)
I am more than happy to take that back to the department.
Baroness Wilcox of Newport (Lab)
Does the Minister agree that it is regrettable that universities, and particularly their international students, increasingly are seen by some vocal commentators as a convenient political battlefield rather than existing for the public good? Given reports that the Government are considering reforming migration rules for international students, can the Minister confirm whether a comprehensive impact assessment has been conducted around the proposed changes?
Baroness Barran (Con)
Quite obviously, in all areas of policy there are different aspects which we would consider in great detail—the economic impact, our international soft power, which I mentioned, and a number of others.
Baroness Smith of Newnham (LD)
My Lords, my noble friend has already mentioned two of the target countries in the Government’s strategy—India and Nigeria. Can the Minister explain why Saudi Arabia is one of the five target countries and whether diversification could not go a little further? I refer to my interests as laid out in the register.
Baroness Barran (Con)
The Government are looking at the range of countries that we should prioritise beyond our initial focus. Saudi Arabia is obviously an important strategic partner for us on many levels.
Lord Cormack (Con)
My Lords, can we take it, following the Prime Minister’s brilliant negotiations over the Northern Ireland protocol, that we will now be participating fully in the Horizon project?
Baroness Barran (Con)
I think I have already addressed Horizon. My noble friend may be aware that the Secretary of State at DSIT met with the EU’s ambassador to the UK, Pedro Serrano, on 14 March and discussed collaboration in this area. We hope very much that this leads to more positive relationships regarding Horizon.
UK-EU: Revised Passenger Requirements
(1 year, 9 months ago)
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Lord Blunkett
To ask His Majesty’s Government, further to the decision by the European Commission to delay the introduction of the Entry/Exit System (EES) and European Travel Information and Authorisation System (ETIAS) until the end of 2023, what steps they intend to take to facilitate a smooth transition for travellers from the United Kingdom wishing to enter the European Union under the revised passenger requirements.
The Parliamentary Under-Secretary of State, Home Office (Lord Murray of Blidworth) (Con)
The Government are engaging both the European Commission and the French Government through officials holding routine technical meetings to understand and influence the implementation plans of the new system. This includes working with port owners and operators to understand and support their plans, in order to mitigate the impacts from EES and ETIAS at the border. However, ultimately it is for EU member states to implement the new system.
Lord Blunkett (Lab)
My Lords, the Minister’s final words were the ones used by the previous Home Secretary when appearing before your Lordships’ Justice and Home Affairs Committee. However, three weeks ago, in a Question about overcrowding and difficulties at the border, the Minister then said:
“our own electronic travel authorisation scheme … will accelerate the rate at which people can cross the border.” [Official Report, 28/2/23; col. 126]
What is the electronic scheme that was referred to three weeks ago, and would it not be sensible to have a scheme like the US ESTA scheme whereby people can have their fingerprints and documentation taken before travelling, rather than being held up at the border?
Lord Murray of Blidworth (Con)
I find myself in the odd position of agreeing with the noble Lord, Lord Blunkett. Let me explain. The European Union has chosen to implement something called the European Entry/Exit System. This replaces passport stamping and requires non-EU nationals entering and exiting the Schengen area to provide a digital photograph and fingerprints on entry and exit. That is different from the electronic travel authorisation that the UK will be implementing in due course; that requires only a digital photograph. That is what will accelerate the rate at which people pass through passport controls into the UK, over which we have control. We have, sadly, no control over passport controls into the EU, and the EES will apply in that sphere.
Baroness Deech (CB)
My Lords, can the Minister explain why, when British people travel abroad, they are put in a queue with all the non-EU people but when they come home to Heathrow and elsewhere, Europeans and the British are in the same queue? Why are the Europeans not separate, and can that not be used as some sort of leverage?
Lord Murray of Blidworth (Con)
I understand that the United Kingdom has always taken the view that the Europeans are our friends and we treat them in the same way we always did. That, sadly, has not been the approach adopted by some of our European and EEA colleagues.
Baroness Randerson (LD)
My Lords, in his first Answer the Minister referred to working with port operators, but of course, the Channel Tunnel also deals with 10 million passengers a year and is a conduit for £140 billion of UK-EU trade. The operators of the Channel Tunnel calculate that 85% of their customers will have to pre-register and be subject to the necessary border controls. This is obviously a huge task, so can the noble Lord give us some details of his Government’s discussions with the EU? Are there any plans for a phased introduction, and to try to defer this whole huge change until after the Paris Olympics?
Lord Murray of Blidworth (Con)
If I may, I will address the question in relation to the European Entry/Exit System. That is a separate procedure from the European Travel Information and Authorisation System; it is the ETIAS which will require people to log their intended visit online and to record some biological data. The European Commission intends that it will be implemented some six months after the operationalisation of the European Entry/Exit System, which is the photograph and fingerprints at the border system I discussed a moment ago. As the noble Baroness rightly observes, the Paris Olympics fall in June next year. On the latest indications from the European Commission, the implementation date has been postponed from the end of 2023 to an uncertain date. It may be that that date will be after the Paris Olympics, but we have no indication one way or the other.
Lord Watts (Lab)
My Lords, given that most tourists are travelling to mainland Europe, would it not have made sense for us to have the same system as the French, and speed the process up?
Lord Murray of Blidworth (Con)
Clearly, the European Union and the Schengen area have set up their own system. It does not incorporate all members of the European Union; for example, the Republic of Ireland is not participating in EES or ETIAS. It makes sense for the UK, as a sovereign country, to have its own entry and exit system, as the United States does.
Lord Coaker (Lab)
My Lords, the Minister has just said the system, whenever it is sorted out, will not now be delivered until after the 2024 Paris Olympics, which is over two years after it was supposed to be introduced. He will know that Eurostar is already saying there are real problems at St Pancras, Folkestone and Dover, and you only have to travel to know there are problems. What are the Government going to do to work with colleagues across Europe to try and sort this out before summer 2024?
Lord Murray of Blidworth (Con)
My Lords, it is for the European Commission to decide when it implements its system. Our system will be ready probably before then, and implementation of the ETA is well advanced. But obviously, it is in everyone’s interest to work closely, and I am pleased to report that we have been very much doing so. Technical meetings are happening today between the United Kingdom and France regarding ongoing co-operation on questions of border control. Clearly, if we can reduce any impact, that assists both the UK and the EU member states.
Lord Foulkes of Cumnock (Lab Co-op)
My Lords, I am pleased that I have still got a maroon passport, a European passport, whereas my good friend, my noble friend Lord Watson, has got one of these, a blue passport, which I understand is printed and produced overseas. Why can we not produce our own passports any more?
Lord Murray of Blidworth (Con)
I will not castigate the noble Lord for using an exhibit in the Chamber, but perhaps I can say this. We are delighted that passport covers—which are indeed, as I understand it—presently made in Europe, are obtained through a competitive tendering process. We use taxpayers’ money sensibly on this side of the House.
British Banking Sector
(1 year, 9 months ago)
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The Lord Bishop of St Albans
To ask His Majesty’s Government what assessment they have made of the health of the British banking sector, following the challenges faced by overseas banks.
The Parliamentary Secretary, HM Treasury (Baroness Penn) (Con)
The UK Government welcome the steps taken to support financial stability on Sunday by the Swiss authorities relating to Credit Suisse. This follows the sale on 13 March of Silicon Valley Bank UK to HSBC after the resolution of its US parent. No other UK banks have been materially affected by these actions. The Governor of the Bank of England has confirmed that, in his view:
“The wider UK banking system remains safe, sound, and well capitalised.”
The Lord Bishop of St Albans
I thank the Minister for her reply. Many people watching the events unfold at the moment are concerned that they may lose their jobs or that there will be another financial hit to people at a time of high inflation. It is 10 years since we had the publication of the Parliamentary Commission on Banking Standards report. One of its conclusions was that the implicit taxpayer guarantee gives banks
“access to cheaper credit than would otherwise be available and creates incentives for them to take excessive risks.”
Do His Majesty’s Government have any steps to remove the implicit taxpayer guarantee? If not, what other incentives will His Majesty’s Government give to ensure that bankers act prudently?
Baroness Penn (Con)
My Lords, I emphasise to people at home the words of the Governor of the Bank of England that the UK banking system
“remains safe, sound, and well capitalised.”
The situation is different from 2008. Over the last 15 years, the Government and the Bank of England have taken robust action to strengthen the regulatory system and the resilience of the UK banking system. Specifically to the right reverend Prelate’s question, we have put in place a resolution regime to ensure that the failure of a bank can be managed in a way that minimises the impact on depositors, the financial system and public finances. I note that the resolution solution found for Silicon Valley Bank last week involved no UK taxpayer money whatever.
Lord Lamont of Lerwick (Con)
My Lords, is the implication of the right reverend Prelate’s question not a policy that would make banks far riskier than they already are? It is an extraordinary policy for him to advocate. I understand from the press that the Government were involved in the actions taken to save Credit Suisse and merge it with UBS, but a certain amount of disquiet has been caused by the preferential treatment that appears to have been given to shareholders rather than bondholders. Can she explain why this situation has arisen? Is the implication of that not rather disturbing for bondholders in other banks?
Baroness Penn (Con)
My Lords, the Swiss authorities were in the lead in the solution for Credit Suisse but my noble friend is right that, given the significant presence of Credit Suisse in the UK, the Treasury has remained in close contact with the Bank of England and the Swiss authorities in recent days. We welcome the comprehensive set of actions set out by the Swiss authorities to support financial stability. The UK authorities are going to take a number of actions to support that action, including PRA plans to approve a change in control application for the Credit Suisse subsidiaries in the UK. The resolution of the Credit Suisse situation was for the Swiss authorities, but the UK remains in close contact.
Lord Tunnicliffe (Lab)
My Lords, we welcome the Bank of England’s swift action on SVB UK and its recent statements about the safe nature of the UK’s banking system. Nevertheless, events elsewhere, including those relating to Credit Suisse, are creating uncertainty in the global financial system. With this in mind, will the Treasury and the Bank of England commit to undertake a systemic review of the impact of interest rate rises and wider events in the system on our own financial sector and banking system?
Baroness Penn (Con)
My Lords, as with any major event, the Treasury will reflect on the lessons to be learned and how improvements can be made. I assure noble Lords that, each year, the Bank of England carries out a stress test of the major UK banks that incorporates a severe but plausible adverse economic scenario. The 2022 stress test scenario includes a rapid rise in interest rates, with the UK bank rate assumed to rise to 6% in early 2023. The results of that test are taken forward by the PRA in its supervision of the banks. The results will also be published this summer.
Baroness Bowles of Berkhamsted (LD)
My Lords, an FT piece yesterday, headlined “How ‘competitive’ would you like your bank regulation now?”, says:
“The UK regulatory pendulum has been halted in mid-swing.”
Is that true? Credit Suisse had G-SIFI levels of capital and liquidity but was undone through bad culture. Are not the twin bastions of culture in the UK banks ring-fencing and the senior managers regime? Is it not also of massive cultural significance that it came from the Parliamentary Commission on Banking Standards? If the Government mess with those, where is the break on culture-based runs? What do they say when these practices come under lobbying pressures?
Baroness Penn (Con)
My Lords, I think the noble Baroness was asking about the Government’s proposed Edinburgh reforms package, which represents a move towards proportionate, simple regulation that works for the UK and will help to drive growth in the broader economy, supporting families and businesses across the country. In that approach, we recognise that the UK’s success as a financial services hub is built on agility, consistently high regulatory standards and openness. We will continue to take those principles forward in our reforms.
Lord Eatwell (Lab)
My Lords, I found the noble Baroness’s position on the current status of the banking system to exhibit extreme complacency. Is she aware that Credit Suisse was very highly capitalised and had in place all the financial anchors on which she relied in her Answer? Yet Credit Suisse has collapsed. Do the so-called Edinburgh reforms not actually come up to this: we are going to make the banking system more competitive, which equals taking greater risks?
Baroness Penn (Con)
My Lords, in the Financial Services and Markets Bill we are introducing a new objective for the regulators to look at competitiveness, but we are clear that that objective comes second in the hierarchy to the systems objectives around financial stability. We think that strikes the right balance. We are absolutely not complacent about the global banking system and the wider financial services sector, but it is important to recognise that we are in a different position from 2008 and that we are making further changes to ensure the resilience of our sector. For example, the Bank of England announced in December that, for the first time, it will run an exploratory stress-test exercise focused on non-bank financial institutions, recognising the increased risk posed there. We will continue to do what we need to do to ensure financial stability in this country.
Lord Grabiner (CB)
Are we entitled to assume that the London branch of Credit Suisse is being properly regulated by the FCA and the Bank of England?
Baroness Penn (Con)
The noble Lord is right that the Credit Suisse subsidiary in the UK was regulated by the Prudential Regulation Authority and met its obligations under those regulations.
Baroness Williams of Trafford (Con)
My Lords, it is the turn of the Green noble Baroness, and then it will be my noble friend.
Baroness Bennett of Manor Castle (GP)
My Lords, we have had two questions addressing the dangers of the competitiveness agenda of the Edinburgh reforms, which the Green Party has consistently opposed. The other element is that the Government talk about boosting growth. The Minister suggested that was for the general economy, but it has been presented as a desire to grow the financial sector. Is there not, as demonstrated by recent events, a great risk of too much finance and too large a financial sector when what we need is a real-sized financial sector to serve the real economy?
Baroness Penn (Con)
I disagree with the noble Baroness. The UK’s financial services sector is one of our great strengths in and of itself and as an engine to power growth across the rest of our economy; that will remain the case under this Government.
Lord Reay (Con)
My Lords, is my noble friend the Minister confident that the risk controls at the UK fintechs are adequate, given the current challenging conditions in the global financial markets?
Baroness Penn (Con)
My Lords, one thing that UK regulators have sought to do is ensure that the fintech sector is well regulated while continuing to innovate. We have been able to use things such as regulatory sandboxes to allow safe spaces for that innovation to be tested out, and we will continue to take that approach.
Judicial Pensions (Fee-Paid Judges) (Amendment) Regulations 2023
(1 year, 9 months ago)
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Lord Bellamy
That the draft Regulations and Order laid before the House on 23 January and 8 February be approved.
Relevant document: 30th Report from the Secondary Legislation Scrutiny Committee. Considered in Grand Committee on 20 March.
Special Immigration Appeals Commission (Procedure) (Amendment) Rules 2023
(1 year, 9 months ago)
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Lord Murray of Blidworth
That the draft Rules laid before the House on 2 February be approved.
Relevant document: 30th Report from the Secondary Legislation Scrutiny Committee. Considered in Grand Committee on 20 March.
Security of Government Devices
(1 year, 9 months ago)
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Lord Collins of Highbury (Lab)
My Lords, I welcome the announcement of this ban but the question of why it has taken the United Kingdom so long to come to the same conclusions as many of our closest allies remains. As Angela Rayner noted in the Commons just weeks ago, the Secretary of State for Science, Innovation and Technology said that there was “no evidence” for a ban being brought forward. So what changed? Has there been a specific incident that prompted a shift in policy? I hope the Minister will be able to answer that. Oliver Dowden, the Chancellor of the Duchy of Lancaster, was honest that the previous list of banned apps did not apply to every government department. Can the Minister outline which departments were exempt and why?
A number of MPs asked about the rules for Ministers’ personal devices. Given recent revelations about the scale and use of WhatsApp and personal email across government, the Chancellor of Duchy of Lancaster said that any substantive government business should be done on official devices. Will new guidance on the use of personal devices and WhatsApp clearly define what is meant by “substantive government business” or will that be a matter of personal interpretation? We have already heard Grant Shapps appear to say that he wants to continue to use his own personal device and use “TikTok”.
Lord Collins of Highbury (Lab)
I did ask someone earlier what TikTok is—I thought I was a modern person, but clearly not.
Can the Minister tell us whether this sort of interpretation is going to involve a change in the Ministerial Code? A Minister may not think sharing a draft Written Ministerial Statement on personal email qualifies either as substantive business or as a security risk, but the Home Secretary was of course temporarily forced out after sending such material to the wrong people. Oliver Dowden also talked about the granting of exemptions for operational reasons. Can the Minister provide an example of why a banned app may be deemed necessary? If she cannot today, could she write with such an example?
This debate takes place in the context of wider concerns about some forms of Chinese-made technology, including CCTV camera systems. On 2 February, my noble friend Lord Bassam of Brighton asked when the Government would commence important product security provisions under the Product Security and Telecommunications Infrastructure Act, which is intended to protect users of smart products such as CCTV doorbells. The noble Lord, Lord Parkinson of Whitley Bay, was unable to provide any date. I hope the Minister can do so today. The Government said they intended to bring the first half of that Act into force as soon as practicable, so why are we still waiting?
Lord Clement-Jones (LD)
My Lords, as a long-standing deputy chair of the all-party China group, I welcomed the proportionate approach taken in the Government’s statements in the integrated review refresh about relations with China. In the face of the current human rights position in Xinjiang and the situation in Hong Kong, however, this should not change any time soon.
On these Benches, we are in strong agreement with those who consider that the Government could and should have been a great deal more strategic about relationships with sensitive Chinese suppliers—whether internet or data based, hardware or software related—in the run-up to this Statement. This is a one-off Statement about TikTok, a social media company. It would be good to see the assessment and the evidence of potential cybersecurity issues which the Government have not yet—as far as I know—produced.
However, when it comes to makers of surveillance cameras, as the noble Lord, Lord Collins, said, the Government appear far more reluctant to act. The Surveillance Camera Commissioner, Professor Fraser Sampson, has been very clear in his warnings, in particular about Hikvision and Dahua cameras, which, as far as we know, are used extensively in Xinjiang for surveillance purposes and pose security risks here, even when live facial recognition is not enabled.
Just last week, we saw Tesco lead the way in the private sector and order the removal of these cameras from its stores. The Government have simply ceased to install them. Why are they not directing their removal, particularly in police forces? Have they mapped exactly where on the government estate and in other spaces these cameras remain?
Regarding TikTok, why act so late when the EU and US, as the noble Lord, Lord Collins, mentioned, acted earlier? Presumably they have the same security information. When did the evidence emerge that has led to this ban? Will the Government publish the review by cybersecurity experts which assesses the risks posed by these third-party apps on government devices?
As the noble Lord, Lord Collins, also mentioned, why are private devices used by government Ministers not covered? I note that Oliver Dowden repeated that position last week. After all, we know there has been extensive use of private devices by Ministers, particularly —dare I say—among former Health Ministers. What assessment of this aspect has been made? Which government departments and public bodies are actually covered? What is the process for drawing up the promised approved list of apps? What criteria will be used?
As many said in the Commons, this looks like whack-a-mole; the Statement is no substitute for a coherent cross-government strategy. Why do the Government not now move, for instance, to include the capture of biometric data in the definition of “critical national infrastructure”? Questions have been raised recently about Chinese cellular internet of things modules—CIMs—which are imbedded in many devices. What is the Government’s approach to this? Are they even aware of what CIMs are?
Finally, if the Government are concerned about information being harvested by social media and other apps, why is the Data Protection and Digital Information Bill, now before the Commons, widening the circumstances in which research data can be used for commercial purposes? Is this not a typical example of this Government’s incoherence and lack of co-ordination on issues such as this?
The Minister of State, Cabinet Office (Baroness Neville-Rolfe) (Con)
My Lords, I welcome the welcome for the Statement made by my right honourable friend the Chancellor of the Duchy of Lancaster last week. By way of background, I should explain that the Government commissioned a review by our cybersecurity experts of the risks posed by third-party applications, including TikTok. As a result, the review concluded that we needed further security measures to protect the data.
There is obviously a limit to what I can say due to the sensitive nature of the Government’s work, but we are taking what we believe is proportionate, considered action to strengthen the security of government devices, and we are doing that in two ways. First, as is already the case in many departments—and that includes my own, the Cabinet Office—all government departments will now move to a system where only the third-party mobile apps available on their devices are those which have been pre-approved for inclusion on a departmental “allow list”.
Secondly, as a precautionary measure, all government departments are now required to take action to prohibit TikTok on their devices with immediate effect. It is a prudent, proportionate step, and more broadly, we are absolutely committed to bolstering national security, of which this is an example. As I explained to the House about 10 days ago, new guidance on the use of non-corporate communications will be issued very shortly and will bear on some of the questions that have been raised.
I was asked about TikTok on Ministers’ personal devices. The Secretary for State for Energy Security and Net Zero, who has been quoted, supports our policy and has been very clear that he has never used TikTok on his government devices. On personal devices, it is more of a personal choice. As I have explained before, all Ministers are carefully trained in security when they are appointed, and they have a briefing from time to time to keep that up to date.
To answer the question about exemptions, the business justification for having TikTok on government phones is to my mind very limited, but there are a small number of cases where it is necessary. Examples would include security and law enforcement. I know that some of my colleagues who are involved in security may need to use TikTok to make observations. Marketing would be another area—I think that the Secretary of State for Energy Security and Net Zero, Grant Shapps, comes into that category. We need to have common sense and proportionality. Departments will be able to make exemptions on a case-by-case basis through a departmental approval process, but with ministerial clearance as appropriate and risk mitigation in place.
Regarding Chinese security cameras, we have acted— we have discussed this in this House many times. We are also strengthening the powers in our Procurement Bill, and suppliers will be considered for addition to the debarment list on the basis of a rigorous and fair policy. This policy is under development, so it is too early to say, but regarding the action we have taken, we are now working with departments to make sure that Hikvision cameras are phased out.
The noble Lord, Lord Clement-Jones, talked on a more strategic level about China, about which we need to be sober and realistic. Obviously, we do not dispute the importance of China, but it has become more authoritarian at home and more assertive overseas, which is of concern to the UK—our policies need to reflect that. In the integrated review refresh, which was published last week and is well worth a read—the noble Lord referenced it—the Prime Minister set out clearly the overall direction across government for a consistent, coherent and robust approach to China, rooted in the UK’s national interest and aligned with our allies. A proper, and properly resourced, approach to security is an important part of that.
I repeat that the Prime Minister set up a new department, and the Budget included a substantial pledge—£3.5 billion by 2030—to support the Government’s ambitions to make the UK a scientific and technology superpower. This is one of the Prime Minister’s five priorities. So we should take the steps we need to take for security, but we also need to be careful to encourage the positives of new technology, whether that is AI, quantum technologies or engineering biology. We seek an important balance here.
Lord Alton of Liverpool (CB)
My Lords, given the Minister’s previous professional connections with Tesco, she will have noticed that, last weekend, it announced that it will remove Hikvision cameras from its supermarkets—many of us applaud that decision. The Minister will also recall that, when the Procurement Bill left this place, it included an all-party amendment on Hikvision and surveillance cameras. Why did the Government then remove that amendment in Committee in another place? Will they support Sir Iain Duncan Smith, the former leader of the Conservative Party, in his attempts, and those of others from across the political divide in the House of Commons, to reinstate that amendment on Report? If not, does that not make everything that has been said to us in the House today contradictory?
I also ask the Minister to look at the evidence of Professor Fraser Sampson, referred to by the noble Lord, Lord Clement-Jones, which he gave to the Joint Committee on Human Rights at the beginning of this month. In answer to a question I asked, he said directly that, because of the facial recognition techniques that can be used, not just by these cameras but by many other pieces of technology, this poses a risk to personal privacy and is therefore liable to be in breach of the European Convention on Human Rights. Will the Minister please look at what was said to the Joint Committee?
Baroness Neville-Rolfe (Con)
My Lords, as a former executive of Tesco, obviously I was extremely interested to see this at the top of my in-tray, where other things it does often appear. On Chinese cameras, I have not seen the evidence to which the noble Lord refers, but I would be very interested to see it. But I assure him that discussions on the Procurement Bill continue in the other place, and my noble friend the Paymaster-General has been in discussions with Sir Iain Duncan Smith on this and other issues. Of course, the Procurement Bill will come back to this House in due course, and I look forward to engaging further with the noble Lord.
Lord Watson of Wyre Forest (Lab)
My Lords, I understand the Minister’s argument for proportionality with regard to this Statement. Does she have any advice for her non-ministerial colleagues in Parliament—those who sit on defence and intelligence committees—on how they should use their personal devices with TikTok?
Baroness Neville-Rolfe (Con)
I need to tread carefully here because, of course, security in Parliament is independent of government. So this is a matter for the parliamentary authorities. I understand the drift of the noble Lord’s question, and he can see what steps the Government have taken in relation to government devices. I am not sure I am allowed to put apps on my parliamentary device without the permission of the IT department. We stand ready to assist the parliamentary authorities if they would like us to share information on this important matter.
Lord Walney (CB)
Further to that question, does the Minister accept that it is difficult for parliamentarians, and that it is a potentially unsatisfactory situation, if the message is essentially that it is our personal choice, but we are not—probably for very good reasons—privy to the sensitive security advice on which the Government have made their assessment? So will they encourage Parliament and the parliamentary authorities to allow a collective position to be reached on this?
Baroness Neville-Rolfe (Con)
I can certainly pass the concerns that have been expressed back to the security authorities in Parliament. I add that we have a Defending Democracy Taskforce, headed up by Tom Tugendhat, and the parliamentary authorities are involved in that because of the importance of sharing information, including sensitive security information, which it may not be possible to make public.
Lord Scriven (LD)
My Lords, I want to go back to the Biometrics and Surveillance Camera Commissioner, who through freedom of information requests has found out that 18 police forces across the country use external cameras that have equipment that have serious security and ethical concerns. He says that the use of such equipment by police forces needs to be seriously questioned. What action will the Government now take on a systemic approach across government to deal with those ethical and security issues, rather than just a pick-and-mix approach?
Baroness Neville-Rolfe (Con)
We have security and resilience frameworks which try to do just that, but obviously the police are independent, so the noble Lord’s question about the police goes beyond the areas in which I am expert today.
Lord Harris of Haringey (Lab)
My Lords, I have been listening carefully to the Minister’s responses to the questions, and I am still not sure that I understand the logic for not including Ministers’ private phones in the ban, particularly as some of the security information will be common; for example, the location of the Minister concerned, and so on. If the argument is that the bit we are really worried about is that, if the security breach were on an official phone, it would include access to ministerial emails on government business, then the Minister really should have answered my noble friend’s question about whether the use of private phones for government business will be addressed in the review of the Ministerial Code. Can she do so now?
Baroness Neville-Rolfe (Con)
I do not have anything to say specifically on the review of the Ministerial Code; it is of course kept under review, and we now have a new ethics adviser. These sorts of matters are certainly being considered in the context of the new guidance on the use of non-corporate forms of communication, and I look forward to making a public statement on that in the not too distant future.
Lord Foulkes of Cumnock (Lab Co-op)
My Lords, the Minister said in reply to a question from my noble friend on the Front Bench that Ministers are given security advice. But that is useful only if they take notice of the advice they are given. How can we believe that they do that, when Boris Johnson, when he was Foreign Secretary, went to parties in Italy as a guest of Alexander Lebedev, and then later on promoted Alexander Lebedev’s son, Evgeny—the noble Lord, Lord Lebedev—to the House of Lords, against the advice of the security services? Surely that gives some evidence that he may well have been compromised.
Baroness Neville-Rolfe (Con)
I always resist commenting on individual cases. Of course, that comment does not necessarily take account of the steps we have made on briefing Ministers, including new Ministers, on security matters. The evolution of social media has been beneficial in many ways; I am sure that noble Lords use it for non-security matters, and we believe that that is perfectly all right on people’s private phones as a complement to the use of government phones for government business. We are very clear that, where people use private phones for government business because they cannot do anything else, it is important that substantive government exchanges are passed on to the private office or elsewhere, so that they are added to the public record. You have to have a balance in this system; we have to have rules which make sense and respect security but are also workable.
Lord West of Spithead (Lab)
My Lords, I apologise for not being here at the beginning of the Statement; I was caught up with the Intelligence and Security Committee, where, of course, we have to hand our mobile phones in because we all know how dangerous mobiles are. I know from my past experience in this arena that, despite many lessons to people, people up to the level of Prime Minister make major errors in using private phones for material that they should not. Does the Minister not agree that we have to look at private phones as well as government phones to ensure that we have the right security that we ought to have? Whenever you speak on a mobile phone, you can guarantee that someone is trying to listen to it.
Seafarers’ Wages Bill [HL]
(1 year, 9 months ago)
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Baroness Vere of Norbiton (Con)
My Lords, I begin by expressing my gratitude to all noble Lords for their thoughtful consideration of this important legislation. As the Bill progressed through your Lordships’ House and the other place, the Government listened carefully to concerns raised by parliamentarians, and we engaged further with stakeholders. The amendments before your Lordships’ House today address many of the concerns raised and ensure that the Bill is effective and enforceable, simple to apply and delivers its intended benefits to seafarers.
The amendments to be considered today may appear numerous, but many are minor and technical. The amendments can be considered according to four themes: switching powers to duties; clarifying matters around equivalence declarations; switching the duty for setting a surcharge from the harbour authority to the Secretary of State; and, finally, changes to regulations, guidance and directions, most of which come from the previous three themes.
I turn to the first set of amendments, which change the previously discretionary powers of harbour authorities to request declarations, impose surcharges and refuse access to harbours to mandatory duties. Through continued engagement with port stakeholders, we were informed that harbour authorities would be unlikely to exercise their discretionary powers without being directed to do so. Therefore, this change from discretionary powers to duties will strengthen the Bill.
Baroness Scott of Needham Market (LD)
My Lords, I thank the Minister for bringing these amendments. I confess that when the Bill finished its passage through this House, I felt rather depressed that I had not been able to convince the Government that there were some fundamental flaws, but the changes today show that the Government were convinced. The problem, I think, was not quite understanding the nature of the relationship between harbour authorities and the vessel operators that use the harbour. Putting them in the position of trying very hard to get the business of operators and then leaving it up to them as to whether they take action against them just did not feel right, particularly in cases where the vessel operators and the harbour authority are under the same ownership—there is a direct conflict of interests. All these amendments that change powers into duties are a really welcome clarification, particularly the duty on the Secretary of State and not the harbour authority to set surcharges.
I have two questions for the Minister. On Amendment 36, spending funds on seafarers’ welfare facilities is a really smart idea, but has anything been considered to ensure that any money spent this way will be additional and will not simply replace money that the vessel operators or harbour authorities would have spent anyway? Finally, and in many ways most importantly, on Amendment 44 and the refusal of access to a port under certain circumstances, I know that the industry was concerned that this would not be lawful under international maritime regulations and would amount to impeding the right of passage. , Has the noble Baroness had any further discussions with the industry and has she been able to convince its members that they are on safe legal ground?
Baroness Taylor of Stevenage (Lab)
My Lords, I am very pleased to support the Motion before the House today in the name of the Minister. The action taken by P&O Ferries was a national scandal which should have marked a line in the sand, and any attempt to prevent a repeat of such events will always be welcome. On that basis, we have supported the limited measures in the Bill, but given the limited scope of this legislation, my noble friend Lord Tunnicliffe and others also called for broader measures beyond wages.
The wider issues, including roster patterns, wages and pensions, have yet to be addressed, and I hope the House will soon see further legislation to deliver these. It would also be helpful to know how those responsible for such exploitative practices can be brought to justice, and there are still serious health and safety concerns regarding the working conditions of seafarers. We also have to consider the much wider problem of fire and rehire—another favourite of exploitative employers—but I am sure that is for another Bill on another day.
However, as much as I am disappointed that many of these problems remain, I am pleased that the Government have now introduced amendments, as set out in detail by the Minister, on issues which required clarification. These new amendments, including in relation to tariffs, fines, surcharges, the information that a harbour authority can request from an operator and the introduction of relevant offences, each have our support. It is important as well that it is not the harbour authority that sets the charge, as this raised a number of issues. We agree that spending money on seafarers is appropriate and right, and I am interested in the Minister’s answer to the question from the noble Baroness, Lady Scott.
I will finish by expressing how grateful I am that the noble Baroness, Lady Vere of Norbiton, has engaged with the House throughout the passage of the Bill. I thank her for her time in a meeting to explain progress on the Bill on my second day as transport spokesperson, and for her patience in answering all my questions. I thank the noble Baroness, Lady Scott, for her involvement and contribution to the Bill. I thank the trade unions for continuing to champion the cause of seafarers and my noble friends on the Front Bench, particularly my noble friend Lord Tunnicliffe for his personal support and for bringing his encyclopaedic knowledge to bear during the passage of the Bill. I hope the House will share our support for the Bill.
Higher Education (Freedom of Speech) Bill
Tuesday 21st March 2023
(1 year, 9 months ago)
Lords ChamberRead Full debate Higher Education (Freedom of Speech) Act 2023 View all Higher Education (Freedom of Speech) Act 2023 Debates Read Hansard Text Watch Debate Read Debate Ministerial Extracts Amendment Paper: HL Bill 104-I Marshalled list for Consideration of a Commons Reason - (20 Mar 2023)
Earl Howe
That this House do not insist on its Amendment 10, to which the Commons have disagreed for their Reason 10A.
Earl Howe (Con)
My Lords, I am pleased to be back again to debate the Higher Education (Freedom of Speech) Bill. I must express my thanks once again for the time and thought your Lordships have given to this legislation. Members of the other place were particularly happy to see the amendment banning the misuse of non-disclosure agreements in cases of sexual abuse, harassment or misconduct, or other bullying or harassment, as proposed by the noble Lord, Lord Collins of Highbury. I am grateful to him for tabling this amendment as a very positive addition to the Bill.
As your Lordships know, the tort has been by far the most contentious issue during the passage of the Bill, but the Government remain firm that it is vital for it to be included. I recognise that the decision of the other place to reinstate the tort as it was originally drafted, without amendment—including the government amendments that were tabled in this House on Report—has been of concern to noble Lords. I am very aware of the strength of feeling in this House regarding the tort clause. I have spoken to many noble Lords individually and listened carefully to the points raised during debate. Ministers have also had useful discussions since the Bill returned to the other place last month and have given further consideration to what form the tort should take.
Before turning to the amendment to the Government’s Motion tabled by my noble friend Lord Willetts, I shall set out once more the Government’s rationale for the tort’s inclusion and offer clarity on issues raised in recent ministerial engagement with noble Lords. I believe that the possibility of bringing legal proceedings is critical. We have said many times in this Chamber that, where issues cannot be solved satisfactorily by other routes, there should be an option to go to court. It is right that cases can be brought, and the court has a range of remedies at its disposal to achieve redress where it is concluded that that is appropriate.
The tort is a crucial part of the package of measures brought forward by the Bill to strengthen the law that protects freedom of speech, with a robust enforcement mechanism as a solid foundation for the new duties. Indeed, it is the view of some in this House and indeed of numerous academics and other stakeholders that, if the tort were removed, the Bill would not have the necessary force to bring about the cultural and behavioural shift necessary to prevent further erosion of freedom of speech on campus.
However, I also want to be clear that including the tort in the Bill will not create a free-for-all with cases being brought to court without due consideration. Indeed, we expect the use of the tort to be relatively rare, as indeed do those stakeholders who strongly support its inclusion in the Bill. The vast majority of complaints will be successfully handled by providers themselves, through the free-to-use Office for Students complaints scheme or via the Office of the Independent Adjudicator for Higher Education. Examples of where the tort may be used include where complainants feel that their complaint has not been resolved by the OfS or OIA to their satisfaction. In addition, it will be useful in the rare cases where a provider fails to comply with a recommendation made by the OfS or OIA.
There has been a suggestion that the inclusion of the tort will undermine the position of the OfS, but in fact the Bill will give the OfS new wide-ranging powers to investigate when higher education providers, colleges and student unions have breached their freedom of speech duties. It creates the role of director for freedom of speech and academic freedom, who will oversee the new free speech functions of the OfS. The tort is intended to complement those new powers, providing a backstop mechanism on the rare occasions when it is needed. We expect that the courts will generally be slow to overrule the OfS, as the expert in the sector, and the OfS will find any court rulings helpful in developing guidance and considering future cases.
Some noble Lords have expressed concern about the potential implications of the tort for student unions, which they think will not have the wherewithal, including the financial resources, to defend themselves against threatened legal proceedings. It is of course true that by bringing student unions within scope of the Bill, and by giving them new duties, they will become liable for breaches, but what is reasonably practicable for a small student union will not be the same as what is reasonably practicable for a large provider, an issue that the OfS and the courts will have at the forefront of their considerations. Examples of what is reasonably practicable include maintaining a code of practice, having a room-booking policy that covers freedom of speech appropriately and providing training to those who have a relevant role.
Other noble Lords have expressed concerns about student societies, a matter on which I believe I can also offer reassurance. As I have said, student unions will have a duty to take reasonably practicable steps to secure freedom of speech. Importantly, student societies will not themselves be subject to the duties in the Bill. However, those who run societies will be subject to the codes of practice published by their provider, college or student union. A failure to comply could result in disciplinary measures.
Similarly, if a student society is affiliated to a student union, those who run it will need to comply with the student union’s rules. Therefore, if a society is holding an event on student union premises, the student union’s room booking policies will apply, as well as the code of practice. Measures should be in place to ensure the society is aware of the rules that apply and that action can be taken if these rules are broken.
This point is crucial: a complainant would have no course of action against individual students or a student society. Although they may consider whether they are able to bring a complaint against a student union, the burden of proof will be on them to show that the student union has breached its duty to take reasonably practicable steps.
I also wish to address the point that some noble Lords have raised about the potential for the tort to create a paradoxical chilling effect, with providers, colleges and student unions avoiding holding controversial speaker events for fear of litigation. I want to be clear: the best way to avoid litigation will be not to cancel events but to take reasonably practicable steps to ensure that events can take place. There are provisions in the Bill that are intended to encourage a culture change on our university campuses, including a duty on providers and colleges to promote the importance of freedom of speech. A blanket policy of vetting all invitations and deliberately avoiding inviting any controversial speaker could itself constitute a breach of the duties under the Bill.
Finally, I turn to the amendment to the Government’s Motion, tabled by my noble friend Lord Willetts, which replicates amendments tabled by the Government on Report in the Lords. This House, carrying out its important constitutional function, opted to send a clear message to the other place that it should think again regarding the tort provisions. The other place, having thought again, has returned an equally clear message to this House as to the strength of its feeling that the tort should remain in the Bill. I note that, to emphasise that, it was willing to reinsert it without the government amendments tabled on Report in the Lords. In the light of that strong view, I hope the House will acknowledge that action by the other place and instead seek consensus on an outcome that rightly recognises that the tort should be retained but with some sensible amendments to clarify and reassure in relation to the implementation of the regime.
Indeed, I thank my noble friend Lord Willetts for his pragmatic engagement on this issue, particularly in his acknowledgement that the tort has a role to play in the new statutory regime. The Government take the view of the House seriously and therefore support this amendment to the Motion, assuming that it is moved, and I hope that other noble Lords will do so as well.
The amendments provide an opportunity to give clarity about how the tort will operate in practice. Our intention has always been that the tort should be used as a last resort, with the majority of complainants likely to rely on the free-to-use complaints schemes. Similarly, only those who have suffered loss should be able to bring a claim.
When the Government tabled those amendments back in November 2022, four months ago, the prevailing view from the sector and stakeholders was that they offered a good compromise. However, since then the issue has grown in importance, and controversy about the application of the tort has sharpened. It is only right that I share with noble Lords the concerns expressed to Ministers since this issue was last debated in this House, particularly from those the Bill is most designed to protect. In conversations with academics, we have heard serious concern that their freedom of speech is being quietly curtailed.
Given the strength of feeling from those who are genuinely concerned that their jobs are on the line and academic freedom is under attack, I have to be clear with noble Lords that this concern may well be reflected in a move in the other place to amend the Bill still further. I cannot presume to encroach on conversations or proceedings in the other place, but in that event it is only right that I commit the Government further to explore possible opportunities to achieve consensus in the Commons stages. I am therefore content to say that the Government support these amendments. But given that those academics are at the forefront of our minds, I am conscious that this matter may not yet be finally settled, should your Lordships agree to my noble friend’s amendments.
I hope that, alongside the assurances I have given today, noble Lords are persuaded that the tort is a vital legal mechanism that is necessary if we are to ensure that our world-class universities are the home of plural debate. I beg to move.
Lord Willetts
At end insert “and do propose the following amendments to the words so restored to the Bill—
“(2) A person may bring proceedings under subsection (1) only if—
(a) the person has brought a complaint relating to the same subject matter as the proceedings under a relevant complaints scheme, and
(b) a decision has been made under that scheme as to the extent to which the complaint was justified.
(3) Each of the following is a “relevant complaints scheme”—
(a) the scheme provided by virtue of Schedule 6A (the free speech complaints scheme), and
(b) the scheme for the review of qualifying complaints (within the meaning of section 12 of the Higher Education Act 2004) that is provided by the designated operator (within the meaning of section 13(5)(b) of that Act).””
Lord Willetts (Con)
My Lords, I declare my interest as a visiting professor at King’s College London and an honorary fellow of Nuffield College, Oxford.
I warmly welcome the Minister’s assurances about how this legislation will work. I particularly welcome his commitment, and that of other Members of this House, to support the amendments in my name. These amendments bear a striking resemblance to amendments the Minister himself tabled, which we debated on 7 December. It is evidence of his common sense and wisdom that he is supporting them now, as he did then.
I assure him that across the House, after many hours of debating this important legislation, there is shared agreement that there is a problem. Nobody is denying that there are egregious and appalling examples in which universities and students unions are not the safe spaces for free speech that we wish them to be. Sometimes people believe that they should somehow be a safe space from free speech, which is not what universities stand for.
There is also very strong support across the House for the Office for Students as a tough and effective regulator. I pay tribute particularly to my noble friend Lord Johnson of Marylebone, who early on intervened to make clear that it was the body that should have the crucial role in this case.
The issue has been about tort. As we were told, this is not the first time that Clause 4 has been the most controversial feature of a piece of legislation. Many of us had a real concern that the threat of civil litigation could have a chilling effect, threatening the activities of student unions in particular. That is why your Lordships’ House voted to remove Clause 4 from the Bill. The other place has reinstated it and we have to understand and respect that vote, but these amendments are a sensible compromise to clarify the circumstances in which the tort provision would apply. The litigant has to have sustained a loss and have exhausted other complaints procedures, notably the enhanced powers that this legislation gives to the Office for Students. I am very pleased that the Government have reiterated their support for those principles and recognised that this is how this tort provision should operate—very much as a last resort.
What these amendments would do is ensure that Clause 4 is very sensibly targeted. They would make it workable. In particular, they would remove the risk, which many of us on all sides of this House are concerned about, that a university, or even more so a student union, could find itself on day one receiving an investigation letter from the OfS and on day two receiving a lawyer’s letter threatening it with litigation. We thought that that was not a sensible or reasonable way to proceed, and indeed would obstruct the effective discharge of a regulatory function by the OfS.
I welcome the assurances that the Minister has given. The debate we have had on this legislation has been an excellent example of the role of your Lordships’ House as a revising Chamber. It has also reminded us of the shared values we have: a commitment to freedom of speech and diversity of opinion.
Lord Grabiner (CB)
My Lords, I confess to be rather miffed by the Government’s acceptance of the amendment of the noble Lord, Lord Willetts, because it deprives me of the ability to make the fire and brimstone remarks that I had planned to make. However, I certainly welcome the Government’s reaction to the excellent amendments of the noble Lord, Lord Willetts, and can as a result be quite brief.
On Clause 4, we have really come full circle and are back where we started. As has been pointed out, in our debates Clause 4 was subjected to many serious criticisms by noble Lords across the House, and I will not repeat them. In the face of those criticisms, at Report in this House the Government accepted a clarifying amendment from the noble and learned Lord, Lord Etherton, which incorporated a reference to damages in Clause 4. In a further attempt to meet these criticisms, the Government brought forward their own amendment, as the Minister has pointed out, which gave priority to the regulatory regime and deferred the ability of a private claimant to deploy Clause 4, pending those regulatory procedures being exhausted.
I respectfully urge your Lordships to support the amendments put forward by the noble Lord, Lord Willetts. As to those amendments, the loss point would clarify and emphasise the need for proof of damage as a condition for making a Clause 4 claim. It would deter some frivolous claims, and to that extent would be a valuable amendment.
The priority point in the amendment of the noble Lord, Lord Willetts, is perhaps rather more important. The OfS will have extensive regulatory powers for dealing with an offending student union. Clause 7 would amend the Higher Education and Research Act 2017, whereby the OfS would be obliged to monitor student unions’ performance of their new duties. Importantly, the OfS would also be empowered to impose a financial penalty on a student union and seek an injunction in court. Common sense suggests that the Bill would be significantly improved if priority were given to the regulator and claimants were not able to invoke the private law cause of action until the regulatory function had been performed and completed. This was the Government’s view just a few weeks ago, and I am absolutely delighted that it still is their view—at least in this House.
If I may, I want to briefly draw attention to the email from Ministers which arrived while we were in the Chamber but before this debate began. I will reference the end of the sixth paragraph, which is a point to which the noble Lord adverted when he opened this debate just a few minutes ago. The letter says: “Those affected by the Bill are at the forefront of our minds and it is only right that we reflect that the Government may wish to explore further opportunities to achieve consensus when it returns to the Commons”. The only point I want to make about that is this. The implication of what is said there, and of what the Minister said at the Dispatch Box, is that there may be amendments in the other place that will take away the amendment that I hope we are now going to support, possibly without even a Division. My concern is this: I believe that that would not be a sensible thing for the other place to do.
I would urge one point: if there are felt concerns in the other place that are not satisfied by these amendments, a more appropriate route to be undertaken would be directed towards the regulators, rather than to diminish the quality of the amendment that I hope we are about to make. The regulators are very powerful—they have strong powers in the statute and in this Bill. In my view, the correct party to be concerned with in dealing with the kinds of concerns that trouble everybody in the story, and the proper starting position, is the regulator. That is what the regulator is there for. It would not be right, in my view, to undermine the quality of the amendments that have been put forward in respect of this provision without first facing the possibility that the regulator ought actually, if I may be blunt about it, to pull its finger out.
Baroness Fox of Buckley (Non-Afl)
My Lords, I was all ready to welcome the restoration of the original Lords amendment to this Bill by the noble Earl, Lord Howe. Previously, I was despondent that we had passed legislation with no teeth, which was potentially a lame duck law, so I was delighted with the reinstated, stronger statutory tort in the Bill that would mean staff and students would have a robust backstop that allowed the ability to sue in the civil courts for breach of their speech rights. In explaining the change, the Minister said he has spoken to many noble Lords. But I am rather taken with the words of the Under-Secretary of State for Children, Claire Coutinho, who noted that she had spoken to many leading academics and that they shared her belief that the tort was necessary to secure cultural change on campus, and that that is why she had introduced the amendment I was prepared to welcome. I can ask only what on earth has changed, other than that the Minister has spoken to noble Lords rather than to leading academics or students.
It is disappointing that we are now being asked to accept a fudge, in the form of the amendment from the noble Lord, Lord Willetts. I fear it will mean that the new, enhanced free speech duties will be viewed as more box-ticking by university managers and student union bureaucrats.
Perhaps I can share my own recent lived experience—to use the fashionable jargon—of being cancelled. I hope at least my remarks will be heard by those in the other, elected place when they consider this debate. Last year, I was delighted to be invited by the University of London’s Royal Holloway debating society to give a talk this February. It was a lovely invitation, from a student called Ollie, who wrote: “We would absolutely love for you to speak to the society about your interesting career, and to talk about the Academy of Ideas and the House of Lords to our keen crop of debaters.” Never one to miss a chance to meet and talk to a keen crop of debaters, I set a date firmly in my diary and I reorganised a number of clashes.
Unbeknown to me—though this has become routine these days for student societies—behind the scenes the debating society had to go through onerous and bureaucratic checks imposed by the student union on whether I would be given permission to speak. Student unions these days have created a veritable cottage industry in safeguarding checks, risk assessments, et cetera. It was a complete pain for the students and time-consuming, and with an undoubted chilling effect on inviting outside speakers. That is what this Bill set out to address, was it not?
Eventually, I was given a clean bill of health by the student union. Apparently, there was no evidence that I was a hatemonger or a threat. However, just a week before I was due to speak, the debating society cancelled. What happened? Once the event was advertised, the same student union bureaucrats claimed that six societies had raised concerns about me coming on to campus, the evidence for which was that I retweeted a clip from a comic on Netflix. Maia Jarvis, the president of the student union, wrote a menacing message to the debating society, stating:
“I hope that you can see that Claire Fox retweets and praises a video of Ricky Gervais being overtly transphobic. I wonder if you have thought about the impact of bringing a person who is an advocate for hate towards trans people and publicly ridicules them. And whether you are comfortable with the fact that that is the message your society is sending out to RHUL trans students.”
Lord Lucas (Con)
My Lords, what the noble Baroness, Lady Fox of Buckley, has just said emphasises the main point I wish to make: that this applies to students just as much as to academics. The whole idea of freedom of thought is really important. We are bringing up our children to think that they must curtail their thought. I have a daughter at university at the moment and that is certainly her experience. The atmosphere of not being allowed to discuss and talk about things is prevalent. The Bill is really important in making a difference to that. I will be very interested to see what Members in the other place think of the amendments we send down to them.
We should not think that this is happening just in universities. On 8 March I received, as other noble Lords might have, an email from the parliamentary security vetting department asking us to fill in and sign a form. It said that we must not share passwords, override or undermine security measures and sensible things like that. But it then went on to say that we must not be offensive or put the reputation of Parliament at risk. I do not know how to survive in this place without doing both those things; I imagine that applies to other noble Lords too. Our freedom of speech is now to be curtailed by a directive from parliamentary security vetting without—so far as I can see; I have contacted the authorities without getting any reply—any way in which noble Lords can be involved in that process. I am not sure who will take me to task for being offensive in this place, but I find offensive the idea that I should be asked to sign saying that I will not be.
Lord Triesman (Lab)
My Lords, I am not sure that I am going to be offensive; I now feel that my presentation is lacking as a result. Let me at once declare an interest. I was the general secretary of the Association of University Teachers in times when the issue of—and necessity for—freedom of speech in universities was regarded as one of their paramount responsibilities.
I readily agree with the noble Lord, Lord Willetts, who said that that is fundamental to almost all of us who have been concerned with higher education. I appreciate what the Minister has said; this has been a very solid development. I also support the amendment the noble Lord, Lord Willetts, introduced, for much the same reasons as the noble Lord, Lord Grabiner.
I feel a sense of disappointment and sadness on behalf of the noble Baroness, Lady Fox. It is obviously never pleasant to be invited somewhere and then told you are not going to speak, but I urge her to get over it. The truth is that when you go into academic climates and start talking to academics, you are going to find—rather like with lawyers—that a large number will agree with you and a large number will disagree. They will tell you that with all the spitefulness, generosity and so on while they do it.
I have come across a lot of academics who want to make sure that the world of universities does not automatically become subsumed in a world in which people pursue litigation against one another, rather than try to resolve things through more sensible routes. It was bound to end in a reasonable compromise, and I think the Minister put that very fairly and very well.
In welcoming these developments, the academics who have bothered to get in touch with me have told me that the kind of change we are contemplating today is the kind they would find easiest to live with. They are more and more—probably in part because of the debates we have had—sympathetic and attentive to the problems that have been created by cancel culture. I used to cancel my own culture when I was a lecturer, largely by giving very erudite lectures on obscure mathematical problems. Very few people enjoyed them. There is only so much multiple regression you can hear about before you conclude that you should take yourself home because no one is going to be that interested, but it was what I was teaching.
That is why I say to the noble Baroness, Lady Fox, that of course some people will be uncharitable and malevolent, but it is something we can get past with a sensible compromise of the kind we have seen—particularly in the light of the reservations the noble Lord, Lord Grabiner, has about it.
Baroness Fox of Buckley (Non-Afl)
To clarify, as I stated earlier—this really is important—I do not have a right to a platform and I do not care if people disagree with me. I do not mind if students invite me and then disinvite me. All I care about is if students are bullied into disinviting me. It is for the students that I made the speech, not for myself. Who cares about my feelings? They are of no relevance.
My point is that many academics and students have looked to this Bill and the amendment. The noble Lord, Lord Triesman, has talked to people who want the compromise. I have talked to people who think it is a fudge. Let Parliament decide—fair enough—but I do not think anyone can claim they have spoken to all the academics, and this is the only answer. I think that this is a cop out.
Earl Howe (Con)
My Lords, I just say to the noble Baroness, Lady Fox, that strictly speaking there should not be any interventions at this stage of the Bill.
Lord Triesman (Lab)
Because we are not having that kind of iterative debate, I will refrain from making the point that I am not saying that I spoke only to academics who took the same view I might take. I am just saying that if you speak to academics, you will hear as many views as the number of academics you speak to; that is in the nature of the business.
I welcome the process we have gone through because it has alerted people to a very significant problem. A few days ago in your Lordships’ House, I heard somebody say that trigger warnings were now being attached to reading lists of some of the great classics from the English oeuvre. I was just about to embark on a re-reading of Northanger Abbey. If anybody has any advice for me about dangerous pages that I should avoid, I should be extremely grateful to hear it, because I would hate suddenly to find my entire spiritual underpinnings removed while reading Jane Austen.
This debate will leave a legacy. It will make everybody more attentive to the risks to free speech and academic freedom, and I am not at all sad that we have gone through the process if that is the outcome.
Lord Moylan (Con)
My Lords, I am conscious that, as a Conservative Back-Bencher loyally supporting the Government in season and out, I am probably a Member of this House worthy of least consideration when it comes to discussing the contents of this Bill. Despite my having taken part at every stage in its progress so far, I think I am forgiven for being somewhat confused.
We started out with a proposal for a statutory tort, which I am going to call “hard tort”. I turned out to support it, not only out of loyalty but because I strongly believe in it. On Report, recognising that there were some concerns about it, I had the privilege to table an amendment that had previously been tabled in Committee by my noble friend Lord Sandhurst, which would have retained the tort but allowed a judge to stay proceedings and instruct mediation to take place. I thought that a good compromise that could have been accepted, and I am going to call that “middle tort”.
However, my noble friend the Minister pre-empted me to some extent by coming forward with a proposal which allowed the tort to be accessed only after every possible complaints procedure had been exhausted; we might call that “soft tort”. Your Lordships’ House voted for “sort tort”, and then went with the noble Lord, Lord Willetts, and voted to remove the clause all together in addition, which we can call “no tort”.
Today I have turned out loyally, because I am encouraged to do so, in order to vote for “hard tort”. Here I am, and with only half an hour to go I see that the noble Lord, Lord Willetts, has now moved to the “soft tort” position and I am expected to give my support to it. So this is not simply a question of “how do you manage your team?”—that is a minor consideration and purely a whipping matter—but of what it is we are actually saying to the world with these goings on.
The noble Lord, Lord Triesman, said that the important thing here is that the Bill sends a signal to universities. It does in my view send a signal to universities: that this Parliament and this Government are not as concerned about how universities conduct themselves to maintain freedom of speech, as a principle and as an activity, as the Government originally said they should be. That is clearly the signal it sends, and as I have said before in Committee, strong emphasis is being placed on the role of the regulator because regulators are subject, wherever they appear, to capture by those being regulated. That is very much why those who support this, and the university leaders, are very comfortable with it.
Like the noble Baroness, Lady Fox of Buckley, I note that in the various choices between “hard tort”, “mid tort”, “soft tort” and “no tort”, at the end of this debate we will still have no idea. My noble friend has said that when it returns to the Commons, as it must, there will be scope for further compromise. Who knows what is going to come back—“hard”, “mid”, “soft”, nothing? Anything could come back to us from the Commons because clearly, the Government do not know what they want to do about this.
I strongly suggest to noble Lords that not only have we misconducted ourselves, as far as the management of this is concerned, but we are sending a very poor signal. It is most regrettable that we will agree to the amendment in the name of my noble friend Lord Willetts today. Like the noble Baroness, Lady Fox of Buckley, I very much hope that, when the Bill comes back from the Commons, someone will have found their backbone and the tort will have been restored.
Baroness Lawlor (Con)
My Lords, I apologise that I did not speak in the earlier debates on this matter because, as I recall, I had not made my maiden speech. I simply add my voice to those who regret my noble friend Lord Willetts’s Motion A1, which I do not support because, as other noble Lords pointed out, it waters down the small protection that existed with the original Clause 4 for academics in many institutions.
An institution has great power: it has powers of office, of man and woman power, of employment and of funds. The original Clause 4 gave a simple and cheaper way for an individual academic who was suffering because his or her freedom of speech was under threat. I assure noble Lords that it is under threat in many universities, and especially the one I know best: my own university, Cambridge. Hardly a day goes by without threat after threat reaching the newspapers of academic freedom being impinged on. I draw noble Lords’ attention to Arif Ahmed’s publications and submissions to an earlier Committee on the Higher Education (Freedom of Speech) Bill. The problem has not stopped.
For those reasons, I am worried about Motion A1 going through. It will make life much more expensive for individual academics, who often plough a lonely furrow against top-heavy and powerful institutions. I would like to restore the original Clause 4, which gives a straightforward and cheaper alternative to someone taking action against an institution. I do not believe that there will be vexatious causes that involve universities or institutions in long and litigious claims that cost money and time, because existing law covers these matters in many respects. Cheaper claims can be dealt with under protocols before action or by agreement.
So Clause 4 is necessary not only for free speech but for free thought. It is not just about student union bodies, although they should observe this; it is about how academics pursue their subjects and whether their reading lists and courses are in line with official thinking—universities have a powerful officialdom. For those reasons, I remind my noble friend Lord Willetts of his having to be smuggled into the University of Cambridge not many years ago. I do not believe that my noble friend’s amendment would prevent that happening again. I thank noble Lords for their attention.
Lord Wallace of Saltaire (LD)
My Lords, we have demonstrated that there remains a range of opinion about the nature and size of the problem, and the appropriate response to it. Therefore, a compromise amendment is perhaps the best point for us to end up at. Some of us feel that this is an unnecessary intervention into the autonomous institutions that are our universities, and conservatives are supposed to believe in the autonomy of institutions and in not promoting undue state interference. I remind those on the Conservative Benches that, if you are in favour of a smaller state and deregulation, particularly of banks and companies, you should be careful about how much you are in favour of detailed or excessive regulation of autonomous bodies like universities.
After all, our universities are very highly rated in global terms; they are an asset to this country. Boris Johnson, when he was Prime Minister, used to talk about them as one of the major planks of our soft power in the world. We need to be very careful that we do not damage them.
Listening to the noble Baroness, Lady Lawlor, I was thinking of my time as an undergraduate at the University of Cambridge, and the behaviour then was, in some ways, not entirely different from the way it is now. I recall the occasion when my wife and a number of other Oxford students prevented an ambassador from speaking at an Oxford student occasion, and of my first year as a university teacher at the University of Manchester, when a number of students blocked the Secretary of State for Education from speaking at a university event. These things are not entirely new.
As the Minister suggested, we have of course seen a number of cultural changes. While the cultural changes mean that universities have become more sensitive to student opinion because student funding has changed, another change is that social media has widened the debate about what is acceptable. It has imposed, from different directions, the new cancel culture among the young, which we did not have in my generation and in most of the time that Members of this House were at university. We all have to face that problem—it is not solely a university problem—and we have to answer it at the levels of political leadership and of society. I very much hope that, when the Bill returns to the Commons, the decision on this will not be reversed.
When we talk about culture, I am concerned about those who talk about a culture war. I have read two op-eds in the Sunday Telegraph in the last month which have suggested that the pursuit of a culture war is the way for the Conservatives to win the next election, and that they should imitate the example of Governor DeSantis of Florida, who is pursuing, so the articles argued, a successful culture war against wokeism, cultural Marxism and the universities of his state. I know that there are some on the right wing of the Conservative Party who would like us to go down that route, but it would be a very dangerous route. We do not want this country to become as divided a society as the United States has become, in which a governor educated at Yale and Harvard now says that he was exposed to communist ideas as an undergraduate at Yale—I suspect that that is a slight exaggeration—and who thinks that the way to ensure his path to a presidential nomination is by dividing the country between the educated and those who do not have higher education. We do not need that in this country, and it would be extremely dangerous for ring-wing Conservatives to try to take that direction.
On a different level, I find the argument that we should pass Bills so that we send a signal a rather worrisome idea; I think that we should pass Bills so that they actually do something, that they enforce something and that they change the way in which we behave. Sending signals is something which political speeches should do—not Acts of Parliament.
I ask the Minister about the time of the implementation of the future Act, now that the Bill has been delayed somewhat; it will clearly be delayed again by going back to the Commons. I hope that he can confirm that there will be no attempt to implement the Act in full by the beginning of this coming university year, because it will take universities some time to consider it. He may not be able to give me an answer at the moment, but that is an important fact that we now need to have addressed.
I hope that the Minister also takes note of some of the criticisms which the Committee on Standards in Public Life and others have made about the appropriateness of appointing committees. We heard the noble Lord, Lord Moylan, discuss regulatory capture, but we have also heard those who oversee public appointments committees talking about the inappropriateness of people who know very little about the subject for which a person is being appointed deciding on the nature of the appointment. There is a balance—which I hope the noble Lord, Lord Moylan, will accept—between regulatory capture and political appointments being made for political reasons, which is important when one is considering such a major asset to this country as our universities.
I welcome the Government’s acceptance of this amendment. I very much hope that the Common Sense Group and others on the right wing of the Conservative Party will not attempt to take it back when it comes to the Commons and that the Government will re-establish a relationship with our universities, both staff and students. The relationship between free speech for students and free speech for staff has, on occasions, been muddled in all our debates on this Bill. I hope, therefore, that this Bill as now amended will become law.
Lord Moore of Etchingham (Non-Afl)
My Lords, I listened with great interest to what the noble Lord, Lord Moylan, had to say and I sympathised with the anguish he felt as a loyal Conservative supporter trying to deal with the problem the Government have presented him with. As a non-affiliated Peer I do not have that problem, but I share his anxiety about what the Government have done as it seems very vacillating and unhelpful.
I draw noble Lords’ attention to the famous words of Adam Smith that no people of the same trade are ever gathered together, even for diversion or merriment, without at some point conspiring against the public. It is lovely to have so many noble Peers in this House who hold or have held high positions in universities and university administrations—chancellors, vice-chancellors, professors and all the rest of them—but overall they constitute an interest. Their interest, naturally enough, is to believe that they are right, universities are well run and the critics are wrong. I ask them perhaps to consider that none of this would have come about if universities were being well run. These freedom of speech issues are very important and need some bolstering. When so many noble Peers who are associated with universities challenge and reject that, they must be conscious not to behave like trade union leaders in the 1980s who were defending powers that, it became clear, were unacceptable.
Lord Collins of Highbury (Lab)
As a former trade union leader I am a bit hesitant to contribute, but let me just say to the noble Lord, Lord Moore, that what has been excellent about our consideration of this Bill from Second Reading through to Committee is how, through excellent scrutiny, we have tried to reach a consensus, not a compromise. That is the important thing. On Report I confessed that I had changed my mind about the need for this Bill. I accept that better, more effective regulation will help to change culture in a more sustainable way. All this emphasis on tort does not really help the real problem that we have heard described.
I will be brief. I appreciate the comments of the noble Lord on non-disclosure agreements—a key element in terms of openness and transparency. The duties and responsibilities of the regulator, and how they are applied, will be important; I accept that universities need time to properly do that. But they have been developing good practice and best practice. They have responsibilities to freedom of speech, and I absolutely support that. I stress that the Opposition’s approach to this Bill has been totally non-partisan. I have supported the amendment from the noble Lord, Lord Willetts. I have certainly encouraged him because I have listened across the board as we have moved through each stage, and I think we will end up with a better Bill. In fact, with the consensus that has been reached, we now have a better Bill.
Despite some of the Minister’s concerns about what might happen down the other end, across this House and across all political parties we have reached a consensus; let us put the matter to bed. With our non-partisan approach, I assure him that the Government will have the Opposition’s support on their support for the amendments from the noble Lord, Lord Willetts. We can safely say that this Bill shall pass, and it will pass to defend the freedom of speech values that we all share. That is an important step that we can make.
I hope that the Minister will feel reassured about our approach to this Bill and how we have listened, changed our minds and supported very important consensus changes, which I think will ensure that all academics and university institutions will support this legislation.
Earl Howe (Con)
My Lords, there is little more for me to say, other than to thank noble Lords for their contributions to this debate and for the way in which, amid many doubts and hesitations, Members of the House have been willing to look for compromise and common ground on what I know has proved a difficult set of issues.
I thank in particular the noble Lord, Lord Grabiner, especially for his positive comments and remarks on the role of the regulator, as well as my noble friend Lord Lucas, the noble Lord, Lord Triesman, and, for his words about the need for us all to look for consensus, the noble Lord, Lord Collins.
I simply say to the noble Lord, Lord Wallace, that I too instinctively fight shy of the suggestion that Governments should unduly interfere with the workings of our universities. However, some of his remarks suggested to me that he does not accept that there is a serious problem to be addressed. If that is his view, I believe that he is in a minority in this House.
Lord Wallace of Saltaire (LD)
I think we have a large social problem, which has been partly raised by social media, in the intolerance of the young as a whole and cancel culture. It stretches across our society and we have to deal with it, but it is not purely a problem for universities, nor is it thoroughly based in universities—and it certainly does not result from indoctrination by left-wing staff.
Earl Howe (Con)
I am grateful to the noble Lord, but I think we all agree that universities, par excellence, are places that should be safe spaces for freedom of speech, as my noble friend Lord Willetts said, whatever may happen outside the confines of the campus.
As to the timing of the coming into force of the Bill, I can tell the noble Lord that it will not be before the start of the next academic year. The Government need to consult on the regulations and indeed draft them, which will take a little time.
I simply cannot agree with the noble Baroness, Lady Fox, that my noble friend Lord Willetts’s amendments represent a fudge—in other words, a watering down of the tort or a “soft tort”, as my noble friend Lord Moylan put it. With respect to my noble friend, I utterly disagree with him that the amendments send a signal, or any semblance of a signal, to the other place or the world that the Government are not serious about protecting freedom of speech in our universities. The idea of watering down, I suggest, is more theoretical than real.
As I said earlier, the vast majority of complaints will be successfully handled and dealt with without any need to go to court. However, where a complainant believes that that has not happened, they will still have the option of going to court. In other words, the amendments from my noble friend Lord Willetts underscore what we think will happen anyway.
I hope that Members of another place will come round to that view and that both Houses of Parliament will reach the endpoint that Ministers and the Government have felt it their duty to try to achieve, which is consensus.
Lord Willetts (Con)
My Lords, I want briefly to reflect on the important points that have been made. First, I think there is widespread recognition that there is a problem. Of course I understand the problem; I have been on the receiving end of exactly the kind of threats to freedom of speech that this law is trying to tackle. I have seen student unions protect my right to speak and I have seen student unions collapse under pressure to not allow me to speak. I have seen universities that have done their best to enable me to speak, even with shouting and jeering and protests outside, and I have seen universities cravenly collapse under pressure to not allow me to speak. I am absolutely aware of the issue, as I think Members across the House are. However, at no point when I faced these protests did it occur to me that the way to solve the problem was for me to have the right to sue somebody. That is the issue: what is the best way to deal with the problem?
I have to say that the path of the past decades has been to increase the power of regulation. The noble Baroness, Lady Fox, made a passionate intervention that began with a description of the bureaucracy involved in trying to prove that she was not a hatemonger. I am speculating, but I think I know where that bureaucracy comes from: it is the Prevent initiative. I remember my conversations with officials in the Home Office who said to me, “There are extremists being invited to speak at universities and we need to have a process to make sure extremists who will stir up hatred are not allowed to speak”. I remember meetings with Home Office Ministers where, if I may say so, it is possible that I made some of the points that the noble Baroness made. But the pressure was, “We cannot allow an unregulated approach; we need to know who these speakers are so we can check if they’re potentially going to infringe the law”. That, I suspect, is the origin of the bureaucracy. That is where it started, over a decade ago.
The noble Baroness recently had the shocking experience of not being able to speak at Royal Holloway college. But I do think that here she does this legislation a disservice. Faced with the problems she encountered, is it really the case and is she really confident that suing the student union, which is where the legal process would have started—and, clearly, she had some sympathy for the student union and the pressure it was under—is the way to resolve the problem?
The Bill envisages—and I have to say that Ministers have made it clear throughout that this is the way they see the Bill working—that, if the noble Baroness encounters a problem such as that, her first port of call is the Office for Students. I heard in several interventions noble Lords say, “It’s a patsy”, “It’s producer capture”, “It’s the university friends”. I would invite noble Lords on all sides of the House to read, for example, the recent letter of complaint from universities about the OfS, saying precisely that it was too aggressive, that it was not working with them and that it was a heavy-handed regulator. The idea that the OfS is some kind of patsy that has been put up to put off any intervention is a complete misreading of the powers that it already has under legislation steered through Parliament by my noble friend Lord Johnson of Marylebone and that are now enhanced by this legislation.
If the powers prove still to be inadequate—if someone still has a grievance even after the Office for Students and the OIA have investigated a complaint—at that point they can go to law; that is what these amendments, originally proposed by the Government last year and now proposed and brought before the House by me and others today, ensure. That is not some feeble abandonment of a commitment to freedom of speech; it is the right way to proceed.
This legislation is a powerful further intervention; it makes the legal framework absolutely clear. It means that any Member of this House, or any citizen who faces a challenge to their right to speak at a university, will know there is someone at the OfS who has an explicit legal responsibility for protecting their rights to freedom of speech. That is a very powerful provision, rightly reinforced, but only if the regulator fails by a power of tort as well. Therefore, I hope the House will support the amendments in my name and in the names of others in this House.
Building Safety (Leaseholder Protections) (England) (Amendment) Regulations 2023
(1 year, 9 months ago)
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17:45 - Division on Baroness Pinnock’s Motion to Regret. - Ayes: 185 / Noes: 138 - Motion agreed.
Baroness Pinnock
That this House regrets that in laying the Building Safety (Leaseholder Protections) (England) (Amendment) Regulations 2023 (SI 2023/126) His Majesty’s Government have not published data on the number of landlords who have benefited from an error which allowed landlords to transfer costs of remedying historical building defects on to their leaseholders; further regrets that His Majesty’s Government have no intention to identify leaseholders affected by that error to advise them to appeal to the First-tier Tribunal to recover costs; and calls on His Majesty’s Government to publish these figures in a spirit of transparency and write to those affected with clear guidance on how to recover costs.
Relevant document: 31st Report from the Secondary Legislation Scrutiny Committee (special attention drawn to the instrument)
Baroness Pinnock (LD)
My Lords, the regret Motion standing in my name is critical of the Government’s response to those leaseholders who have been adversely impacted by a government error, which the Building Safety (Leaseholder Protections) (England) (Amendment) Regulations 2023 have recognised. The regret Motion puts the spotlight once again on the plight of leaseholders. Since the awful Grenfell Tower tragedy nearly six years ago, leaseholders and tenants have been at the very heart of the policy response to the crisis in building safety that was so cruelly exposed that night.
The Grenfell Tower inquiry has meticulously gathered evidence of years of malpractice by developers and materials manufacturers. It is clear where responsibility lies for the very significant number of building safety defects. Those not responsible in any way are the innocent leaseholders, who have done everything right and nothing wrong. The Building Safety Act set out the ways for the building industry to rectify past building defects. Those related not just to the removal of dangerous flammable cladding but to the lack of fire breaks, for instance, that were required at the time of construction. The Act also established how the very large costs of remediation were to be funded. In the case of non-cladding defects, there was a cascade of responsible entities. At the bottom of the cascade were leaseholders, who may be required to pay a capped contribution, which was limited to £10,000 outside London and £15,000 in London. These alone are significant sums—for first-time buyers, for instance.
There are still questions to be asked about whether the Government’s attempt to ensure that cladding is fully removed and safety defects are put right is effective in practice. However, the focus of the regret Motion is an error that inadvertently crept into the regulations, which determined how much developers would be required to pay, if at all. It was the intention that a family of associated companies of the developer would be included in the assessment of the value of the companies and, therefore, the ability of the developer to fund the remediation works. The regulations, unfortunately, excluded what have been described as parent and sister companies. This led to one very large developer being able to demonstrate that the special purpose vehicle that had been set up for the development did not of itself have the funds to pay for the remediation of safety defects. If the family of associated companies had been included with that special purpose vehicle, as was the intention of the regulations and of the Act, the developer would have been funding the costs of remediation. As a result of the error, this company was able to avoid paying for the defects and, via the cascade system, was able to pass on part of the costs to the leaseholders.
This is grossly unfair to the leaseholder, and a major company, which had already bypassed building regulations unlawfully in constructing the property, was now avoiding the responsibility of paying for this dangerous and deliberate practice that put profit first and people’s lives in jeopardy. The Department for Levelling Up, Housing and Communities was made aware—and only made aware—when a leaseholder contacted the department to query why they had been asked to pay remediation costs when they knew that the developer in question was a very large one and likely to be within the limits to be able to pay. I am pleased that the department quickly remedied the error, passed these amended regulations and brought them into force the following day, just to make sure that no other developer tried to bypass paying for remediation because of the error. However, there is currently no remedy for those leaseholders who have unwittingly paid towards remediation costs when they should not have done.
The Secondary Legislation Scrutiny Committee asked the department to quantify the numbers of leaseholders who have been forced to pay when they should not have been. Unfortunately, the department was unable to provide a figure and does not seem to have made any attempt to do so.
There is a route for any leaseholder caught out by the Government’s error, and that is to appeal to the First-tier Tribunal—but who knows about that? Leaseholders have been trapped all through this saga by the unscrupulous, immoral and unlawful behaviour of developers and others. The very least the Government can do is to seek out those leaseholders, provide them with the necessary information about how they can recover their costs and support them in doing so. The Secondary Legislation Scrutiny Committee asked whether protection for affected leaseholders could be introduced retrospectively, via primary legislation if necessary, and I too ask that question of the Minister.
This is injustice heaped on injustice. It was a government error, and the Government should do all in their considerable power to put it right. I will listen carefully to the response from the Minister. I hope she will be able to provide all the information that I and the Secondary Legislation Scrutiny Committee are asking for, including the ways in which leaseholders can find retribution. Meanwhile, I beg to move.
The Lord Bishop of St Albans
My Lords, I shall add a few words of support for the noble Baroness, Lady Pinnock. I stand with a weary sense of déjà vu, looking around at a number of people with whom I have sat as we have worked through building safety and fire safety measures.
What is interesting is that the Government fundamentally tried to grasp this problem. I pay tribute to the right honourable Michael Gove, who has been quite exceptional in taking hold of it and trying to solve it. I say well done to the Government for shifting the main problem in this very troubling area.
Like many noble Lords, I am still finding that people contact me because they are in a dreadful situation. Some of them are going bankrupt because they are simply unable to pay for the remediation work on their properties. This does not just affect big tower blocks; it happens to quite modest blocks of flats in places like St Albans, Stevenage and Bedford, in my diocese.
On the particular problem that the noble Baroness has mentioned, it is extraordinary, when the Government have already committed themselves to doing so many things on this—not least reforming the leaseholder system, which we will watch with great interest—and troubling that this unintentional problem, which is having a devastating effect on some people, is seemingly not being addressed. It would be a huge help if we could simply get the figures published to find out how many people are being affected by what seems to be an error and then try to help those people to find a remedy.
This is a terrible scar on the whole industry. We need to find ways to work with those who have unintentionally found themselves caught up in this and are quite desperate. That is supported by, as the noble Baroness has mentioned, the point made by the Secondary Legislation Scrutiny Committee that we need that data. I add my weight to the points that the noble Baroness, Lady Pinnock, has made today, and I hope we will see some movement.
Baroness Hayman of Ullock (Lab)
My Lords, clearly what we are talking about today is building safety and the importance of leaseholder protections. That is at the core of everything.
We have discussed, on a number of occasions now, the terrible events that happened at Grenfell Tower along with similar incidents that brought to light the significant issues surrounding building safety and the appalling impact that it can have on the lives of those who have lived, and continue to live, in affected properties. The safety of the homes that we live in has to be of the utmost importance to all of us, and it is the responsibility of the Government to ensure that buildings are safe and secure for those who live in them. So the Government’s Building Safety Act, as the right reverend Prelate the Bishop of St Albans said, is an important step towards improving building safety and ensuring that incidents such as Grenfell cannot happen again. However, we still need to ensure that leaseholders who have been bearing the brunt of the cost of remediation works are properly protected and can continue to make their homes safe.
The Parliamentary Under-Secretary of State, Department for Levelling Up, Housing & Communities (Baroness Scott of Bybrook) (Con)
My Lords, I thank the noble Baroness, Lady Pinnock, for securing this important debate to discuss the Building Safety (Leasehold Protections) (England) (Amendment) Regulations 2023. I also pay tribute to the Secondary Legislation Scrutiny Committee for its careful consideration of the regulations and to the right reverend Prelate and other noble Lords who have contributed to this discussion.
As noble Lords will know, the regulations correct an error in a previous instrument to ensure that, when assessing liability for the costs of remediating relevant defects, the consideration of the net worth of a landlord group for the purpose of the contribution condition includes parent and sister companies, as originally intended.
The department does not collect data on leaseholders who are liable to pay for the remediation of historical safety defects, not least because it is not a centralised process. We have, however, been made aware by leaseholders and, indeed, parliamentarians, of a very small number of cases where landlords state that they did not believe they met the contribution condition because of this unfortunate and unintended error. As I say, to date these cases are small in number, but of course we must say sorry to those people, because it will affect them, however few they are.
Due to the caps for qualifying leaseholders in relation to non-cladding remediation and interim measures, the maximum amount such qualifying leaseholders could have been charged is limited to £1,000—or £1,500 in Greater London—over the past year. Landlords are already required to produce a new landlord certificate which complies with these regulations in specified circumstances, including within four weeks of becoming aware of a relevant defect not covered by a previous certificate.
I wanted to make sure your Lordships were aware that the Building Safety Act already includes anti-avoidance and enforcement provisions to ensure that those who are liable to pay do so, and, where it is just and equitable, that costs incurred for historical safety remediation may be recovered. Remediation contribution orders allow interested persons—including local authorities, fire and rescue services and leaseholders—to apply to the First-tier Tribunal, as we heard, for an order requiring a landlord, developer or associated company to make payments in connection with remediation costs. Applications to the First-tier Tribunal for a remediation contribution order cost £100.
The department is clear that any opportunities to avoid the protections needed to be closed off swiftly, and that is what these regulations have done. Although it may be possible to give retrospective provision in law—as the protections in the Building Safety Act do—there is a general presumption not to apply new law retrospectively, and the department does not believe it would be proportionate to do so in this case. The Government therefore have no plans to introduce retrospective provision through primary legislation.
The department has published extensive guidance on the GOV.UK website to explain the leaseholder protections, including information relating to remediation contribution orders. Those affected who write to the department—and I encourage any noble Lord who knows of anyone who is worried about this to tell them to come to the department—will be informed of their options and directed to the guidance to help them to make an informed decision. Of course, each case is different, and leaseholders may wish to consider seeking legal advice before pursuing avenues of recompense.
LEASE—the leasehold advisory service—is providing free support and guidance to leaseholders who face costs for historic safety defects, and officials in my department continue to look at new ways to raise awareness of the leaseholder protection provisions to all leaseholders. These regulations are being issued free of charge to all known recipients of the 2022 regulations, and I put on record my assurance that the department will update GOV.UK guidance to further raise awareness of available redress options, with notifications sent to those who have signed up for them.
The circumstances surrounding the leaseholder protection legislation introduced last summer—particularly the speed of its preparation—were highly unusual, but necessary to ensure that leaseholders were afforded the financial protections under the Building Safety Act without delay. As my honourable friend the Building Safety Minister, Lee Rowley MP, said in his letter to the committee, we are confident that we can rely on the department’s processes that have long been in place, but which were abbreviated last summer, to ensure that, as far as possible, such mistakes will be avoided in the future.
I should like to deal with a couple of further questions. The noble Baroness, Lady Pinnock, referred several times to developers and their related companies. I point out that these regulations refer to landlords; that is, building owners. The mistake has no effect on the liability on developers.
I have answered the right reverend Prelate the Bishop of St Albans, in that we think that this is a very small number. Of course, if anybody knows of any such person, we will give them the support they might need to ensure they get the redress they should have. I hope I have answered all your Lordships’ questions. As ever, I will happily follow up in writing on anything I have not covered, and I am very happy to meet with any noble Lords to discuss this issue further.
I thank the noble Baroness, Lady Pinnock, for bringing forward the debate today. We can all agree that qualifying leaseholders should be protected from the costs of historical safety remediation. This legislation is important in ensuring that landlords’ groups that meet the contribution condition must meet the full costs of both non-cladding remediation and interim measures. On that basis, I ask the noble Baroness to withdraw her Motion.
Baroness Pinnock (LD)
My Lords, I thank the right reverend Prelate the Bishop of St Albans, and the noble Baroness, Lady Hayman of Ullock, for their support.
The right reverend Prelate has been at the heart of this issue for the six years since the awful Grenfell tragedy; he knows first hand, as he said, the devastating impact it has had on leaseholders. Perhaps I am wrong in saying this, but it was almost the last straw, in that all of us across the House had tried so hard to get the Building Safety Act to provide legislative ways of delivering remedies for leaseholders, and at that moment when everything should have been put right as far as possible—there are omissions that I still intend to pursue—an error crept in. Even then, where things were put right, innocent leaseholders were at the mercy of landlords who wanted to pass on the costs to them. The Minister has said that it is a small number but actually, we have no idea whether it is small or large, and the Government should find out.
I am grateful to the Minister for apologising for the error on behalf of the Government. I accept that it crept in inadvertently, but apologies do not pay bills. Leaseholders have had enormous bills of up to £10,000 from the cascade cap, which they would be required to pay. I am disappointed with the Minister’s response, both to my regret Motion—
Baroness Scott of Bybrook (Con)
The £10,000 would have been over 10 years, and we have stopped it at the end of the first year, so the maximum that would have been required was £1,000. I just wanted to clarify that. I would not want it to be £10,000.
Baroness Pinnock (LD)
I thank the Minister for pointing that out. I will see what the legislation says.
I am very disappointed with her response and the response to the request by the Secondary Legislation Scrutiny Committee, which also made a very strong statement that the Government ought to find out how many leaseholders were affected and provide them with information and support. This is a government error, albeit one made inadvertently. The Government ought to be leading the way in showing that if errors are made, efforts are made to put them right. Currently, no efforts are being made to put this right. Therefore, I want to underline my considerable concern that the Government are not intending to take any action, and I would like to test the opinion of the House.
Health Education England (Transfer of Functions, Abolition and Transitional Provisions) Regulations 2023
(1 year, 9 months ago)
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Lord Markham
That the draft Regulations laid before the House on 20 February be approved.
Relevant document: 32nd Report from the Secondary Legislation Scrutiny Committee
The Parliamentary Under-Secretary of State, Department of Health and Social Care (Lord Markham) (Con)
My Lords, the noble Baroness, Lady Merron, has tabled a Motion to Regret, and I will first address her concerns in turn.
First, the noble Baroness noted that the regulations do not offer sufficient evidence to support the change, and that the information on the potential costs of and savings from this reorganisation are unspecified and vague. In response, I note that an amended version of the Explanatory Memorandum for these regulations has been laid, with additional information on the costs and benefits of, and evidence for, the transfer of functions from Health Education England to NHS England.
As the Explanatory Memorandum sets out, there are some smaller costs and savings relating to the transfer of Health Education England’s functions to NHS England, and more significant costs and savings related to the wider transformation programme that NHS England is currently undergoing, which would include the transferred Health Education England functions. As I will set out in more detail later, overall, the merger of HEE and NHS England will bring significant benefits to the delivery of workforce planning for the NHS.
Transition costs include the creation of the HEE transition programme office and short-term consultancy to deliver the overarching design and the new workforce function. Ongoing savings and efficiencies from the wider NHSE transformation programme are expected to include a reduction in the total size of the new NHSE, including Health Education England and NHS Digital, of up to 40%; savings from not having a Health Education Board; and removing the need for a range of duplicate processes currently in place.
These amendments to the Explanatory Memorandum are also intended to address comments on the regulations by the Secondary Legislation Scrutiny Committee in its 32nd report of Session 2022–23.
The noble Baroness’s second point was that the regulations have not been published alongside the Government’s NHS workforce plan. I will say more about the longer-term plan later, but I can confirm that the Government have committed to publishing the plan this spring and will include independently verified projections for the number of doctors, nurses and other professionals who will be needed in five, 10 and 15 years’ time, taking full account of improvements in retention and productivity.
The noble Baroness’s final point was that the regulations do not guarantee that NHS England will give long-term workforce issues sufficient priority. I can confirm that the Government are putting in place a range of measures to ensure that NHSE places sufficient priority on these vital issues. This includes setting objectives on workforce within the NHS England mandate, continuing to monitor and track expenditure on education and training, and establishing a ministerially chaired board to provide oversight and governance of workforce in the NHS.
Baroness Merron
At end insert “but that this House regrets that the explanatory memorandum to the Health Education England (Transfer of Functions, Abolition and Transitional Provisions) Regulations 2023 does not offer sufficient evidence to support the change; that the information provided on the potential costs and savings from this reorganisation are unspecified and vague; that the Regulations have not been published alongside His Majesty’s Government’s promised NHS Workforce Plan; and that they do not guarantee that NHS England will give long-term workforce issues sufficient priority”.
Baroness Merron (Lab)
My Lords, I am grateful to the Minister for introducing this draft statutory instrument, which facilitates the merger of the body responsible for the education and training of the health workforce, Health Education England, with NHS England, with the purpose of improving long-term workforce planning and strategy for the recruitment of NHS staff. I would also like to express my appreciation of the work of Health Education England and acknowledge the contribution of staff who have worked within that organisation. I am also grateful to the Minister for his initial response to the points raised in the amendment standing in my name on the Order Paper.
As noble Lords will know, on these Benches we are very committed to long-term workforce planning for the NHS and for social care, which requires independent workforce projections. Once again, I have to say, it is staggering that the NHS has not had a workforce plan since 2003—and still we wait. In answer to the much-asked question about the publication of the workforce plan, your Lordships’ House and the other place have been told that it would be “soon”. The meaning of the word “soon”, I do feel, has been somewhat overstretched, and I know the Minister understands that point. So, to repeat the question: when will the workforce plan be published? And can the Minister indicate what will be the role of NHS England within the workforce plan?
In earlier debates about the merger of NHS Digital and NHS England, the point was rightly made that talented expertise has to be retained. Given that, in this case, we are looking at an estimated cut of up to 40% in workforce numbers, this point bears repeating. Could the Minister provide an update on how the work on retaining talent and expertise is progressing? What assurances can he give to your Lordships’ House that the staff are being treated fairly throughout this process? Could the Minister also set out what specific service improvements are anticipated because of the merger and what metrics the department will use to judge NHS England’s performance, given its new remit?
I am grateful to the BMA for its contribution, which highlights areas of concern it has picked up from practitioners. I hope the Minister can assist with allaying those concerns, which I will now set out. Doctors are anxious that these changes could devalue the importance of supporting education and training, compared with the desire to increase service delivery during an ongoing workforce crisis. How will this be guarded against?
There are also concerns that the reduced size of the new NHS England will damage its ability to deliver support to junior doctors and negatively affect the day-to-day running of postgraduate training programmes, which are currently supported by the local offices of Health Education England. Can the Minister give reassurance on this point?
Finally, there is a question about NHS England’s ability to adhere to the minimum standards set out in the code of practice on the provision of information for postgraduate training. I hope the Minister can also assist by responding on this point.
Although we on these Benches will not oppose these regulations, I now turn to the substance of my amendment and draw the attention of your Lordships’ House to the report of the Secondary Legislation Scrutiny Committee, which says:
“The Explanatory Memorandum describes what the instrument does in quite legal terms but does not offer evidence to support the policy by setting out the costs and benefits anticipated from this transition. We have received further information from the Department … which is published in Appendix 1 but despite our enquiries the information on the costs and savings from this reorganisation remains quite vague.”
In addition to these points, my amendment notes that
“the Regulations have not been published alongside His Majesty’s Government’s promised NHS Workforce Plan; and that they do not guarantee that NHS England will give long-term workforce issues sufficient priority”.
I heard the Minister’s initial response, but I feel he has spoken of promises of delivery in the future, so could he explain how the shortcomings, which have been criticised by the committee and in the context of the amendment, have arisen and how he will seek to address them in full?
Although there is no fundamental problem with the general policy of abolishing Health Education England and transferring its responsibilities to NHS England, once again the presentation, content and communication has been somewhat lacking. The SLSC has been damning of the regulations’ Explanatory Memorandum, which, as the committee says, does not provide sufficient evidence to support the policy, or set out the costs or savings clearly enough. This is clearly unacceptable, so could the Minister—this, again, is a repeat question for him—confirm what steps he has taken to ensure that important regulations such as these are properly and thoroughly brought before the House?
More broadly, and to return to where I started, these regulations are before us without reference to the broader NHS workforce plan, and it is this for which we still wait. Absorbing Health Education England into NHS England before knowing the number of health workers it will need to educate and train really does feel like putting the cart before the horse. The NHS is nothing without its workforce, yet we are still unsighted on how many doctors, nurses, care staff and allied health professionals we will need in five, 10 or 20 years’ time. Can the Minister set out the reasons behind this delay? Is it a matter of cost, or is it some kind of disagreement within government as to what the NHS needs and what the Government are prepared to commit to? I beg to move.
Lord Allan of Hallam (LD)
My Lords, I very much appreciate the opportunity that the noble Baroness, Lady Merron, has given to the House to debate this reorganisation on the back of her regret amendment. In preparation for this, I had a look at Health Education England’s website; it is always good to look at the thing you are abolishing. It is worth quoting in full what it says about itself:
“Health Education England … exists for one reason only: to support the delivery of excellent healthcare and health improvement to the patients and public of England by ensuring that the workforce of today and tomorrow has the right numbers, skills, values and behaviours, at the right time and in the right place.”
That would perhaps be an appropriate motto for the Minister to have. It is timeless: we want people to be focused on that mission of delivering the right people with the right skills at the right time and in the right place.
Again, I looked at the history of the body. It was set up as a special health authority in 2012. I imagined that it was something we had had for years, but no, it was set up in 2012 and became a non-departmental body in 2014. So in about a decade we have gone from wanting a body with a singular focused mission to saying, “No, that’s a disaster; it needs to now be fully integrated into a much bigger body in order to be able to deliver”. I fear we have seen this again and again; we had it with NHS Digital. A group of people got together a decade or so ago and said that the important thing is that all these functions have a team that is solely dedicated to delivering workforce, digital or whatever, and 10 years later the fashion has changed. The Minister makes a reasonable argument that you would not now have a separate HR function. Clearly, a decade ago, we thought that was exactly what we should do, and we spent time and money constructing this thing. Now we are spending time and money destructing it.
There is a risk that we end up mistaking circular motion for forward motion. It is still motion—we are moving things around—but there is a risk that we are not making progress. I will explain why we need to have really serious measures to understand whether we are doing that; otherwise, I fear we will back here in five or 10 years’ time, with people standing at the Dispatch Box arguing why we need to separate all these functions out, because merging them into NHS England meant that we lost focus.
The one group of people that will continue to make money out of this is the consultants. I note we are told in the Explanatory Memorandum that they were paid £1 million plus VAT to create this reorganisation. I am sure a similar group was paid £1 million plus VAT to spin out HEE when it was originally set up, and we will see this again with all the different parts of the health service. We spend money and we reorganise. Even if we support the latest organisation, we in this House need to continue to hold the Government’s feet to the fire, whoever they are, to say, “Prove that the reorganisation was worth the money”.
The noble Baroness, Lady Merron, is quite right to keep bringing us back to the information in the Explanatory Memorandum and the reports we get from the scrutiny committee. We are given explicit information about the costs. We are told that it is £1 million plus VAT for the consultants and another £1 million for staff costs, so a couple of million pounds here and there for direct costs. The savings are much less clear. We are told they are £1.3 million because we no longer need a separate board; then the big savings are wrapped up in this aspirational 40% for all of these reorgs into NHS England, but we are not given any more detail than that. I know the current body of staff in Health Education England is some 2,000 people, overseeing approximately £5 billion of expenditure, so there is clearly a lot of scope for potential savings.
I ask the Minister to make a firm commitment that the Government will come back and that future NHS England reports will give the kind of detail we need in order to understand whether those savings were realised. When these reorgs happen, there is a risk that NHS England’s future reports will be structured in a way that disguises the savings so that we cannot pull them out. It would help the House and the public if, when NHS England reports in a year’s time, there is a separate item that says, “For NHS Digital, we did or did not realise these savings”, and, for Health Education England and the education functions, “This is how many staff we now have working on it and that is why we think we are getting better value for money from the budget”.
From an accountancy point of view, you can go either way: you can either try to hide things by smushing them all up together or try to make them explicit by ensuring that the data is there. I hope that the Minister will commit so that we can come back at this time of year in 2024, 2025 and 2026—I recognise that this will take time to play out—to see whether this reorganisation has had the effect. This would inform the debate next time we are asked to reorganise; I am sure we will be told every time that they will make savings.
Finally, the substantive point raised by the noble Baroness, Lady Merron, is around the workforce plan. We can repeat our previous exhortations: that this is desperately needed; I know the Minister agrees that it is desperately needed. There are concerns that the reason it is being held up is that the funding is not there. Every time we see good news—the pay settlement for nurses and others is good news—a little bit of us asks where they will find the money; we hope they will not find the money by cutting in other areas. We need continual reassurance that the workforce plan will be accompanied by the money that will be needed to deliver it, and that we will not see it shaved away as it goes through the process of finalisation. That might be partly why we want it quickly. Once it is published, it is much harder to step back. The fear is that, the longer it takes, the more likely it is that there will be a process of salami slicing and the bold, ambitious workforce plan, which I am sure the Minister and his colleagues in the department supported, ends up “Treasury-fied” and no longer quite as ambitious as it was.
Finally on the workforce plan, we are talking about the NHS and we are rolling Health Education England into NHS England. As we have discussed many times in this House, health and social care are intimately related in terms of being able to deliver for people out there and being able to run an efficient service. I hope the Minister will at least be able to say that this reorganisation will not negatively impact joined-up workforce planning across both sectors. Ideally, I hope he will be able to say that there will be some positive impact from this reorganisation in terms of making sure that social care staff numbers correspond with the increase in NHS staff that he knows we need.
Baroness Watkins of Tavistock (CB)
My Lords, I declare my interest as a relatively new non-executive director of NHS England, appointed together with two expert doctors to give clinical input to the board and tackle the issues that have just been discussed. However, I want to put on record that I think Health Education England has been a success and has set up sound processes that have enabled a good estimation of the workforce needed for the next 15 years.
The workforce plan is in draft and is being considered by the Government, but I want to underline the fact that, without sufficient funding, it will not achieve what everybody wants it to achieve. I believe that making it mainstream in NHS England should mean that, working with the ICBs, we have a sound approach for the future. I am aware that the two previous speakers will be able to hold NHS England to account on whether we get it right or not. I felt that I should be here this afternoon to say that I think it will work, but only because of the sound foundation that NHS Education has left behind.
I also want to echo one concern: that we have to calculate social care needs within the workforce development plan, in particular the needs of leaders of teams in social care, who are often nurses or allied health professionals such as physiotherapists. On that note, I will sit down; I wanted to express my current understanding of the situation.
Lord Scriven (LD)
My Lords, I wish to add briefly to the very useful and interesting debate that the noble Baroness, Lady Merron, has stimulated with her amendment. In so doing, I point out my interest as a vice-president of the Local Government Association.
I support the general direction of the merger. I can see why HR functions need to be streamlined together rather than partly devolved and partly in NHS England. The Minister quite rightly pointed out his business background; I have a background in organisational development and public sector reform, not necessarily in the UK but in Africa and south-east Asia. One of the key failures in the public sector when these organisational structures happen, predominantly for cost reduction reasons—it is always said by those leading them that cost reduction is not the reason, but it is important—is that there are no measurements for success in three, five, 10 and 15 years. Without that, you get a structure without understanding how the structure will deliver exactly what is needed.
So, what are the measurements for success in three, five, 10 and 15 years? Without those, everyone can say there is a target, but no one knows what that target, or bull’s-eye, really is. What are the clear measurements within three, five, 10 and 15 years? If they are not there, how do we know what success looks like based on what the merger was about in the first place? That is really important.
The other part of this is that you can have all the training and numbers you like for the workforce, but if the support, conditions and culture are not right, people will leave, as they are doing now in parts of the NHS. In certain specialties, you cannot get a doctor for money, no matter how much you offer. Part of that is about working conditions, culture and support. How does this merger deal not just with numbers and education but more holistically with the culture and support? For example, in many trusts, junior doctors cannot even get a meal in the evening. You can have all the numbers you want in terms of training, but if people decide not to work because of the conditions, how does that help holistically? How do we ensure we have not just the training and numbers but the culture and support within organisations so that people decide to go and work there?
My final question is simple. All noble Lords who have spoken have mentioned social care. As I said, my question is simple: how does this plan link with a plan for the social care workforce? What problems are envisaged and what mitigation has been put in place to ensure, first, that the two plans work in tandem and, eventually, as a long-term aim —I have heard Ministers talk about this—that staff will be able to move across the organisational divide? How will the links be there? What mitigation is being put in against the risks for a social care plan and a healthcare plan? This is important because people who start with a health problem then require social care to make as good and independent a life as possible. It is important that, when the Government start on one plan, they understand the linkage with the other and the mitigations needed. I hope that the Minister can put the mitigations in place.
As I said, in general, I understand the reasons for this but there are serious questions that the Minister needs to answer to ensure the maximum impact from this merger.
Lord Markham (Con)
I thank noble Lords for their contributions to today’s debate. As ever, I will attempt to answer the questions as best I can, and I will come back in writing with the details.
First, on when the workforce plan will be published, forgive me for this answer but I cannot resist it. I looked on the HEE website and it will be delivered “at the right time and in the right place”. I could not resist that one. I think the term I am allowed to use is “shortly”, which is different from “soon”, but I will let noble Lords decide. Seriously, however, there is a very detailed plan. While I acknowledge that there are concerns about delays and this being “Treasury-fied”, at the same time, serious questions have been raised, as we would expect. This is leading to a lot more thinking, which is the right thing to happen, provided we come out with the right answer. I hope noble Lords understand that work is going on to ensure deliverability.
I will try to answer the many questions asked, particularly on what the measures of success will be, as raised by the noble Lord, Lord Scriven. From my point of view—it may be personal—we are publishing the workforce plan and the measure of success will be how well this body performs against that. It will not be down to that body alone; it is part of the newly merged entity. As the noble Lord, Lord Scriven, said, it is about recruitment, training and retention.
A key issue, as I know from being tangentially involved in some of the conversations with unions in the last few weeks, is a real recognition on our part that pay is a core issue, but so are things such as hot meals, rest areas for staff and parking. Some of those issues are important “health factors”, if you will excuse the pun, and we are very alive to them.
Turning to the questions raised by the noble Baroness, Lady Merron, and the noble Lords, Lord Allan and Lord Scriven, as I say, it is about looking at savings across the piece. As noble Lords will know, we are talking about quite a considerable structure. The average trust is run by 300 or 400 admin staff; an ICB has 700 staff; a region has 650 to 700 staff; the NHS itself, at the centre, has 4,000 staff; and the Department of Health and Social Care accounts for another 3,500 to 4,000 staff. I think we would all agree that layer upon layer of management is not good, from not only a cost and efficiency point of view but a management point of view. We all talk about our various backgrounds, and speaking from mine, the fewer layers you have between the so-called management and the front line, the better. That is the wider picture of what we are trying to do here.
Lord Scriven (LD)
I totally agree. I think Tesco, for example, has four levels of management between the customer and the chief executive. But I hope the Minister understands that, regardless of layers—this may not make me popular outside this place—the NHS is one of the most effective health services in western healthcare in terms of management costs. I hope the Minister does not take the populist view that having a go at the managers suddenly makes savings. We have to get the balance right. On comparators, the NHS is significantly well placed in the western world in terms of its cost ratio of managers to patient care. I hope the Minister will accept that.
Lord Markham (Con)
The noble Lord is right: it is about the effectiveness of the layers. I come at this from the view, “How do we make this most effective?” That is the major gain to be won from all this.
The noble Baroness is right to bring up the issue concerning the Secondary Legislation Scrutiny Committee. I have spoken to all the staff in the DHSC about it, and I have given assurances to the House on the importance we attach to it. I am meeting the Leaders of both Houses tomorrow to discuss how we are working to make improvements in this space. Hopefully, we are making progress.
I thank the noble Baroness, Lady Watkins, for her contribution. It is fantastic to have her on the board, given her experience. Several noble Lords asked about the social care element. As we know, the situation is slightly different because most people in the social care space are employed by third-party organisations. There will not be a direct read across, but the Minister will be announcing shortly the next version of People at the Heart of Care, which aims to address a number of issues. It is probably best to wait for that, and we can take it from there.
I have tried to cover as many of the issues raised as possible, and I am quite happy to follow up in writing any I have missed. Reassurance was sought regarding current training budgets, pointing out that, while we want to make savings where possible, we need to know they are being made in the right place. A separate board structure is being set up within the organisation to make sure that such matters are separately scrutinised and not lost within the overall picture, because it is understood how vital that is. These are all elements I will try to cover more completely in a written response.
Lord Scriven (LD)
That is a helpful answer. To be clear, you can have a separate board, but if the budget is not ring-fenced, all that they are scrutinising is a smaller budget. I think the question that was asked—although maybe not specifically—was, will the training budgets be ring-fenced and will the board therefore be looking after a ring-fenced budget?
Lord Markham (Con)
I think that is probably one element I need to come back to the noble Lord on in writing.
As I said, I will try to follow up the questions in detail. I welcome the contributions of various noble Lords and their understanding of what we are trying to do here. I understand the arguments, as an ex-management consultant, regarding centralisation versus decentralisation and how they go in and out of fashion. This is a slightly different case because it is about bringing a core function in house. To me, that is the key change and the key thing we will be seeking to measure. As well as setting out clinical needs, the key role of the NHS at its centre is making sure that it is recruiting, training and retaining talent to meet the workforce plan needs. On that note, I thank noble Lords for their contributions and hope that my follow-up answers any questions that I missed.
Baroness Merron (Lab)
My Lords, I am grateful to the Minister for his response, and to the noble Lords who have spoken in this debate: the noble Lords, Lord Scriven and Lord Allan, and the noble Baroness, Lady Watkins. I did smile when the noble Baroness gave us an update on the workforce plan, which I am sure was helpful to the Minister, and I also wish her well in her new role.
As the Minister and your Lordships’ House will have equally understood, this is not about the actual steps that are being taken. We have had a useful debate to pull out some aspects, but the regret Motion is about the workforce and, in particular, the failure to have produced a workforce plan. This is not something recent from the last year or so. We have to remind ourselves that this Government have been in government for 13 years, and still we wait. For every day we wait, we lose an opportunity—as noble Lords have said—to plan for the future, as well as to deal with the immediate, and that is what motivated me to put forward this amendment.
We are all in agreement today that a workforce plan has to be for health and social care, which are inextricably linked, and has to not sit on the fence—well, it may; we will see. The plan has to not sit on a shelf but be fully resourced and do the job it is intended to do. We will look forward to holding the Minister to account on that point, as I know he expects.
Regrettably, I do not believe that in this debate the Minister has addressed the shortcomings of the regulations before us. Those shortcomings are somewhat unnecessary, which is a great shame because overall the statutory instrument is one that will be beneficial. It is a shame that we have had to debate it in this fashion. With that, I beg leave to withdraw the amendment.
Arrangement of Business
The Deputy Speaker (Lord McNicol of West Kilbride) (Lab)
My Lords, given the importance of the issue raised by the Statement we are about to hear, the Lord Speaker has waived the House’s sub judice resolution. However, I ask noble Lords to exercise caution and avoid referring to the detail of any cases that are currently or soon to be before the courts to avoid any risk of prejudicing proceedings, particularly criminal proceedings.
Baroness Casey Review
(1 year, 9 months ago)
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The Parliamentary Under-Secretary of State, Home Office (Lord Sharpe of Epsom) (Con)
My Lords, I shall now repeat a Statement made in another place:
“With permission, Mr Speaker, I would like to make a Statement on Baroness Casey’s review of the Metropolitan Police. I wish to put on record my thanks to Baroness Casey for undertaking the review on such a difficult and sensitive topic with the utmost professionalism.
The Metropolitan Police Service plays a big role in our country: tackling crime throughout the capital and keeping 9 million Londoners safe; preventing terrorism nationally; and managing significant threats to our capital and country. I back the police. I trust them to put our safety before theirs, to step into danger to protect the most vulnerable, and to support all of us at our most fearful, painful and tragic moments. Many of us can never imagine the challenges that regular police officers face every day. That is particularly poignant as tomorrow marks the sixth anniversary of the murder of PC Keith Palmer in the line of duty while he was protecting all of us in this place. For their contribution, I am sure all Members will join me in thanking the police for their work.
But there have been growing concerns around the performance of the Metropolitan Police and its ability to command the confidence and trust of Londoners. That follows a series of abhorrent cases of officers who betrayed the public’s trust and hideously abused their powers. In June last year, His Majesty’s Inspectorate of Constabulary and Fire & Rescue Services announced that the force would be put into an Engage phase. In July, the Government appointed Sir Mark Rowley to the post of Metropolitan Police Commissioner, with the express purpose of turning the organisation around.
Today’s report, commissioned by Sir Mark’s predecessor, makes for very concerning reading. It is clear that there have been serious failures of culture, leadership and standards in the Metropolitan Police. That is why Sir Mark Rowley’s top priority since becoming commissioner has been to deliver a plan to turn around the Met and restore confidence in policing in London. Baroness Casey’s report finds: deep-seated cultural issues in the force; persistent poor planning and short-termism; a failure of local accountability; insularity and defensiveness; and a lack of focus on core areas of policing, including public protection. She also highlights the recent decline in trust and confidence in the Met among London’s diverse communities.
The report underlines the fact that the Met faces a long road to recovery. Improvements must be made as swiftly as possible, but some of the huge challenges for the organisation may take years to fully address. Baroness Casey is clear that Sir Mark and Deputy Commissioner Lynne Owens accept the scale of those challenges. I know that to be true from my own work with them. I will ensure that the Metropolitan Police has all the support it needs from central government to deliver on Sir Mark’s pledge of more trust, less crime and high standards. Every officer in the force needs to be part of making those changes happen.
As I said as soon as I became Home Secretary, I want all forces to focus relentlessly on common-sense policing that stops crime and keeps the public safe. The Government are already providing the Metropolitan Police with support to do just that. Funding for the force will be up to £3.3 billion in 2023, a cash increase of £178 million compared with 2010, and the force has by far the highest funding per capita in England and Wales. As a result of the Government’s police uplift programme, the Metropolitan Police has more officers than ever before—over 35,000 as of December last year. The Home Office is providing funding to the force to deliver innovative projects to tackle drug misuse and county lines. We are working with police and health partners to roll out a national “right care, right person” model, to free up front-line officers to focus on investigating, fighting crime and ensuring that people in mental health crises get the right care from the right agency at the right time.
It is vital that the law-abiding public do not face a threat from the police themselves. Those who are not fit to wear the uniform must be prevented from doing so. Where they are revealed, they must be driven out of the force and face justice. We have taken steps to ensure that forces tackle weaknesses in their vetting systems. I have listened to Sir Mark and his colleagues; the Home Office is reviewing the police dismissals process to ensure that officers who fall short of expected standards can be quickly dismissed. The findings of Baroness Casey’s review will help to inform the work of Lady Angiolini, whose independent inquiry, established by the Government, will look at broader issues of police standards and culture.
I would like to turn to two particularly concerning aspects of Baroness Casey’s report. First, it addresses questions of racism, misogyny and homophobia within the Metropolitan Police. Baroness Casey has identified evidence of discriminatory behaviour among officers. I commend those officers who came forward to share their awful experiences with the review team. Discrimination must be tackled in all its forms, and I welcome Sir Mark’s commitment to do so. I will be holding the Metropolitan Police and the Mayor of London to account by measuring their progress. I ask Londoners to judge Sir Mark and the Mayor of London not on their words but on their actions to stamp out racist, misogynistic and homophobic behaviour. Action not words has been something that victims of police misconduct and criminal activity have asked for.
Secondly, officers working in the Parliamentary and Diplomatic Protection Command perform a vital function in protecting our embassies and keeping us, as Members of Parliament, safe on the Parliamentary Estate. Baroness Casey’s report is scathing in its analysis of the command’s culture. The whole House will be acutely aware of two recent cases of officers working in that command committing the most abhorrent crimes. I expect the Metropolitan Police to ensure that reforms reflect the gravity of her findings, while ensuring that the command’s critical security functions are maintained. The Home Office and the Parliamentary Security Department will work closely with the Metropolitan Police to ensure that that happens.
Although I work closely with the Metropolitan Police, primary and political accountability sits with the Mayor of London, as Baroness Casey makes clear. I spoke to the mayor yesterday; we are united in our support for the new commissioner and his plan to turn around the Met so that Londoners get the police service they deserve. We all depend on the police, who overwhelmingly do a very difficult job bravely and well. It is vital that all officers maintain the very highest standards that the public expect of them. Londoners demand nothing less. I have every confidence that Sir Mark Rowley and his team will deliver that for them. I commend this Statement to the House.”
Lord Coaker (Lab)
My Lords, as the son of a Metropolitan Police officer who served for 30 years, I need no reminding of the bravery and service of many police officers, including those around Parliament. As the Minister laid out, tomorrow we will remember the service of PC Keith Palmer, who was killed six years ago in a cowardly terrorist attack on this Parliament.
But there can be no hiding place from this damning report into the culture and behaviour of the Metropolitan Police, and the noble Baroness, Lady Casey, and her team are to be thanked for their exceptional work. It is so depressing to learn that the Metropolitan Police has not done the institutional work to root out racism, sexism and homophobia. The individual case studies in the reports, and the reports given in evidence, show appalling and shocking behaviour going unchallenged. How will all of this change? Why will it change now, following this report, given that so many other reports highlighted these failings in the past?
Even recently, when change was promised and cultural change was made a priority for the police, what does the Casey report say? As an awful example, it says that, following the abduction, rape and murder of Sarah Everard by a serving police officer, there was a “plane falling out of the sky” moment when we should have witnessed real change and reform. Instead, the police failed to understand the gravity and impact of the crimes of a serving police officer, saying that the force preferred to pretend that its own perpetrators were just “bad apples”. The report asks what it will take for the police to wake up and change, so I ask the Minister the same question.
What will the Government themselves do to ensure that the cultural change needed is driven forward? Of course, others have a responsibility, but the Minister has to accept that the Government of our country have a responsibility as well. It is not just at a senior level: what about local commanders? Why did no one realise that having rape kits in overflowing and broken fridges was unacceptable and, as the report says, symptomatic of a force that has simply lost its way?
What plan will there be to stop this? Will the Government take any role in overseeing an action plan for the future? What discussions will they have with not only the commissioner but the inspectorate and the mayor, on an ongoing basis? It cannot be right when a front-line officer tells the review:
“You don’t want to be a victim of rape in London.”
How will racism be rooted out? Why is nothing being done about the fact that, if you are a black officer, you are 81% more likely to be in the misconduct system than white colleagues? I can only wonder what my colleague, my noble friend Lady Lawrence, feels—I know she is not in her place. What do the Government say to the criticisms made by the noble Baroness, Lady Casey, when she points out the eyewatering use of force against the black community? Does the Minister now agree that the Government have a responsibility? How does it help when, despite strong arguments in this Chamber, the Government are extending the use of stop and search powers without suspicion for protest offences? It was said time and again in this Chamber that these powers will be disproportionately used against black and minority communities. The Government themselves need to learn and take responsibility.
It goes on, with the admission that many more officers are being investigated. Is it not simply shocking that, on the media this morning, the commissioner could not say categorically that no predators are still serving within the force? Is it not true that evidence was given about the treatment of gay officers and homophobic police practice? Again, following the Stephen Port inquiry into the murder of four men and the issue of homophobia, promises were made, practices were to be reviewed and change was to be brought about because of police failings. How has nothing happened? What is happening? Does the Minister know?
Therefore, action is needed culturally, but, in the short term, will the Government commit to suspending officers accused of rape and domestic abuse, as we would? Will the Home Secretary introduce mandatory national police standards on vetting, training and misconduct, as we have called for? Does the Minister agree with the report that austerity has profoundly affected the Met, eroding front-line policing? The Home Office has a clear role in driving up police standards. As part of this change, will the Government commit to the Casey report recommendation for specialist units to deal with violence against women and girls, and specialist 999 call handlers for such cases, as we have called for?
Does the Minister agree with me that the time for closing ranks to protect our own has to be over, that the time for defensiveness is over and that the time for denial is over? Trust and confidence have to be restored, and that can be done only by action, not just words. This is the time for that rebuilding of confidence and the restoring of trust. We have to seize the moment and do it now.
Lord German (LD)
My Lords, in my 24 years of parliamentary activity, this has been one of the toughest and hardest-hitting reports that I have read. We must thank the noble Baroness, Lady Casey, for that review.
For decades, there has been racism, sexism, misogyny and homophobia in the Metropolitan Police, and, throughout that time, police leaders have wilfully denied it or have been so embedded in the culture that they do not recognise it. Those who stood up to be counted and reported misconduct were labelled troublemakers, ostracised by colleagues and targeted for misconduct investigations themselves. Some of those who were violent and racist were reinstated, even when they had been found guilty and dismissed.
A chief superintendent told my noble friend Lord Paddick, “You can get away with anything in this job, providing you don’t upset anyone”. Predominantly white male officers had senior officer supporters, while black, female and gay officers did not have the same sponsorship and were more likely to be formally investigated and have their appeals rejected. Even when a senior officer was accused of rape, the reputation of the Met was seen as paramount, and he was allowed to retire on a full pension, with no questions asked. So does the Minister accept that all of this is a failure of leadership at all levels, including that of the Government?
But, of course, in order to support the police, we must recognise that not every black, female, Sikh, Muslim or gay officer has had these experiences. But that does not detract from the fact that there is a corrupting and unhealthy culture that allows unacceptable behaviour to flourish and grinds down those who stand up for what is right.
Things have changed over the decades. For example, overt racism has been replaced by closed WhatsApp groups, to which only a few trusted colleagues are allowed access. Does the Minister agree that disproportionality in stop and search—stereotyping young black men as criminals, for example—demonstrates underlying racism? Does he agree that disrespecting women demonstrates underlying sexism, and that gay officers being afraid of the police demonstrates underlying homophobia? Does the Minister agree that the most important, pivotal change that Sir Mark Rowley has to make, and is making, is to reverse the overarching philosophy of “cover up” rather than “own up”? Does he agree that we need to support him?
Does the Minister agree that armed units such as the parliamentary and diplomatic team attract people who want to dominate and control, rather than cultivating such behaviours? Vetting and screening for these units are clearly inadequate, as is the whole process of vetting, as we have repeatedly raised in this Chamber in relation to having appropriate vetting procedures for both new and continuing officers.
Austerity has made things worse, as the Minister said. He said that, between 2010 and 2023-24, they have increased the cash budget of the Met by £178 million on a £3.3 billion budget over 13 years. I do not think that that is a magnificent increase, but it has certainly been reflected in the fact that we have only half the number of PCSOs in London and that specials have more or less disappeared. It means that there is a major role for the Government to play in putting things right. The Government have to assess whether they are funding the Met properly, and whether those resources are being used to the best effect.
The Home Secretary, the Mayor of London and the commissioner must all take responsibility for rescuing the Met from destroying itself. So I ask the Minister: what role do the Government see that they must play in making that change happen, given that they have sat around for all this time and we have not yet seen the results? It is clear that, despite all those repeated reviews—from Scarman, Macpherson and the HMIC—the force’s toxic culture has never been properly addressed. But this time it has to be. The leadership in the Met and the Home Office must view this as a precipice moment. The Home Secretary must take personal responsibility for this and must draw up an urgent plan. Can the Minister say what the plan is and what timescales they will use to show progress that goes beyond the tick box? The stakes are too high for anything less. The fundamental principle of policing by consent is at stake.
Lord Sharpe of Epsom (Con)
My Lords, I thank both noble Lords who have spoken. I will also take this opportunity, as the noble Baroness, Lady Casey, did, to thank the vast majority of police officers in London, who, frankly, must be as depressed as we all are by reading the awful findings of the report.
It is paramount that public trust in the Met is restored. The Home Secretary is committed to ensuring that the commissioner and the Mayor of London will be held to account to deliver a wholesale change in the force’s culture. Of course, there is more to do, and the nature of that mission of rooting out unfit officers will probably mean that more unacceptable cases will come to light. I am not surprised that Sir Mark was unable to answer that question directly.
However, as I have already said, we should not overlook the many officers working in the Met who carry out their duties with the utmost professionalism—I emphasise that point. I am also confident that, under Sir Mark’s leadership, progress is being made to reform standards and to deliver common-sense policing for Londoners. The noble Baroness, Lady Casey, was very explicit about this; she said that Sir Mark and his deputy, Lynne Owens, have her trust—and they also have the Government’s trust. The Government are driving forward work to improve culture, standards and behaviour across policing, which includes strengthening vetting and reviewing the dismissals process, which are subjects I will come back to.
On the subject of institutional racism, sexism and homophobia, it is obviously clear from the report that recent cases, including instances of all those things, in parts of the Metropolitan Police are completely unacceptable. It has been made very clear that standards have to improve in this area as a matter of considerable urgency. The Met has to rebuild trust, improve standards and keep all Londoners safe from harm, regardless of their background. Urgent steps must be taken now to bring this change and to right those wrongs. It is critical that we do not lose momentum and that we come together with the Met to drive this much-needed change.
The noble Lord, Lord Coaker, asked what action the Home Office is taking now. At this precise moment, the Home Office is closely monitoring the progress that Sir Mark is making to deliver the transformation that is required in the Metropolitan Police through regular attendance at the MPS’s turnaround board meetings and in the chief inspector-chaired policing performance oversight group. We stand ready, with other system leaders across policing, to consider what further support we may be able to provide to support the action plan that the commissioner has developed. We are working with chiefs and other partners to deliver a programme of work to drive up standards and to improve culture across policing.
I am afraid that I will turn to chapter 8 of the report, because the noble Baroness, Lady Casey, makes it very clear that
“the primary public accountability of the Met for policing London should exist through the Mayor of London, together with his Deputy Mayor for Policing and Crime and the Mayor’s Office for Policing and Crime (MOPAC) oversight arrangements … A dysfunctional relationship has developed between the Met and MOPAC, with defensive behaviours on one side”—
to which the noble Lord, Lord German, referred—
“and tactical rather than strategic approaches on the other”.
The noble Baroness, Lady Casey, has recommended that the mayor chairs a quarterly board, and we support that. As I said in my opening remarks, we will make sure that both the commissioner and the mayor are held accountable on that. But the governance relationship is clear.
Much has been made of the impact of austerity, but I am afraid that I cannot agree because the Government have proposed a total police funding settlement of up to £17.2 billion in 2023-24—an increase of up to £287 million compared with 2022-23. As I have already said, as a result of the police uplift programme, officer numbers in the Met are at a historic high: there were 35,000 in December. On a per capita basis, in 2021 the Met received 57% higher funding per capita than the average for the rest of England and Wales, excluding London, and 24% more funding than the next highest force—Merseyside—which has a higher rate of police recorded offences per 1,000 of the population. Those numbers exclude funding that the Met receives for policing the capital city, counterterrorism and so on. Those numbers speak for themselves: the fact is that funding in London is about £300 per head of the population, compared with an average of just over £200 in the rest of the country.
Obviously, trust in the police is a subject of considerable concern, in particular in some of the communities that have been mentioned. I refer to comments made in the other place by Karen Buck, the MP for Westminster North, who pointed out:
“Neither the long-standing concerns about police culture identified in the Casey report nor the individual instances of racism, misogyny and homophobia in the police can be laid at the door of the cuts to the police budget over the early part of the last decade”.
She was happy to accept that, and I think that we should, too.
Questions have been raised in the report about PaDP—Parliamentary and Diplomatic Protection—and the firearms unit, which make for appalling reading. However, these units provide a vital function in providing protection and ensuring the public’s safety, and we expect the Met to take immediate action to drive reform in these functions and to root out any officers who are not fit to serve. I am pleased to say that considerable progress is already being made on that. In addition to a root-and-branch review, the Metropolitan Police has taken a large number of other steps to ensure that the public can have greater confidence: it is under a new commander, Chief Superintendent Lis Chapple, whom I am sure we all wish well; a third of all sergeants are new; PaDP officers have been prioritised as part of the MPS’s data wash against the police national database; and Operation Onyx is looking at historic misconduct cases that have previously been investigated and resolved, but which have included allegations of sexual offences or domestic abuse over the last 10 years. I am pleased that that work is taking place, and it is good news that it is taking place quickly.
As to the noble Baroness’s recommendation of “effectively disbanding” the PaDP unit, we do not believe that that is appropriate. As I have said, the Met has committed to, and made progress on, overhauling the command, and we expect it to make sure that the reforms reflect the gravity of the recommendation, while also ensuring that the command’s critical security functions are maintained. I think that those expectations are obvious and self-evident.
The noble Lord, Lord Coaker, raised stop and search. We remain of the belief that stop and search is a vital tool to tackle crime and to keep our streets safe. In 2021-22, stop and search removed around 14,900 weapons and firearms from our streets and resulted in almost 67,000 arrests. We are clear that nobody should be stopped and searched because of their race. Extensive safeguards, such as statutory codes of practice and body-worn video, exist to ensure that this does not happen. It is essential that we use data and context on stop and search to provide greater clarity and to reassure the public about its use. That is why the Government have committed to improve the way that this data is reported and to enable more accurate comparisons to be made between different police force areas. We have included new analysis in our police powers statistical bulletin in October 2022, which allows users to compare stop and search rates between the 43 police forces. To be clear: a higher rate should not automatically be regarded as a problem, but the reasons should be transparent and explicable to local communities.
I accept that this can cause disquiet, of course, but I came across these words earlier when I was reading my briefing on this subject and was really rather taken with them. I will read them to noble Lords, who I hope will indulge me. Sharon Kendall, whose 18 year-old son Jason Isaacs was murdered in London, said:
“For those who try and tie the hands of the police in making their job more difficult, I ask you to stop and look at all the murdered teenagers’ faces. If we collectively gave a little more support to the police using stop-and-search and enforcement, things would change.”
I accept that the police have a great deal of work to do to improve the culture—of course I do. However, we should also bear in mind her context and take it very seriously when discussing this subject.
The noble Lord, Lord Coaker, asked about the vetting process. There is already a statutory vetting code for all forces, and the Government have asked the College of Policing to update it to insert stricter obligations for chief officers on how vetting should be carried out within their forces. That is currently out for consultation. On the subject of bans for applicants with histories of domestic and sexual abuse, the revised code will be clearer on obligations on chiefs not to appoint individuals who are not suitable to be police officers.
On chief officers suspending officers under investigation for such allegations, the chief constables have a power in law to suspend police officers either where an investigation would otherwise be prejudiced or the public interest requires the officer to be suspended. In both cases, chiefs must also consider whether temporary redeployment to an alternative role or location would be appropriate. These are rightly operational decisions for chiefs following careful consideration of the full facts and circumstances.
On leadership, I agree that leadership has been found wanting in the police but we have invested £3.35 million from 2021 to 2023 for the College of Policing to create a national leadership centre. As part of this, the college is now in the process of setting and rolling out national leadership standards at key levels in the police service and providing leadership development programmes aligned to these standards. I have spoken to Andy Marsh and the chair of the College of Policing on this subject, as I know has my right honourable friend the Home Secretary. I suspect it is a subject to which we will return, as clearly work needs to be done there.
Lastly, but by no means least, on the subject of violence against women and girls, my answer will include Operation Soteria to which I have referred from the Dispatch Box before. It goes without saying, but I will say it anyway, that rape and sexual violence are devastating crimes that have a long-lasting impact on victims. Protecting women and girls from violence and supporting victims and survivors of sexual violence are a key priority for the Government. It is abhorrent.
The cross-government tackling VAWG strategy and tackling domestic abuse plan set out actions to prioritise prevention, help support survivors, strengthen the pursuit of perpetrators and create a stronger system. In 2021, the then Home Secretary commissioned HMICFRS to inspect the police response to VAWG. It found that while there had been progress, there was more to do to improve the police response. We accepted all the report’s recommendations to government.
To support policing to improve its response, we are funding the first full-time national policing lead for VAWG, Deputy Chief Constable Maggie Blyth, who is driving improvements in the police response. We have added VAWG to the strategic policing requirement, which means it is set out as a national threat for forces to respond to alongside other threats such as terrorism, serious and organised crime, and child sexual abuse. We are providing £3.3 million for domestic abuse matters training and are funding Operation Soteria, which will improve the police response to rape. We have introduced a range of tools and powers to help policing tackle VAWG, including stalking protection orders, sexual harm and sexual risk orders, and forced marriage and FGM protection orders.
I have talked about Operation Soteria from the Dispatch Box before. In the pathfinder forces there are signs of improvement, which is welcome, but I acknowledge that they still do not go far enough. To the Met’s credit, it is one of the first five forces to go into that programme. I forget what the precise terminology is, but it is one of the trial forces.
I accept that there has been a failure of leadership in the police, of course, but I have faith in Sir Mark and I suspect that most of the House will share that faith. The police have a lot of work to do to restore trust, and I hope that has been made clear. There is clearly a long way to go for the Metropolitan Police, but in Sir Mark and Dame Lynne we have a very strong top team, as the noble Baroness, Lady Casey, acknowledged. They are certainly well placed to start and prioritise this work and make sure it is delivered in a timely fashion.
Baroness Chakrabarti (Lab)
My Lords, does the Minister agree that in the spirit of bipartisanship, on such a dark day for the capital and the country, nobody should double down against the central finding of institutional prejudice? This does not mean that everybody is prejudiced; it just means that there are systemic problems that need to be addressed if we are to tackle these deep-seated problems in the institution.
Secondly, does the Minister agree that it is not just for the mayor or the Government and that Parliament has a role in this, going forward? Some of the many findings in the very difficult but excellent, robust report perhaps require primary legislation—pension forfeiture, robust disciplinary and vetting systems and so on. Is this something that we can continue to discuss together at this terrible time for policing and the rule of law?
Lord Sharpe of Epsom (Con)
I certainly agree with the noble Baroness’s latter point. During my response I omitted to mention the review into police dismissals. Obviously, that is ongoing. It started on 17 January and is expected to last four months and conclude at the end of next month. I cannot imagine for a moment that it will not address many of the more pertinent points made by the noble Baroness, Lady Casey. I quite expect that I will be up here discussing the findings of that review in due course.
As regards the institutional racism and so on, like Sir Mark Rowley I probably would not use that description because it can be misused and risks making it harder for officers to win the trust of communities, but I of course acknowledge the noble Baroness’s point.
Lord Cormack (Con)
My Lords, does my noble friend accept that a particular responsibility rests on the Home Office here? Will he take away an idea and discuss it with his colleagues? Namely, there should be a Minister of Cabinet rank within the Home Office, or maybe detached from the Home Office, whose prime, indeed sole, responsibility should be to be stationed at Scotland Yard supervising what goes on, and answerable to both Houses of Parliament. This is a shameful day for us all, and the Home Office cannot escape its share of the blame.
Lord Sharpe of Epsom (Con)
My noble friend makes an interesting suggestion. There is already a Policing Minister. My personal view is that it would be difficult to station a Minister in a police station, which is effectively what he is suggesting. We need to be very careful to make sure that political oversight and operational responsibility, as the noble Baroness, Lady Casey, calls it, are clearly delineated. I am sorry if he does not like the fact that the noble Baroness pointed to the Mayor of London’s responsibility for the political side of policing in London, but that is what she did in chapter 8.
Baroness Jones of Moulsecoomb (GP)
My Lords, it is obvious that the Home Secretary there is setting up the Mayor of London to be totally accountable. We all know that she has to play a role as well. In fact, it might be good if she stopped using racist, inflammatory language, because that would probably help the situation in the Met. Perhaps the Minister could take that back to the Home Office.
There is also the fact that anyone who has been watching the Met for the past 20 years—and I include myself—knows that nothing in that review is new. We have all raised all those issues many times—the noble Lord, Lord Harris, is agreeing with me. It is not new and should have been dealt with long before.
However, there is one thing in the review that could be fixed if the police actually tried to sort it. The noble Baroness, Lady Casey, makes the point that
“the Met does not look like the majority of Londoners.”
That is a very good point because it is mostly white—82%—and 71% male. Over the years the Met has tried to make itself look more like London, but there is a big problem in that most officers do not live in London. Also, when you have this level of misogyny, racism and homophobia, you do not attract people in. Does the Minister agree that a big move on recruitment might help the situation?
Lord Sharpe of Epsom (Con)
On the noble Baroness’s last point, yes, I agree—but I also think that a key element of that is to restore trust among the diverse communities that the noble Baroness, Lady Casey, has identified as having reduced or lost trust in the police. I am afraid that I cannot agree, though, that the Home Secretary is setting up the Mayor of London. It is in black and white: it is the noble Baroness, Lady Casey, who makes the point, not the Home Secretary. I shall acknowledge, of course, that the Home Secretary bears some responsibility for policing in the capital—because, of course, the Metropolitan Police has a large number of national aspects to its work, too.
Lord Russell of Liverpool (CB)
I thank the Minister for repeating the Statement. It cannot have been much fun to read it out—and it is horrifying to read. For those of us who have been involved in some of the legislation going through this House in the last few years, I am afraid that very little of it is a surprise.
To follow on from the noble Baroness, Lady Jones, speaking as a Cross-Bencher, one of the things that I find most egregious is the politicisation of dealing with this problem. I live in a constituency in London where my wonderful Member of Parliament, Mr Hands, has recently, poor chap, been made the chairman of the Minister’s party. Every week, I have an email from him, which I call “The wonder of Greg”, which tells me about all the things he is doing, including taking the oath to the new King—and we had a clip to watch. But every week, week in and week out, there is constant sniping at the Mayor of London, in a nakedly political way, which is doing nobody any good at all.
Mr Khan may not be everybody’s flavour of the month, but the only way in which we will tackle this issue is to depoliticise the relationship between whichever Government it is, the Home Office and the mayor, who is there to represent all Londoners and not there to be an enemy of those who are Conservatives. If the Minister could take one message to his right honourable friend in the other place, when she is not doing home decorating in parts of Africa, it is to try to remember that the mayor is there to represent all of us who live here in London, and there to represent the interests of all victims—and please can we be a bit more grown-up about this and be very careful about the language that we use?
Lord Sharpe of Epsom (Con)
From a broad point of view, I of course agree with the noble Lord. I do not personally approve of the politicisation of policing. However, I shall go back to the words of the noble Baroness, Lady Casey, who said:
“A dysfunctional relationship has developed between the Met and MOPAC”.
Under those circumstances, I would say to the noble Lord that it works both ways. I also think that whatever he is seeing locally is best dealt with locally. I shall of course raise his concerns with the chairman of my party, but the fact is that these are not Home Office points—they are made by the noble Baroness herself, when she says that a “dysfunctional relationship has developed”. That dysfunctional relationship needs to be resolved.
Lord Blunkett (Lab)
I was not going to say this, but now I shall. First, I declare an interest because the Deputy Mayor for Policing and Crime was my special adviser 20 years ago and remains a very close friend. Those who have taken responsibility in this area—and, of course, I have—will be aware of the real difficulty of holding the police force to account. Yes, there may have been a dysfunctional relationship, spelled out in chapter 8 of the brilliant report by the noble Baroness, Lady Casey, who deserves a medal for what she has done over these months. But what the noble Baroness was pointing out was the real difficulty that any mayor has—and this applies to the Home Secretary as well—in a situation where the force is so defensive. This is illustrated in the report time and again: the force is so defensive that any criticism at all is taken personally, and people go on the defensive to the point where you cannot have a sensible or rational conversation.
From now on, perhaps the Minister would take it back to the Home Secretary—and, of course, to the mayor and the mayor’s office—that it is time to stop the police hiding behind operational responsibility and to understand that somewhere and somehow they have to be held to account. At this moment in time, we are doing so, but on the back of years of failure. If we are to avoid that in future, we will have to have transparency and honesty in a way that we have not had.
Lord Sharpe of Epsom (Con)
I defer to the noble Lord’s extensive experience, of course, and I actually agree with everything that he has just said. The fact is that the report also identified an “evasive” culture and a culture that is overly defensive when it comes to perfectly justified criticism. I have confidence that Sir Mark will change that culture and do so very quickly—but, of course, he needs to be held accountable for doing that. The noble Lord is completely right: this cuts both ways, and for this situation to become less dysfunctional both sides have to operate in a much more functional way.
Baroness Wyld (Con)
One of the themes of this report is a “we know best” culture. Clearly, the Met has not wanted external challenge or external help from expert stakeholders, be it on women’s issues or all the things that are revealed in this shocking report. Can the Minister say what specific conversations he has had about a plan in place to change the culture, drawing in that external expertise? As the noble Lord, Lord Coaker, said, if you are going to do this, you need a strategy, but you also need specific plans, tools, metrics and deliverables. I take on board all the points that the Minister has made about the mayor’s role, but there is a responsibility in the department to know how and when this will be delivered and how it will be measured.
Lord Sharpe of Epsom (Con)
My noble friend makes an extremely good point. I have had a couple of conversations with Sir Mark Rowley, but I know that the Policing Minister has had many more. It is obviously the case that our response, as well as that of the commissioner, will develop over the coming days. I think that we should give him a little bit of time to respond to this report in full. Having said that, he has been in post for six months and he has our good will and support but, to maintain that good will and support, he is going to have to deliver, and metrics and deliverables will have to be a key part of that.
Lord Harris of Haringey (Lab)
My Lords, I refer to my policing interests in the register. I chaired the Metropolitan Police Authority some 20 years ago, and one of my members was the noble Baroness, Lady Jones. It is a very strong and powerful report, and all credit to the noble Baroness, Lady Casey, for producing it and to Dame Cressida Dick for commissioning it in the first place. The point about the report is that it tells us things that we have known for all that period.
Strikingly, a recommendation is made by the noble Baroness, Lady Casey, that says:
“As a minimum, Met officers should be required to give their name, their shoulder number, the grounds for the stop and a receipt confirming the details of the stop”.
That is something that the Metropolitan Police Authority gave instructions should happen over 20 years ago. It was introduced then, but somehow along the way it has disappeared. That is part of the way in which the police service reverts to a particular type, unless there is constant pressure and vigilance, and support for those many officers who want to make things happen.
I have two points that I want to make to the Minister. First, he said that he did not accept the statement that there is institutional racism, misogyny and homophobia, but he also said that he wanted to rebuild confidence with those communities. Maybe a statement in which the Home Office, the mayor and the commissioner all acknowledged the fact that, despite all those officers and staff who do not behave in this way, there is an institutional effect, would be part of restoring that confidence.
The second point is that today we have focused, necessarily, on the Metropolitan Police, but what assurances can the Minister give us about the state of other police forces elsewhere in the country, because I rather suspect that the diagnosis that has been made here could also be made in many other places?
Lord Sharpe of Epsom (Con)
I think I need to correct the record. I did not say that I did not accept that there has been evidence of institutional racism, sexism or homophobia—I said that I would not use that description, which is rather different. Of course, I accept the conclusions of the noble Baroness, Lady Casey, and there have been clear evidences of all those things, as I said earlier.
As regards other police forces, obviously this particular report deals with the Met. It is one of the five forces that are currently in Engage, so clearly there are some failings in other police forces around the country, which I think we are all familiar with. It would be unfortunate to tar all the other forces with this brush, but I am quite sure that there is evidence of the sorts of behaviours identified here in some of those things. Of course, some of them will be specific to the Met, because of course they do not necessarily mirror the structures and commands in other forces. This should be a wake-up call to all policing—I think that that is fairly evident—and I hope that senior police officers, and all police officers around the country, will make the effort to read this report and reflect.
Baroness Berridge (Con)
My Lords, it is 30 years ago next month that Stephen Lawrence was killed. So there have not been “growing concerns” among young black people in London; they have been telling us for years that things have not changed and we—meaning all of us—did not listen. At that time, in 1983, a black gentleman called Leroy Logan did join the police and rose to be a superintendent. He founded the Metropolitan Black Police Association and chaired it for 30 years. He is one of the people who has an insight. I asked him today, “Has the commissioner asked to see you?” “No.” Unfortunately, this does not give me confidence that the Metropolitan Police are prepared to hear from their detractors. If someone such as this, who was the subject of a short film by Steve McQueen that was based on his life, has not been through the door of the commissioner in light of today’s report, I hope that the Minister can take back a specific request that he meet Leroy Logan.
I have asked my noble friend the Minister on other occasions why, when the force is under special measures or the Engage process, and we know that other officers have potentially committed criminal offences, it is the Metropolitan Police investigating other officers in their own police force. We do not know whether the CPS will ever get sight of those files. Why is there not an equivalent process to that in the health service and the education service, where, when you are put into this kind of process, there is independent oversight of that function?
Finally, the report is limited to culture. Culture and competence are like twins. We have an example of rape evidence being lost from a fridge because a heatwave came. Is the Minister going to treat this as the Government’s role? We now need a further piece of work on the competence of the police. Is it the case that evidence is being lost routinely? Is it correct when barristers tell me that Amazon may know where your parcel is by using the barcode, but the Metropolitan Police do not necessarily know where evidence is? Is it the case that the Criminal Cases Review Commission is having trouble when it asks for swabs from a case a few years ago because the police do not know where they are? These are all competency issues. Do we not now need a separate piece of work on competency and not culture?
Lord Sharpe of Epsom (Con)
I say to my noble friend, on the subject of the police officer she mentioned, that it is not for me to tell Sir Mark who he should speak to; I am sure he has a very good idea who he ought to speak to. It sounds to me as though that particular person’s experience is obviously relevant. Maybe it is part of an ongoing plan; I do not know. Obviously if I see him, I will ask him.
It is clear that the Met must have the confidence of all communities, including black and ethnic groups. If it manages to regain that confidence, that should help recruitment and all the other things that were identified by the noble Baroness, Lady Jones.
On competence, I think that the Met should be allowed to deal with the cultural side of this report over the coming days. I am sure that, if there were incompetence allegations, they would have been aired in a much more detailed and methodical way, rather than the anecdotal side of things—although I accept that those are very serious. Having said that, I think it is for Sir Mark to come back to us on this. Obviously, there is the crime survey, and the reported statistics will be very revealing.
Baroness Thornton (Lab)
My Lords, I was very pleased to hear the Minister agree with my noble friend that sexism, homophobia and racism were institutional in the Metropolitan police force, because that was certainly not what his right honourable friend the Home Secretary said at the other end of the building a few hours ago, and that is a great shame.
Here we are again; I think this is the third time in several months that we have been discussing the terrible conduct of our uniformed forces in this country, on whom we so depend. I just wonder what on earth has been going on that has allowed the same things to be said over and over again. We had the fire brigade a few months ago; now we have the Metropolitan Police.
I would like to ask the Minister about the examples of violence against women from police officers, because, if 43 police forces do what they like on vetting, training and misconduct, can the Government finally accept that we urgently need mandatory national standards on vetting, misconduct and training? That follows on from my noble friend’s statement that we will need primary legislation that deals with those issues.
Lord Sharpe of Epsom (Con)
My Lords, I am going to defend my right honourable friend the Home Secretary, who said the following. I have already read this, but I am going to read it again. She said:
“I would like to turn to two particularly concerning aspects of Baroness Casey’s report. First, it addresses questions of racism, misogyny and homophobia within the Metropolitan Police. Baroness Casey has identified evidence of discriminatory behaviour among officers. I commend those officers who came forward to share their awful experiences with the review team. Discrimination must be tackled in all its forms, and I welcome Sir Mark’s commitment to do so.”
I do not see her avoiding the charges, as was suggested.
As regards vetting, the Government have asked the College of Policing to strengthen the statutory code of practice for police vetting, making the obligations that all forces must legally follow much stricter and clearer. This is currently out for consultation. That consultation process closes on 21 March. The Home Secretary has also asked the policing inspectorate to carry out a rapid review of police forces’ responses to its November 2022 report, which highlighted a number of areas where police vetting can be strengthened. The NPCC has also asked police forces to check their officers and staff against the national police database—I mentioned earlier that the parliamentary unit is having that fast-tracked—to help identify anyone who is unfit to serve. The data-washing exercise is on track to be completed towards the end of this month, following which forces will need to manually analyse the information received and identify leads to follow up. That exercise is expected to be completed by September.
Rail Services
(1 year, 9 months ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Baroness Taylor of Stevenage (Lab)
My Lords, I will start on a positive note—I like to do that—by saying that we welcome the successful negotiations with Network Rail, although all those who regularly travel by train, as I do every day, will wish that this had happened 10 months ago to avoid all the misery inflicted on both the staff involved and the passengers.
I wonder whether the Secretary of State and the Minister have any idea of the incredulity with which yesterday’s announcement of the extension of the Avanti contract for a further six months was greeted by residents, businesses and community leaders all along the route of Avanti West Coast. This is a company that has flouted all attempts to improve services, has treated its passengers with contempt and has left those working tirelessly to improve the economy in those parts of our country despairing of ever having the public transport system they need.
Last chances are all well and good when applied to a naughty toddler who has crayoned on the bathroom wall or a teenager who has stayed out too late. When they are given to a company that has done its best to wreck the economy of large swathes of our country and disrupt the lives and livelihoods of millions of passengers, it is intolerable.
To hear the Minister speak yesterday of improvements in the service would, I am sure, have been excruciating for those who have to use Avanti services regularly. Even under the intense focus and scrutiny of a government improvement plan, those trying to get to work, school or college and to carry out their businesses are still faced with a barrage of late trains and cancellations. Avanti West Coast has had the highest number of trains more than 15 minutes late and the worst single month of cancellations ever—worse even than in August, at the height of the chaos, and worse than during the pandemic. And we still see the number of trains arriving on time falling, with only one-third meeting their scheduled arrival time. So I ask the Minister why this incompetence has been rewarded with a further six-month contract and how much worse services have to get before the Government act.
Just what message does this send to people and businesses, let alone potential investors, about the Government’s commitment to levelling up? Your Lordships have spent many hours discussing the levelling-up Bill in this House in recent weeks, but for people out there, actions speak so much louder than words, and the Government’s complacency about the long-term and chronic failure of railway services to the north, the north-west and Wales does nothing to convince them that there is any real commitment to levelling up at all.
Because it is not just Avanti that is failing. Consider the consistent deficiencies that passengers of TransPennine have had to endure. These go back at least to when my son was at university in Preston over 20 years ago, when a weekend visit to him would become an endurance test. Yesterday, for example, more than 35 services were cancelled on TransPennine. There really are no adequate excuses for this continuing debacle. Will the Minister press her colleagues in the department to end this indefensible shambles for good in May by not extending the TransPennine contract?
All we hear from the rail companies are attempts to blame the trade unions and the workforce for issues that quite clearly sit right at the top, with management and with Ministers. There were 4,100 cancelled services last month, on top of 17,800 fewer services altogether. Surely, the Minister can understand that rail passengers of Avanti and TransPennine have had enough. Why would she and the Government want to put them through another six months of chaos by extending this contract? Why, in spite of Avanti having the most complaints of any operator in 2021-22, did the Government sanction a £12 million dividend for Avanti shareholders and £4 million of taxpayers’ money being paid in bonuses to company executives? Surely it is the passengers, who are being failed so badly, that need compensation.
Even when the trains do run, the service for passengers is woeful. My noble friend Lady Hayman of Ullock travels here from Cumbria every week and often finds there are no catering facilities at all on trains for a journey of some six hours. We hear other reports of mouldy food and locked toilets on these lines. The provision and support for passengers with disabilities is often woeful. The passengers really do seem to be the very last consideration of these failing companies.
To turbocharge our economy and to encourage the use of public transport, which could then transform our ambition to achieve net-zero emissions, we need railways that are efficient, trusted, reliable and affordable. Not one of those adjectives applies to Avanti West Coast or TransPennine, yet the Government shrug their shoulders and push decisions back into the railway sidings for another day. They hold on to this broken railway system for their own ideological reasons, presumably believing that competition will always serve passengers best and deliver lower fares: neither of these is the case. In some circumstances, it is cheaper to buy a return air ticket to Berlin than to travel to Wales on the train from London.
If the Government cannot or will not make the vital decisions on public transport that we need for passengers, for our economy, for the environment and for levelling up, then they should step aside. Labour will end the fractured, fragmented system which is failing passengers, communities and businesses, and put them back at the heart of a public transport system that works for everyone. At the moment, it is very clear that while this Government are in charge, the railways will stay broken.
Baroness Randerson (LD)
My Lords, this Statement sums up the mess our infrastructure has become under a succession of Conservative Governments. I agree with the Government on a couple of points: I welcome progress in resolving strike action, so far as it has occurred. That has been allowed to drift on for far too long and was indeed stoked by the previous Secretary of State. It has badly damaged trust in railway services just when recovery from the impact of the pandemic should have been crucial. I also agree that discussions on who owns the railways is irrelevant, because the Government have effectively nationalised them and taken responsibility. That is the important thing: the Government have taken responsibility for how the railways are run.
However, turning to the rest of the Statement, I have some major points of difference. First, awarding Avanti a six-month extension is an extraordinary decision, and I mean that in the proper sense of that term. FirstGroup has failed in this franchise and continues to fail with TransPennine Express. Other train operating companies have faced exactly the same pressures—Covid, weather, strikes—but by better management and decision-making, they have more effectively minimised the impact on customers. So my first question is: how badly does FirstGroup have to do to lose either of these franchises? Because they are truly being rewarded for failure.
The improvements that the Government cite at Avanti seem very recent and very insubstantial. My question is: there have been months of past poor service; will Avanti or its shareholders face any financial penalties for poor service, repeated cancellations, late running and systematically misleading the public and the Government about cancellation rates by cancelling late on the night before? Another question refers to the 100 extra drivers that the Government cite. Can the Minister give us a view as to whether that is enough in the Government’s eyes? How long will it take to train those drivers?
Reference is also made to a new discounted ticket scheme on some routes. What proportion of routes will have this new discounted scheme? I remind the Minister that what passengers want is to be able to book ahead, because advance fares are cheaper, and they want to be able to book ahead on all routes. When will they be able to do this? Have the Government just handed Avanti another golden cheque, or are there some useful conditions to this funding? I recall that Transport for London has very stringent conditions attached to its funding. What are the stringent conditions attached to the funding of Avanti for the next few months? While we are talking about railways, is it true, as is reported in the Daily Telegraph today, that the Government are about to announce a reduction in passenger rights to delay repay compensation? If that is true, it really is adding insult to injury.
Finally, the Statement looks vaguely at the issue of reform, which is, of course, long overdue. There is a great deal of consensus on the issue of reform, so when can we expect legislation on it? The Government have repeatedly told us that simplification of ticketing is just around the corner and that it does not need legislation, so I ask the Minister when we can expect to see it happen.
The Parliamentary Under-Secretary of State, Department for Transport (Baroness Vere of Norbiton) (Con)
I am grateful to the noble Baronesses, Lady Taylor and Lady Randerson, for their contributions to this Oral Statement repeat. To a certain extent I am always very sad when I do not get to read out the Oral Statement, because sometimes it helps to set the tone and remind noble Lords of what was in the Statement. There were certainly some elements that may have slipped the minds of noble Lords to date. I will go through as many of the issues as I can and, I hope, helpfully provide those bits of information that may have slipped noble Lords’ minds.
I appreciate that the noble Baroness, Lady Taylor, welcomed the news on the strikes. It is good that the RMT workers “overwhelmingly”—their word, not ours—accepted the National Rail offer by 76% on a 90% turnout, which leads one to ask why the RMT chooses not to put a very similar offer to its members around the train operating companies. We believe it would be extremely beneficial for them to do so and may well bring strikes to an end, but they, for whatever their reasons, choose not to, and that is extraordinarily disappointing. As we all know, it causes an immense amount of delay and disruption to passengers’ journeys and is something that we absolutely want to avoid.
The noble Baroness, Lady Taylor, said that Avanti “has flouted all attempts to improve services”—except that it has improved services, so I could not quite put those things together. If we look at what Avanti has done, it has increased its weekday services, in many areas back to pre-Covid levels. There has been an enormous increase, up to 40% in some areas —from 180 weekday services a day up to 264. Cancellations are now down from 25% to 4.2%. I accept that needs to go lower, but I think all noble Lords can agree that that is an improved service, which the noble Baroness was not even willing to admit has even happened. Then we know that at least 90% of services arrive within 15 minutes of their scheduled arrival time. I can confirm that today 92.5% arrived within 15 minutes of their scheduled arrival time, and there was just one partial cancellation, the 7.30, which would have already departed by now.
It is also worth noting that sometimes the train operating companies have other issues that they need to look at when it comes to the challenges that they face. For example, today—and I have noted the 92.5% of services running within 15 minutes of their planned time—the train operating company had to deal with a trespasser at Cheadle Hulme; a technical issue affecting a London Northwestern service, which caused the Avanti services to be late; a Network Rail track defect between Rugby and Hillmorton Junction; a track failure at Queen’s Park, and a safety inspection of the track between Coventry and Rugby. None of those things could reasonably be put at the door of Avanti to say, “That’s entirely your fault.” Sometimes, it is not. Sometimes we need to recognise that the Government’s plans for bringing together track and train under GBR are to try to deal with such issues. We have issues with the infrastructure, and we need the services to be within that ecosystem such that those issues are minimised as much as possible.
I accept, however, and my right honourable friend the Transport Secretary accepts it too, that this is a journey. This is a reward for recovery, which the noble Baroness was not willing to accept has happened, and not for completion of all of the issues that Avanti might have. That is why this is a recovery plan, and it is why the extension is only for six months, because we believe that further improvements are necessary. We need more reliable weekend services; we need a further reduction in cancellations, and we need improved passenger communication for planned and unplanned disruption.
The noble Baroness, Lady Taylor, then talked about TP and there being “no … excuses” for its poor performance. There are, however, some issues that it would be wise for the noble Baroness to understand, and I am very happy to help her understand them. The first is sickness. The sickness rates among train crews and those providing training at TPE are extraordinary: more than twice the level of other train operating companies. That cannot be right. Why might that be happening? I would also point the noble Baroness to the lack of rest day working, which was—simultaneously and with no warning—withdrawn. We believe that was co-ordinated by ASLEF and it meant that, all of a sudden, various train operating companies that suffered this—it was mostly Avanti and TPE—were forced to reduce their timetables. They did not want to reduce them. Train crews and drivers had been doing voluntary overtime on this basis for decades, and then all of a sudden, it was withdrawn and there was a consequent impact on service. That cannot be laid at the door of the management; it just cannot. It is up to the management to try to fix it, and that is why they are recruiting the train drivers. I am very content to reassure the noble Baroness, Lady Randerson, that we are aware of the number of train drivers who are coming through. There are almost 100—obviously there is phasing over three years—and we are reassured that those train drivers will do the trick.
The noble Baroness, Lady Randerson, asked what financial impact there would be. There is a vigorous performance evaluation system looking at operational performance, passenger experience and financial management, working with National Rail, train operating companies and their shareholders. That is how they are judged: it is independently evaluated and that is absolutely right. It is done in accordance with the contract that they signed up for. That is only fair.
I have said before that legislation will come forward when parliamentary time allows. I will not comment on speculation in the Telegraph; I have not read that newspaper today. On the discounted routes, I will have to write to the noble Baroness, but I can assure her that Avanti does not use any P-codes, so she should rest assured in that area.
What I am struck by from all this is the lack of willingness to understand that it is a very complex system; the levers that the train operating companies have are not always within their gift, and neither of the noble Baronesses who have spoken so far have offered any alternative. The only alternative that I am aware of is that the Labour Party has to date—and we are still a little way off from a general election—made £62 billion of unfunded commitments for the rail industry. We look after taxpayers’ money. It is really important that we do. We need a modern railway that works seven days a week. That is what we are aiming for and that is what I think our reforms will deliver.
Lord Kennedy of Southwark (Lab Co-op)
My Lords, may I just ask the Minister—perhaps I missed it—about bonus payments to executives? I may have missed it, but why do we think those are paid?
Baroness Vere of Norbiton (Con)
I am very happy to discuss what I know about it. Obviously, bonus payments are a matter for the companies themselves. They are not authorised by DfT or anything like that; it is a matter for the companies. There is often this thing about—and I think the noble Baroness referred to it—dividends, and I think it was £12 million. I cannot attest as to whether that £12 million is right or not, but I know that dividends that were agreed quite some time ago relate to a period from pre-Covid. Noble Lords may or may not be aware that the independent evaluation of the different rail contracts has been published only up to September 2021. There is still some more information to come; there is always a lag. Sometimes people say, “You are rewarding for failure.” No, that would be for a period that is not the current period; it would be for a period that was quite some time ago, because we, quite rightly given the complexities of the railway system, take the time for independent people to evaluate by the different criteria that are clearly set out, the different reasons why delays happen, why cancellations happen or why a company may or may not be performing as it should. Of course, we publish those things, but there is always a delay. Therefore, the money might not match up with the period that we are currently in. That is always important to remember.
Baroness Taylor of Stevenage (Lab)
Can the Minister kindly clarify the bonus situation? If she cannot clarify it now, then I will be happy to receive her response in writing. Which period do those bonusses cover? I am sorry, I have given my speech to Hansard, but more than £4 million in bonuses was given to senior managers. I am sure that the Minister will understand that, in these very difficult times for rail passengers, for them to see senior executives in that company rewarded with very significant financial bonuses really goes against the grain. Therefore, I would be most grateful to know what period those bonuses cover.
Baroness Vere of Norbiton (Con)
I will put that in writing. I have some data here on executive bonuses. The total amount for the executive team for the financial year to 31 March 2021—a little while ago, which obviously covers a prior period—was £279,059. For the executive team, the Virgin Trains bit, it was more, at £2.5 million, but that of course related to a period a long time previously. The following year, total bonuses were £461,000.
I want to put on record that 20% of train drivers earn over £70,000 a year. I am not necessarily comparing the two, but this focus on bonuses for senior executives sometimes means that we do not look at what has happened to train drivers’ pay, which has gone up by more than the average over 10 years. As I say, 20% of them earn over £70,000 a year.
Lord Kennedy of Southwark (Lab Co-op)
My Lords, the Statement refers to an extension to 15 October this year and says that the department is looking for improvements from Avanti over the next few months. It talks about more reliable weekend services, continued reductions in cancellations and improvements in passenger information during planned and unplanned disruption. Can the Minister say more about the measures that will be used to ensure that we get those improvements? If we are back here again in September and we have not had those improvements, where will we stand? Avanti needs to know that the Government are prepared, if need be, to take away its contract. At the moment, looking at the report, I am worried that they are not prepared to do that, and Avanti needs to hear from the Government that they are. Otherwise, there is no impetus to improve.
Baroness Vere of Norbiton (Con)
Absolutely. For the complete and utter avoidance of doubt, the Government are considering and will consider all options for both Avanti and TPE if they do not meet the required level of service. All the improvements we are talking about—to weekend services and passenger communications, and reducing cancellations—are set out in the recovery plan agreed with the Office of Rail and Road. It is content with it, and I know that the Rail Minister meets certain train operating companies weekly to go through the recovery plan. As I say, all possible options remain on the table. We have given the six-month extension to Avanti, until October. We will be making a further Statement on TPE when its contract ends towards the end of May, but it is too early to prejudge what the outcome will be.
As I say, we continue to look closely at the improvements that have been made. There have been significant improvements in the face of some challenging industrial relations, but I believe we are potentially over the worst now. I very much hope that we can bring our railway back to where I am sure all railway workers and passengers want it to be, and where our nation needs it to be.
Lord Kennedy of Southwark (Lab Co-op)
The Minister has told the House that there is a weekly meeting with the Rail Minister, and that is good to hear, but what else is happening behind the scenes? We would like to know a bit more about what is going on, because we all want to ensure a better rail service. Although I do not live in the north-east, I am conscious that many Members here do. What more is going on with the department? The Minister works with the Rail Minister every day, so what is actually happening?
Baroness Vere of Norbiton (Con)
I am struggling to understand the basis of the noble Lord’s question. What is happening is that the officials are working with the train operating companies and those companies are working with their workforces. Any contractual relationship with an organisation within the Department for Transport requires greater or lesser oversight, depending on what is happening. I cannot really add much more, other than it is government being government with one of its contractors.
Baroness Randerson (LD)
The Minister did not have time to answer all my questions. I simply ask that she review them and answer them in a letter.
Baroness Vere of Norbiton (Con)
I am happy to do so but, given that I have a tiny bit of extra time, I will knock another one on the head. On the booking window, I agree that it is very important that passengers have the confidence to book ahead. The booking window now extends to 12 June—another area where Avanti has shown real improvement. We understand that the weekend booking window is shorter, at five weeks, but that is in order to take into account engineering works. That is another example of the infrastructure side of the business impacting on the services side, and of course we want them to work closely together.
I will look at some of the noble Baroness’s other questions. I cannot see too many that I have not answered, but I will ask officials to look through Hansard and we will write accordingly.
Lord Kennedy of Southwark (Lab Co-op)
My Lords, my apologies: maybe I am not explaining myself very well. Clearly, many Members here, and the travelling public, are frustrated by what is going on at the moment. I am trying to find out from the Minister, in addition to what is in the Statement and the weekly meetings, what work is going on between the officials and the rail companies. How do we ensure that when we get to October, we have those improvements? If there are still problems, what is happening next week, the week after and the week after that to ensure that we are not sitting here in September saying, “We’ve got another extension for six months. What we need to see is more improvements”? Currently, we still have all these problems, and it appears to the public that actually, not much is happening.
Baroness Vere of Norbiton (Con)
I dispute that it appears to the public that not much is happening. I believe that the travelling public will have noticed the significant improvement in the train services. On the point made by the noble Baroness, there are milestones in the recovery plan that need to be hit relating to driver training, recruitment and cancellations. All these things will be set out in great detail in the recovery plan, which will be scrutinised by the Rail Minister and his officials.
It should also be remembered that this is a private company and it will be managing its recovery plan from the operational side without the dead hand of government fiddling with it, because we should not—that is not our job. We are just there to provide the oversight and scrutiny to ensure that the recovery plan is going to plan.
Baroness Taylor of Stevenage (Lab)
I respectfully ask the Minister, rather than waiting until October when we might be back here having another discussion about this issue, if we could have some kind of interim update before then. Presumably, the issue of TPE will come up in May, just before the contract expires, but it would be helpful to know at some point how the improvement plan for Avanti is going, rather than waiting until October.
I agree with my noble friend Lord Kennedy that, although we heard about improvements yesterday from the Minister, when you listen to passengers—whether that is noble Lords or people outside—or look on social media, their constant concern is that lives and businesses continue to be disrupted. I am interested to know if we could have an interim update, so that we can at least know that the improvement plan is going in the right direction and that the phasing of the employment, training and so on of the 100 drivers the noble Baroness, Lady Randerson, referred to is going to plan, because presumably, that would greatly assist the situation. If we could have some kind of interim update before we are back here October, with the Government telling us whether they have decided that the contract can be awarded, that would be extremely helpful.
Baroness Vere of Norbiton (Con)
The noble Baroness is of course in an extremely privileged position in that she can table Oral Questions or ask me Parliamentary Written Questions whenever she likes. I would be happy to answer those. I am sure that over the period, we will be back in your Lordships’ House to discuss Avanti; indeed, I believe there is a topical Oral Question on Thursday. I am not expecting that I will have anything at all different to say by then, but perhaps we can have a rehash of where we are.
Every now and again I have a little look at Avanti on social media, and things are much quieter than they used to be. What I see much more of now is the disruption caused by the strikes.
Lord Kennedy of Southwark (Lab Co-op)
I would like to move on to TPE. Will the Minister confirm that when we get the report—and I accept there will be another Statement about TPE before the end of May—taking the contract off it is still one of the options on the table?