Grand Committee
Arrangement of Business
The Deputy Chairman of Committees (Baroness Pitkeathley) (Lab)
My Lords, as your Lordships know, if there is a Division in the Chamber while we are sitting, this Committee will adjourn as soon as the Division Bells have rung and resume after 10 minutes.
Microchipping of Cats and Dogs (England) Regulations 2023
(1 year, 8 months ago)
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Lord Benyon
That the Grand Committee do consider the Microchipping of Cats and Dogs (England) Regulations 2023.
Relevant document: 35th Report from the Secondary Legislation Scrutiny Committee
The Minister of State, Department for Environment, Food and Rural Affairs (Lord Benyon) (Con)
My Lords, the purpose of this instrument is to introduce compulsory cat microchipping in England, delivering one of the Government’s key manifesto pledges. This measure was supported by 99% of respondents to our public consultation, which received over 33,000 responses.
Microchipping improves animal welfare by increasing the traceability of pets, making it easier for lost, stray or stolen pets to be reunited with their keepers and returned home safely. Microchipping is a safe procedure involving the insertion of a chip, generally about the size of a grain of rice, under the skin of a pet. Once the microchip has been inserted, contact details are registered with a compliant database. The regulations also include provisions that relate to ensuring that microchips are inserted by competent people.
Since the Government introduced compulsory dog microchipping in England in 2016, around 90% of dogs are now microchipped. Evidence suggests that stray dogs that are microchipped and have up-to-date microchip records are more than twice as likely to be reunited with their keeper than stray dogs without a microchip.
There are over 9 million owned cats in England, but as many as 2.3 million are currently not microchipped. These measures are intended to address this. From 10 June 2024, any owned cat over the age of 20 weeks must be microchipped and the keeper’s contact details registered on a compliant database. There is an exception to this, where a vet certifies that the procedure should not be carried out for animal health reasons. However, I reassure your Lordships that this exception is rarely used. These requirements apply only to owned cats; they do not apply to free-living cats that live with little or no human interaction or dependency, such as farm, feral or community cats.
As with the existing requirements for dogs, keepers found not to have microchipped their cat may be served with a notice by the enforcement body, which will usually be the local authority. If they do not comply, they may face a fine of up to £500, and the enforcement body may also arrange for the cat to be microchipped at the keeper’s expense.
This instrument also repeals and replaces the Microchipping of Dogs (England) Regulations 2015, bringing all the measures into a new single instrument covering both dogs and cats. There are no substantive changes to the existing provisions covering the requirement to have your dog microchipped, although we have taken the opportunity to make technical drafting changes where we considered the existing text would benefit from further clarity. Animal welfare is a devolved issue and therefore these regulations apply to England only.
Noble Lords may be aware that, last year, the Government also consulted on wider pet microchipping reform designed to improve the operation of the existing regime. This includes plans to: make it easier for approved users to access microchip records; improve the accuracy of the records; and standardise database operator processes. We will be issuing our response to this consultation shortly. However, I can reassure noble Lords that we are planning to come forward with amending regulations in due course to implement these improvements. I beg to move.
Baroness McIntosh of Pickering (Con)
My Lords, I welcome these regulations. I was chair of the Environment, Food and Rural Affairs Committee in the other place and, as my noble friend will recall, we took great interest in this.
My view is that this measure will be successful only if it is properly enforced. Given that that the penalties will, I presume, be similar to those imposed for a breach of the obligation to microchip dogs, how many fines have been imposed for failure to comply with the obligation to microchip dogs? Does my noble friend share my frustration that we are still 10% short of the magic 100% figure for dogs? It is hoped that the obligation to microchip cats will bring it up to that level. Is that the Government’s ambition, or are they aiming even higher than that?
At the moment, there is the vexed issue of dangerous dogs doing damage. Often, they attack a person in a public place. I assume that these dogs will be microchipped. To what extent does my noble friend think that the Government’s current obligation to microchip dogs is successful in identifying and tracing dogs that commit a grievous injury or fatality in a public place?
On the exemption, I presume that there will be potential for a feral cat to cross over and commit an injury such as biting or scratching a perfectly innocent bystander, which we know can have very significant effects. Obviously, they have no owner, so what happens in that situation, in terms of identifying the feral cat and bringing it to justice, as it were?
My final question is about the continuous issue of what I think are called boiler-house dogs: the breeding of multiple pups which, when they are not sold, are unlikely to be microchipped. For the sake of completeness, what is the Government’s policy in that regard? I understand from press reports that these dogs are literally dumped on the streets and taken in by cats and dogs homes, such as Battersea Dogs & Cats Home, for whose work we are grateful. Is that occurring more than it was before and is there a similar problem with cats and kittens?
Lord Trees (CB)
My Lords, I draw attention to my interests as declared in the register and as co-chair of the All-Party Parliamentary Group for Animal Welfare and as a veterinary surgeon.
I very much welcome this statutory instrument and the inclusion of cats. I also welcome the fact that there is no legal requirement in these regulations that vets must scan a dog prior to euthanasia. This matter has been of some considerable public interest, but the Government deserve credit for recognising that not only the veterinary profession but many of the dog and cat bodies—such as Cats Protection, Battersea Dogs & Cats Home, Dogs Trust, PDSA and others—have similarly opposed a legal requirement to scan prior to euthanasia. All these bodies have advocated that that should be a matter for professional codes of practice. Indeed, the Royal College of Veterinary Surgeons has done so and has incorporated in its code of practice appropriate advice but ultimately gives veterinary surgeons powers to use their discretion. The reason is that a legal requirement could adversely affect animal welfare. In certain circumstances, it could deter individuals from bringing sick or injured animals to a veterinary surgeon if they thought the veterinary surgeons were essentially policing this microchipping requirement. That would be adverse for animal welfare.
One regret I have, which I think I share with many in our profession and many who are required to scan animals, is that there has been no attempt to reduce or limit the number of databases holding microchip information. I understand that currently, there are 22 different databases for dogs, which are fulfilling the Government’s current requirements to hold data. That creates an unnecessary and excessive burden, both on those required to put in chips and record the information and on those who need to recover the information from scanning. However, I note that there are now two portals to assist one in determining which database contains the relevant information for any particular animal. One is run by the Kennel Club and one by AVID, a manufacturer of microchips, but these are private initiatives. One hopes that they are maintained to facilitate the examination and identification of microchips.
I very much welcome this instrument, which makes a significant contribution to reuniting dogs and cats with their owners and, importantly, to the rapid identification and potential treatment of injured dogs and cats.
The Earl of Caithness (Con)
My Lords, I welcome this long-overdue statutory instrument. I am grateful to my noble friend Lord Benyon for introducing it. I have one specific question for him, to which I really do not know the answer. Why has he chosen 20 weeks for a cat under Regulation 3(2)(a)? A cat must be older than 20 weeks, whereas a dog must be older than eight weeks. Why is there a difference?
We do not often talk about cats—it is a long time since we have had a debate on them. I am a great admirer of those lovely animals, because there is no better animal for putting a human being back in their place than a cat. However, as I have spoken about before, I am concerned by the damage they can do to wildlife in gardens, particularly birds. That problem has been exacerbated by avian flu and by humans in the way we feed birds. Research has shown that a lot of small garden birds are catching disease because, through our very best intentions, we put out a feeder and fill it up weekly but do not clean the feeder, which is what is spreading the disease to birds. Therefore, birds will be weaker and easier for cats to catch. A responsible owner will of course put a bell on their cat; excellent research has been done on this by SongBird Survival and the University of Exeter. Can my noble friend comment on whether the department is taking any more action on this or encouraging us humans to behave better? It is quite easy with domesticated cats; feral cats are a different problem. Is my noble friend taking a different attitude towards them?
Baroness Doocey (LD)
My Lords, I too very much welcome this instrument, which is long overdue. I was quite shocked when I looked up the figures for how pet theft has rocketed: in my part of the world, south-west London, Metropolitan Police figures show that between 2016 and 2021 dog theft went up by 81% while cat theft went up by 325%, which I found extraordinary. Someone must be making quite a lot of money out of this.
I welcome most of the recommendations, which are very good, but I am concerned that the Government’s review of dog microchipping found quite a few areas that needed to be addressed, which I wonder if the Minister will respond to. One is the fact that the database system is so complicated, particularly for vets. When they have a life-or-death situation where an injured animal is brought in, sometimes it is very difficult for them to contact the owner and they have to go to multiple places to find this out.
Owners also need to be made much more aware that it is not a question of just microchipping their cat or dog; they then have to update the information. The number of owners who think that, once they have microchipped the animal, they do not need to do anything else is amazing. There are huge numbers of cats and dogs and other animals that have been microchipped whose owners’ information is about 10 years out of date, because they have moved house or changed their telephone number, and there is no way of getting hold of them.
In the USA, they have an annual Check the Chip Day, which sounds like a good idea. An even better idea, in Australia, is that you have your cat or dog chipped and then get an email reminder. It is very simple for one of the microchip companies just to email everyone on their database once a year just to remind them to update their details; I would have thought that that would be a good idea.
Lord Black of Brentwood (Con)
My Lords, I declare an interest as a patron of International Cat Care. I warmly welcome these regulations and the Government’s action in this area. Over the years, I have had the pleasure of working with Cats Protection, which has campaigned vigorously on this issue and deserves great credit for sticking to it—and many other charities—to achieve this important change in the law.
I am the proud owner of a microchipped rescue cat but, as my noble friend said, 25% of owned cats in the UK are not microchipped, leading to huge problems with stray cats, many of which end up being rehomed needlessly when they get lost. It would also help, as the noble Lord, Lord Trees, said, with those tragic occasions when cats are run down or grievously injured in some other way, giving owners much anguish, as they worry about the fate of a beloved pet. Microchipping would help enormously with that.
One other point that I would like to make on that theme is that, as the noble Baroness said, there is a cost to microchipping, which may be an added burden for many struggling with bills at this time. I am delighted that, from this summer, Cats Protection will expand its subsidised scheme to assist people on low incomes to get their cats neutered and microchipped. That will go some way to dealing with some of the issues that the noble Baroness rightly raised.
In the world of animal welfare, there is always another challenge, and I agree with my noble friend that it is time that we had another debate on cats and dogs and other domestic animals—it has been a few years now. This important hurdle having been crossed, we still have the issue of pet smuggling and pet theft to deal with, as the noble Baroness said. I hope that it will not be too long before we see the return of the kept animals Bill, which will deal with some of those issues. I wonder whether my noble friend could very kindly give us an update on that.
Baroness Anderson of Stoke-on-Trent (Lab)
My Lords, I thank the Minister for providing an overview of this very important statutory instrument and also thank his team for the helpful briefing that it provided.
The issue of microchipping cats has been widely consulted on, and these regulations are, of course, supported by His Majesty’s Opposition. Let us be clear why we are here today: one-quarter of all owned cats are not currently microchipped, which compares unfavourably to their canine friends, as only 10% of dogs are not chipped. While that statistic is surprising enough, the scale of the problem is compounded by the fact that 59% of cats taken in by Battersea Dogs & Cats Home and 80% taken in by the Cats Protection adoption centres were not chipped. That can truly be heartbreaking for those pet owners who have lost their feline friends and cannot be reunited with them. As a proud nation of animal lovers, we must do better, which is why these regulations are so important. However, I would like to ask the Minister a couple of questions related to the implementation of the regulations.
Can the Minister confirm that the department is in discussions both with local authorities and with the relevant charities to ensure support for those who will struggle to meet the financial obligations associated with the implementation of the regulations, as has been highlighted?
On a further point, Rebecca Pow, the Minister in the other place, this week suggested that a further SI would follow regarding the microchipping database system and the need to have a standardised system in place for relevant parties to access. Can the Minister inform us as to when we should expect both the SI and sight of these plans to streamline the 22 current systems?
I would also be grateful if the Minister could provide your Lordships’ Committee with the definition his department and relevant stakeholders will be expected to use to differentiate between owned, feral and community cats.
We all want nothing but the best for our pets and those animals which we see in and around our communities every day—or currently on the campaign trail—which is why the Labour Party supports this statutory instrument. I pay tribute to the animal welfare organisations which have campaigned on this issue for many years and brought it to our attention, most notably Battersea Dogs & Cats Home, Cats Protection and the RSPCA, whose work we recognise today.
Lord Benyon (Con)
I am grateful to noble Lords for their important contributions to this debate and for the support for the compulsory cat microchipping provisions. I join the noble Baroness in paying tribute to Battersea Dogs & Cats Home, Cats Protection, the RSPCA and other organisations which have long campaigned for this. I hope that we will see this on the statute book in the very near future—I should just say to the noble Baroness, Lady Doocey, that it will kick in in June 2024.
Microchipping has established substantial benefits for the welfare of our pets and offers peace of mind for their keepers. I am delighted that we are delivering on the Government’s manifesto commitment, which is so strongly supported by the public. I will address as many of the points as I can.
On enforcement, the maximum fine is £500. My noble friend Lady McIntosh asked about the implementation of this with regard to dogs: I think almost 500 people have been fined for not having had their dog microchipped.
My noble friend also asked what the definition of an “owned cat” is. Colloquially, the term refers to cats that are generally kept as pet cats; free-living cats such as farm, feral or community cats that live with little or no human interaction or dependency are not regarded as owned cats. The statutory Code of Practice for the Welfare of Cats will be updated to include the new requirement for compulsory microchipping and provide further clarification that may be needed. We will consider issuing guidance on enforcement to local authorities. Of course it is difficult to define in government and legislative terms something so broad as the life of cats. We know that some move very short distances away from their owners, whereas others live virtually as wild animals.
Microchips are used to identify dangerous dogs. All prohibited dogs which receive an exemption under the Dangerous Dogs Act must be microchipped. It is mandatory to microchip your dog, and since 6 April 2016 it has been a requirement for dogs in England to be microchipped. Puppies over the age of eight weeks must be microchipped and their details recorded on one of the compliant databases. Scotland, Wales and Northern Ireland also have mandatory dog-chipping requirements in place.
We recognise how painful it is for an owner to lose a pet. When I was in the other place, dog theft was a major issue in the Berkshire/Oxfordshire area, and it struck me as a new MP that it was not being taken seriously, particularly by the police in those circumstances. Losing a pet in this way is a horrible crime that completely ruins people’s lives, so it is important to be able to work locally and make sure that the profile of that is raised. I know that police and crime commissioners have gone a long way towards making this a much more seriously viewed crime among local police forces. Great work is happening, and we want to make sure that that continues.
On a point mentioned by the noble Lord, Lord Trees, compulsory microchipping will make it easier for deceased cats to be reunited with their owners and for their owners to be informed of the circumstances. Highways England and the majority of local authorities already have procedures in place to scan dead cats and dogs found by the roadside. In addition, we are committed to improving the operation of the microchip databases.
Further on my noble friend Lady McIntosh’s point about fines, in fact 421 fines were issued for this offence; 1,126 various summary offences contrary to the Microchipping of Dogs (England) Regulations 2015 have been imposed, with an average of 84 fines per year, the average fine being £204.
Many noble Lords have raised the issue of the databases. The legal framework for database operators that store cat microchip records mirrors that currently in place for dogs. My noble friend is absolutely right: there are 22 separate databases that hold themselves compliant with the legislation, 21 of these also accept cat microchip records and a list can be found on GOV.UK. Our current consultation, to which the noble Baroness, Lady Anderson, referred, will address the point of access to the data on those databases. She is absolutely right: at the moment, you can access under which database it is listed, but then there is a further procedure. We are seeking to create one portal which will enable the veterinary surgeon or whoever is scanning the cat to identify the owner as quickly as possible. We think that is really important. The consultation on the microchip database system reforms closed on 20 May last year. We are currently analysing the responses with a view to introducing reformed measures this year, and we will be issuing a response to the consultation soon.
In response to my noble friend Lord Caithness, dog breeding is regulated under certain circumstances, but cat breeding is not. As puppies can be rehomed from eight weeks of age, the requirement for them to be microchipped by eight weeks ensures that the breeder is the first registered keeper—I am sorry: I cannot remember who raised this. The Government decided to raise the age at which a cat should be microchipped from the proposed 16 to 20 weeks due to responses in the public consultation. This is to allow the procedure to be carried out alongside neutering, which may be routinely carried out up to 20 weeks, so it fits with those specific requirements of cats, as opposed to dogs.
My noble friend Lord Caithness also raised the important issue of wildlife being killed by cats. It is very hard to legislate against this, but millions of birds are killed every year by domestic pets, many of them cats. We of course encourage responsible ownership. There are various things that a cat owner can do to make it harder for it to catch birds—where you put your bird feeder is but one of them—but he raises a very important point. The number of feral cats, although they can be very useful in farmyard settings for controlling vermin, is also part of the problem with killing birds, and we need to see a reversal in the decline of species in this country. We have a very firm commitment, and we are open to any suggestions which can help with responsible pet ownership. It is not just cats: if you watched “Springwatch” last year, you will have seen a dog destroying a redshank’s nest on the North Norfolk coast. People must control their pets and be responsible. We recognise that the damage that can be done by irresponsible pet ownership can be devastating to rare species.
We agree with the point made by the noble Lord, Lord Trees, about scanning not being compulsory. We agree with his position and thank him and the royal college for their support on this matter.
Licensing Act 2003 (Coronation Licensing Hours) Order 2023
(1 year, 8 months ago)
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Lord Sharpe of Epsom
That the Grand Committee do consider the Licensing Act 2003 (Coronation Licensing Hours) Order 2023.
The Parliamentary Under-Secretary of State, Home Office (Lord Sharpe of Epsom) (Con)
My Lords, I am before the Committee today to propose the extension of licensing hours in recognition of His Majesty the King’s Coronation. I ask your Lordships to support the order to extend licensing hours on Friday 5 May, Saturday 6 May and Sunday 7 May.
Section 172 of the Licensing Act 2003 allows the Secretary of State to make an order relaxing opening hours for licensed premises to mark occasions of
“exceptional international, national, or local significance”.
The Government consider the Coronation to be such an occasion. This will be a period in which we celebrate our new monarch. I am sure many people will want to gather with their family and friends to raise a glass to His Majesty the King and wish him a long and successful reign.
The extension will apply to premises licences and club premises certificates in England and Wales, which license the sale of alcohol for consumption on the premises. These premises will be allowed to remain open until 1 am without having to notify the licensing authority via a temporary event notice, as would usually be the case. The order covers only sales for consumption on the premises after 11 pm. It does not cover premises which sell alcohol only for consumption off the premises, such as off-licences and supermarkets.
Premises that are licensed to provide regulated entertainment will be able to do so until 1 am on the nights covered by the order, even where those premises are not licensed to sell alcohol. This includes, for example, venues holding music events or dances as well as theatres and cinemas. Premises which provide late-night refreshment —the supply of hot food or hot drinks to the public—between 11 pm and 5 am but do not sell alcohol for consumption on the premises will not be covered by the order; such premises will be able to provide late-night refreshment until 1 am only if their existing licence already permits this.
The Home Office conducted a public consultation, which ran from 19 December 2022 to 23 January 2023. The majority of respondents agreed with the extension on the three proposed dates and that it should apply to England and Wales. The consultation also received responses from numerous trade organisations, which were supportive of the extension of licensing hours. The National Police Chiefs’ Council and the Local Government Association were both in agreement with the proposed extension to licensing hours for His Majesty the King’s Coronation.
I would therefore greatly welcome the Committee’s support for this measure to help celebrate a special and historic moment in our national history. I commend the draft order to the Committee. Mine’s a pint, God save the King and I beg to move.
Baroness McIntosh of Pickering (Con)
My Lords, I warmly welcome this order. This is a very appropriate opportunity to raise a glass in the way that my noble friend suggested. We looked very closely at the issuing of licences under the original ad hoc committee on the Licensing Act 2003 and the follow-up inquiry and continue to take a close interest in that.
I am not suggesting that it should be extended, but what is the thinking behind applying the extension to three days only and not to the bank holiday Monday?
If I have understood correctly, the fee has been kept at £21. That is very welcome, as it is mindful of the constraints under which the licensed premises operate. One reason why this is an excellent idea is to recognise what a hard time our hospitality sector has had coming out of Covid.
I think all of us look forward to supporting the industry in this way to the best of our ability—within moderation, obviously.
Lord Rennard (LD)
My Lords, I looked at the 2003 legislation, which permits such variation as proposed here, and noted, as the Minister did, that such relaxation is allowed to mark occasions of “exceptional national significance”. Even the most ardent republican could hardly argue that the Coronation this year will not be an exceptional event or matter of national significance. In fact, no one in this country under the age of 70 has been alive while there has been a Coronation, so it must fulfil that criterion. I will raise a couple of questions about the consultation process and perhaps go a little wider than this immediate measure.
First, in relation to this measure, I query whether it remains sensible for things such as this to be considered as part of the brief of the alcohol policy team at the Home Office. Given concerns about alcohol misuse, would it not be more appropriate for it to be handled by the Department of Health and Social Care rather than the Home Office?
Of course, I recognise that a number of stakeholders are involved in such a consultation, but it seems to me that some sort of qualitative analysis is needed rather than a quantitative one. I noted that around 50 responses were received. We are told that 37 or so were in favour and 11 were against. You could say that this means that 75% support it, so we should too, but I do not think that is a very good way, in public policy terms, of handling a consultation. The consultation is rather smaller in scale than that for the previous subject we discussed, which was on the microchipping cats and dogs. For that, there were 33,000 responses, but for the issue of these licences there were 50. It seems to me that, in considering a consultation on such issues, we should look at where the various stakeholders may be coming from—for example, the hospitality industry, the police and security, and health services. The Government engaged a very good list of consultees, but to answer every point with “Yes” or “No”, “For” or “Against”, with only one open question, does not really deal with the nub of the issues.
It would, perhaps, make more sense to list the responses from the hospitality industry about whether it welcomes this as a boost after a particularly hard two or three years or whether it thinks that it would cause problems for its staff. We perhaps need to hear separately from the police and those involved with neighbourhood policing issues about whether they consider it appropriate. We would also like to hear from the Department of Health and Social Care, trade associations concerned with beer, pubs, wine and spirits, and groups such as the Institute of Alcohol Studies and Alcoholics Anonymous about any consequences that they might see. That might help us form a better approach to assessing whether this is an appropriate measure. However, I certainly think it is, and it has my full support.
Lord Coaker (Lab)
My Lords, we too support these sensible measures. The Minister was right in his helpful opening comments to say that the Government are seeking to help people support a hugely significant national event. We warmly welcome the proposals that the Government have brought forward and thank the Minister for them.
On the consultation, I take the general point about health and alcohol, but on this specific occasion the key for me was to look at what the Local Government Association and the National Police Chiefs’ Council said. My understanding, from looking at the Explanatory Memorandum, is that both those organisations were in favour. I take the more general point that the noble Lord made, but on this specific proposal for the weekend of celebration, this is one of those occasions when we can perhaps understand the health risks but allow people to celebrate.
I have a couple of points. First, can the Minister clarify the position of village halls? You can imagine a circumstance where, in a rural village, somebody decides that the village hall would be a good place to have a celebration. I know village halls that just apply to the local authority and off it goes. Are they covered, or will they need an alcohol licence to not be excluded? I am not sure that some of the village halls and community centres often used on special occasions would have the necessary licences, so can the Minister clarify that point?
Secondly, this applies to England and Wales, but can the Minister say something about Scotland and Northern Ireland, particularly with reference to the border? There are other points about that, but I will leave it to the Minister to comment on what has happened with that.
Having said that, we warmly welcome this very good thing to do to celebrate a significant and historic occasion.
Lord Sharpe of Epsom (Con)
My Lords, I thank noble Lords very much for taking part in this brief debate. I am greatly reassured by the broad consensus that His Majesty the King’s Coronation is an occasion of national significance for the purposes of Section 172 of the Licensing Act 2003.
I join my noble friend Lady McIntosh in welcoming a measure that ought to provide some relief to an industry which has been very hard-pressed over the last few years, and I hope that the industry is in a position to make the most of it.
On the points raised by the noble Lord, Lord Rennard, I do not have much input in the design of consultations. However, I have heard his points and I will certainly take them back with a view to come back to the issue in more detail in future consultations—there is not much point in raking over the dust on this one.
I think that the noble Lord, Lord Coaker, answered the question of why the order falls within the responsibility of the Home Office, as opposed to the Department of Health, rather better than I probably will. This is very much a subject of interest to the police and local government. It is obviously a relatively short extension and therefore the public order considerations are probably rather more paramount under these special circumstances than the health ones—which is not in any way to diminish the longer-term health effects that we all know that alcohol can have.
On the question from the noble Lord, Lord Coaker, on village halls, I reiterate that the order allows regulated entertainment to continue from 11 pm on Friday, Saturday and Sunday until 1 am the following morning only where a premises licence is already in place.
My noble friend Lady McIntosh asked why Monday is not included. I expect that she will be out until 1 am on the Sunday, so I am amazed—and impressed, if I may say—by her resilience in wanting to get out back on the lash on the Monday. Of course, the following day is a workday, so I look forward to seeing her bright and breezy on the Tuesday morning.
I turn to Northern Ireland and Scotland. In the case of Northern Ireland, this is a devolved issue, and, as I understand it, the Northern Irish Government have chosen not to pursue it. In Scotland, this is matter for local councils to decide. In answer to the question as to whether police forces were consulted, I can say that individual forces were not, but the National Police Chiefs’ Council was, and, as I stated in my opening remarks, it is content with the arrangements as they sit. I really cannot say whether or not the process with local councils in Scotland has concluded, but it is a local matter.
With that, I commend the order to the Committee.
Service Police (Complaints etc.) Regulations 2023
(1 year, 8 months ago)
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Baroness Goldie
That the Grand Committee do consider the Service Police (Complaints etc.) Regulations 2023.
Relevant document: 32nd Report from the Secondary Legislation Scrutiny Committee
The Minister of State, Ministry of Defence (Baroness Goldie) (Con)
My Lords, this statutory instrument contains the regulations required to establish the service police complaints system, which will be overseen by the newly appointed Service Police Complaints Commissioner. It also contains the regulations required to establish the super-complaints regime for the service police. These regulations, along with the establishment of the independent commissioner, will implement in full recommendation 44 of the service justice system review, carried out by His Honour Judge Shaun Lyons and supported by the former chief constable, Sir Jon Murphy.
The regulations are quite technical, complex and surprisingly bulky; they run to some 80-plus pages. As they largely mirror the legislation already in place for the Independent Office for Police Conduct—the IOPC—and the civilian police, I do not intend to go through each of the regulations in turn, which I am sure is a matter of huge relief to your Lordships. Instead, I will briefly set out what His Honour Judge Lyons said in relation to establishing independent oversight and how this helped to inform the approach taken by the MoD.
The Lyons review found that in the service police a degree of independent oversight was missing in comparison with civilian police forces, which have statutory complaints systems. His Honour Judge Lyons recommended that a new niche defence body be created to deliver this. The review suggested a small niche unit led by an appointed individual, possibly from a judicial background, operating to the same remit as the IOPC and its director-general.
Section 365BA of the Armed Forces Act 2006, as amended by the 2021 Act, established a new officeholder, the Service Police Complaints Commissioner. Last year, the MoD ran a recruitment campaign, in accordance with the 2016 public appointments governance code, for the post of commissioner. Ms Margaret Obi, a deputy High Court judge assigned to the King’s Bench Division, was appointed as the new commissioner by His Majesty the King on the recommendation of the Secretary of State. This was announced on 20 February 2023, and she began her work in February.
In line with Recommendation 44, the commissioner will have functions similar to those conferred on the director-general of the IOPC. The five main responsibilities of the commissioner will be: to secure the confidence of persons subject to service law and service discipline, as well as the wider public, in the service police complaints system; to secure, maintain and review arrangements in respect of the procedures that deal with complaints, conduct matters and death and serious injury matters; to make recommendations and provide advice in relation to those arrangements—for example, training or procedures —where the commissioner believes this may improve policing practice; to act as the review body for certain cases, specified in the regulations; and, finally, to report annually to Parliament via the Secretary of State for Defence on the delivery of the commissioner’s functions.
I would like to set out in a little more detail the responsibilities of the commissioner for deciding how the more serious complaints and other matters are to be investigated, if it is determined that an investigation is required. There are certain matters that must be referred to the commissioner, which are set out in the regulations. Where a referral has been made, the commissioner will first need to determine if there needs to be an investigation. If no investigation is required, the complaint can be referred back to the appropriate authority—in the majority of cases this would be an individual in the service police force—to be handled in a reasonable and proportionate way. If it is determined that an investigation is needed, the commissioner will have to decide on the type of investigation based on the seriousness of the case and what is in the public interest.
The different options for investigation are identical to the civilian system. They are: a local investigation where the service police force does the investigation itself; a directed investigation, where a member of a service police force is appointed as the investigator but the investigation is under the direction of the commissioner; and an independent investigation, where the commissioner carries out an investigation personally or can designate an investigator to carry it out.
In the case of the independent investigations—that is, investigations that are independent of the service police and the MoD—there will be a pool of experienced investigators, with appropriate skills, who can be called on as necessary, and they will have the relevant niche skills for particular cases. Investigators will be able to exercise service police powers in a similar way to investigators appointed by the director-general of the IOPC, who can also exercise police powers.
The Lyons review, interestingly, recognised that there would probably be very few independent investigations required. Our own analysis, based on service police data between 2018 and 2022, indicates that there could be an average of 62 formal complaints annually, with 18 cases meeting the mandatory criteria for referrals. However, it is important to note that not all referrals would lead to an independent investigation. By way of comparison, over 36,000 formal complaints were recorded in the year 2020-21 by civilian police forces across England and Wales.
As well as complaints, the new system will also cover conduct matters and death or serious injury matters, referred to as DSI matters. In lay man’s terms, these are cases where no complaint has been made but misconduct is suspected, or a death or serious injury has occurred after contact with the service police. Service police forces will be required to ensure that they have processes in place to identify and refer conduct matters and DSI matters without delay. Again, we expect only a small number of conduct matters to be referred to the commissioner that will require investigation, and DSI matters are even more rare. Between 2018 and 2022, there were no DSI-type matters recorded. Although we expect relatively few independent investigations, an effective independent service police complaints system is still vital. Your Lordships will appreciate that the way in which complaints, conduct matters and DSI matters are dealt with has a huge impact on confidence in the service police and in the complaints system.
Finally, I say just a few words on the super-complaints system, which has been included as part of this statutory instrument. The civilian police super-complaints system, on which the service police super-complaints system is based, was established to address concerns about whether the police complaints system was able to identify systemic failures in policing. It is important to note that super-complaints are not an alternative way to raise an individual complaint; rather, super-complaints are intended to raise issues or concerns on behalf of the public about harmful patterns or trends in policing by the service police which are, or appear to be, significantly harming the interests of the public.
Only a body designated by the Secretary of State can make a super-complaint. To do that, the organisation must become a designated body. That organisation must demonstrate that it meets all the criteria set out in regulations. For example, it must be able to demonstrate that it is competent in, and has considerable experience of, representing the interests of the public. Prior to the regulations coming into force, the MoD will run a six-week application window for organisations wishing to become designated bodies under the service police super-complaints system.
The statutory instrument before us today is a key element of the wider MoD programme of work to deliver improvements to the service justice system. An independent service police complaints system will help to secure and maintain confidence in the service police, it will help to drive up standards in policing and it will certainly help to ensure accountability at both an individual and force level. I beg to move.
Baroness Smith of Newnham (LD)
My Lords, I am grateful to the Minister for introducing the statutory instrument. As she pointed out, it is surprisingly weighty. I had expected the standard one-and-a-half page statutory instrument of the sort where we come to praise His Majesty’s Armed Forces and all nod in agreement, but then I picked up this document and thought, even more than ever, “Why is my noble friend Lord Thomas of Gresford not taking this?”, because I am used, on matters of service justice, to handing over to him, and he knows far more about the work of His Honour Judge Lyons than I do, so I will have to take on trust what the Minister said about this very much replicating what happens in police justice. However, I have a few specific questions, one of which was touched on in the Minister’s overview of super-complaints. I have a couple of points, in part to demonstrate that I have read the document—or at least as much of it as I could make sense of.
Regulation 10 concerns the issue of former members of the service police force. Do any time limits apply to cases being brought against former members of the force? The reason I ask that is because, over the years, when we have debated the overseas operations Bill or, indeed, the Northern Ireland legacy Bill, there have been questions about whether there should be time limits on cases being brought. I am also double-checking that resignation will not be a way out of getting out of any investigation.
Regulation 12 refers to “exceptional circumstances”. Is there a definition of what might constitute an exceptional circumstance?
Regulation 19 is on withdrawal of complaints. This may not apply in cases that might be brought against service police, but is there a danger of frivolous or vexatious cases being brought and the withdrawal of a complaint being potentially vexatious? If so, what might be done about that?
Lord Coaker (Lab)
My Lords, I thank the Minister for outlining this important SI and for the detail that was included in her opening remarks. We welcome and support the regulations relating to service police and the complaints process and look forward to their introduction.
As the noble Baroness mentioned, we rightly hold our service personnel in high regard, but they need to feel confident and expect that they will, when necessary, be protected by service police and that high standards are maintained. However, if these standards are not met, service personnel need to know that a strong, independent system is in place to investigate service police officers and hold them to account if they have not performed their duties properly. We therefore welcome the appointment of Ms Margaret Obi as the new Service Police Complaints Commissioner.
I have a couple of questions for the Minister. The Minister in the other place said that the annual budget for this new, niche independent unit will be £250,000, that there will be three members of staff and that the new commissioner will work for two and a half days a week. How has that all been arrived at? Presumably, there has been some analysis of the amount of work, and we have heard about the department’s analysis of the number of cases that there may be, but it would be interesting to hear about that. If it is clearly not enough, as it begins to operate, will the figures be reviewed on an ongoing basis or will we have to wait for the annual report to point out that it is not sufficient and that more may be needed?
The Minister will know that the new Defence Serious Crime Unit was launched earlier this year, which is also very welcome. Can she explain the relationship between the Service Police Complaints Commissioner, the new DSCU and the three investigators whom the new complaints commissioner will appoint? Who will these three investigators be and what training will they have and potentially provide to other service personnel?
Can the Minister confirm the relevance of the commencement date in Regulation 1, which talks of 19 June 2023? I think she said that the complaints commissioner is already in place and starting her work. If all these regulations will come into force on 19 June, will the new commissioner have the powers that she needs from that date? That is my understanding of it. Can the Minister confirm the relevance of 19 June?
As for the civilian police, we have just had the Casey review, which points to the cultural problems in the Metropolitan Police. Can we be assured that the super-complaints procedure, as outlined in the SI, would and should be used by the Service Police Complaints Commissioner? Could she initiate a super-complaints process herself? In other words, how is something brought to light for the commissioner to decide that there is a need to use the super-complaints process?
The Minister in the other place said,
“the service police complaints system will not, initially at least, deal with historical matters”.
I am not quite clear on this. First, is that right? Secondly, are “historical matters” anything that is complained about before 19 June 2023? I think that was the point that the noble Baroness, Lady Smith, was getting at. I may have misunderstood, but the point of this Committee is to try to get clarifications. What did the Minister in the other place mean by “not initially”? Does it mean that any historical complaint, however serious, cannot be looked at if it happened before 19 June? If I understand what the Minister in the other place said, the answer is: “Not initially, but it may be that we do”.
There needs to be clarity because this is really important. The credibility of the new Service Police Complaints Commissioner will be a little undermined if serious allegations are made but cannot be investigated because only matters from after 19 June can be investigated, and the answer is: “We can’t look at it yet because the regulations won’t allow us until they’ve been in place for 18 months, and then we can come back and have a look at it”.
I want to know a bit more about the process, which the Minister outlined a little. Who starts a complaint and how does it reach the commissioner? How does the process work? The crucial issue, which, to be fair, was acknowledged by the Minister in the other place and I am sure the noble Baroness will also acknowledge it, is: will the withdrawal of complaints be monitored? There are concerns regarding the necessary hierarchy in the services. During our debate on the Armed Forces Bill, we recognised that, although that hierarchy is clearly necessary, it can and does create a situation in which pressure may be applied on somebody in a way which causes them to withdraw something, even if it is a complaint that really should be looked at. Can the Minister reassure us that the withdrawal of complaints, which is outlined in the regulations—the Government have included it—will be monitored in the annual report?
The Minister in the other place also said that the new system will cover conduct matters and death or serious injury. He said:
“In layman’s terms, these are cases where no complaint has been made”.—[Official Report, Commons, Delegated Legislation Committee, 21/3/23; cols. 5-6.]
I am not being funny but, for this layman, how is it brought to light if no complaint has been made? I am not trying to be pedantic but, usually, something comes to light because a complaint has been made. I think the Minister said that it is where something is suspected or is thought to be happening. Can the Minister tell us what that means? Is it rumour or innuendo, or somebody said something to someone? I want to be clear about how issues with respect to conduct, for example, can be brought to light if no complaint has been made. What is the process to bring that to light and be investigated, since no complaint is necessary? Can the Minister clarify that?
Finally, will the Minister lay out some of the differences between the civilian and service complaints systems, recognising the obvious difference between service and civilian life? The Explanatory Memorandum states that the key difference is
“the lack of accelerated procedures for members of the Armed Forces”.
Can the Minister explain why? I think that I know the answer, but it would be interesting for it to be put on the record.
I finish by saying that the purpose of these questions is not to try in any way to cause the Government a problem—we are pleased to see the establishment of this system by these regulations. Indeed, the Minister made it clear during the passage of the Armed Forces Bill that she would bring forward these regulations as quickly as possible, and she has done that. We are pleased to see this new service police complaints procedure, but there are some questions, and I think it would be helpful for the Committee, and indeed those who read our proceedings, to have the Minister’s answers.
As I say, our questions are not intended to oppose but to seek clarity. If this new process and new post are as successful as we all hope they will be, then real progress will have been made. Clearly issues have arisen that have eroded trust and confidence in service personnel, and I believe that the passage of these regulations will help to restore some of that trust and confidence.
Baroness Goldie (Con)
My Lords, I thank noble Lords for their very helpful observations and the useful questions that have been posed. The noble Baroness, Lady Smith, was lamenting the absence of her colleague, the noble Lord, Lord Thomas of Gresford. I have to say, completely selfishly and wishing him no ill will, that I am delighted at his absence—I am sure that he would have pinned me to the wall with a multiplicity of technical points.
The noble Baroness raised a point about time limits for former members. The situation is that they cannot evade liability, even if they are former members of the service police force; they are still answerable and accountable, and it would still be competent under regulations to bring a complaint. Therefore, a resignation could not avoid that—I am looking to my officials for reassurance on that.
The noble Baroness also asked about special circumstances. There is no definition in the regulations, but the expression has its ordinary meaning. I know that that is not awfully helpful to your Lordships, but I think that we can take a common-sense view of this. If, by any normal assessment of the situation, it was thought that something unusual had occurred, that would constitute a special circumstance.
The noble Baroness was rightly concerned about frivolous complaints and whether they could frustrate the process. One of the tangible benefits—I hope—of having this clearly defined, legally constituted system is that frivolous complaints can probably be weeded out at a fairly early stage. I can offer to the noble Lord, Lord Coaker—I will also offer a copy to the noble Baroness, Lady Smith—a fascinating diagram that was given to me by my officials, who understand only too well my slowness in grasping these issues. I have in my hand a marvellous diagram that shows how the complaints start, where they go and what happens, including death and serious injury matters as well as conduct matters. This is a very helpful physical indicator and I am very happy to share that with noble Lords— I will get it handed over.
The noble Baroness also asked what happens if criminal matters arise. That is a very important question and is one that I posed to the officials when they were briefing me. The answer is that the commissioner has power to refer to the service prosecutor. It might be that, in the course of investigating something, behaviour emerged and the view was that it constituted criminal activity. If that is the case, it would be referred immediately to the service prosecutor. Of course, even without the protocols being in force, the service prosecutor already informally consults with the civilian prosecutor. They would work out what to do.
On super-complaints and designated bodies, I was interested to know how all this would work and what exactly a designated body would look like. My officials very helpfully provided me with information which may be of use to your Lordships. I have a list of designated bodies under the civilian super-complaints system, which may give a flavour of what we are talking about. There are numerous organisations on it, such as the Criminal Justice Alliance, the Women’s Aid Federation of England, Welsh Women’s Aid, Southall Black Sisters and Pathway Project. That is just an indication of the wide spectrum of organisational interest that I think there will be in this.
Lord Coaker (Lab)
The Minister in the other place said that it will be reviewed after 18 months. He stated:
“We are going to let this run for a bit; we will review it internally after 18 months”.—[Official Report, Commons, Fourth Delegated Legislation Committee, 21/3/23; cols. 11-12.]
Can the Minister here confirm that?
Baroness Goldie (Con)
I can confirm that. I say to the noble Lord, Lord Coaker, that we already plan to conduct a review of the regime after the first 18 to 24 months of operation. It would no doubt be appropriate at that time to consider the issue of historical cases.
I have already covered the question of who starts the complaint. If the clerk would oblige, perhaps my beautifully multicoloured papers could be handed to the noble Lord, Lord Coaker, and I will get a set to the noble Baroness, Lady Smith.
I think that I have managed to cover the main points—
Lord Coaker (Lab)
As I think the noble Baroness, Lady Smith, would agree, the Minister has made very helpful and informed responses to the number of questions raised, which will help to clarify the operation of the system. The only major issue for me is the monitoring of the withdrawal of complaints; it is really important and, again, was mentioned in the other place. I think that the Minister in the other place said that he would expect to see how well the system is operating in the annual report. The Minister here will know—I said this in my opening remarks, so will not repeat myself—that the withdrawal of complaints due to people feeling under pressure is quite a significant way of seeing whether something is working or not. Confidence in the system will show, as appropriate, that the levels of withdrawal would not be higher than you would expect.
Baroness Goldie (Con)
I thank the noble Lord; that is a very important point. It is perhaps the other side of the coin that I raised with my officials. If a complaint is investigated, the commissioner makes a recommendation, so my question was: how will the recommendations be carried out? In fact, there is provision in the regulations for that.
That brings me to the important issue of the annual report. This is where we get the light of transparency and public accountability. The noble Lord is quite correct: I think that if parliamentarians felt that, in the presentation of the annual report, it was inadequate because it did not tell them very much, they would make clear their anxiety about it. That might include a lack of information about complaints withdrawn.
From what we have gathered—I gave some figures in the course of my remarks about the data that we have —I do not think that we are anticipating a terrific number of complaints. Of course, because a system is now established and people may have greater confidence, it is perfectly possible that we might see the number of complaints increasing. I have heard the point that the noble Lord raised, and we shall take it away; I agree that it is an important part of the overall picture, not just to know how many complaints and recommendations were made and what the outcomes were, but whether there was an element of withdrawal of complaints. I thank the noble Lord for raising that point and will take it away.
I think that I have managed to deal with most of the points that have been raised. If I have overlooked anything, I shall look at Hansard and undertake to come back to your Lordships. I thank noble Lords again for their contributions, as ever. It helps very much to improve our understanding of how these arrangements will work in practice. I commend this instrument to the Committee.
Amendments of the Law (Resolution of Silicon Valley Bank UK Limited) Order 2023
(1 year, 8 months ago)
Grand CommitteeRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Baroness Penn
That the Grand Committee do consider the Amendments of the Law (Resolution of Silicon Valley Bank UK Limited) Order 2023.
Relevant document: 35th Report from the Secondary Legislation Scrutiny Committee
The Parliamentary Secretary, HM Treasury (Baroness Penn) (Con)
Noble Lords will be aware that Silicon Valley Bank UK Limited, or SVB UK, was sold on Monday 13 March to HSBC. Customers of SVB UK are now able to access their deposits and banking services as normal. This transaction was facilitated by the Bank of England, in consultation with the Treasury, using powers granted by the Banking Act 2009. In doing so, we limited risks to our tech and life sciences sector and safeguarded some of the UK’s most promising companies, protecting customers, financial stability and the taxpayer. We were able to achieve this outcome—the best possible outcome—in short order, without any taxpayer money or government guarantees. There has been no bailout, with SVB UK instead sold to a private sector purchaser. This solution is a win for taxpayers, customers and the banking system.
SVB UK has become a subsidiary of HSBC’s ring-fenced bank. Ring-fencing requires banking groups that hold over £25 billion of retail deposits to separate their retail banking from their investment banking activities. The regime provides a four-year transition period for an entity acquired as part of a resolution process before it becomes subject to the ring-fencing requirements. As a result of this existing provision in legislation, SVB UK is not currently subject to ring-fencing requirements. However, HSBC UK, SVB UK’s parent company, remains subject to the ring-fencing regime.
To facilitate this transaction, the Economic Secretary to the Treasury laid in both Houses of Parliament on Monday 13 March a statutory instrument using the powers under the Banking Act 2009 to broaden an existing exemption in ring-fencing legislation with regard to HSBC’s purchase of SVB UK. This is the first time that the Treasury was required to use these powers since the resolution of Dunfermline Building Society in 2009. I note that the Secondary Legislation Scrutiny Committee has raised this statutory instrument as an instrument of interest in its 35th report, published on 30 March.
This exemption allows HSBC’s ring-fenced bank to provide below-market-rate intragroup funding to SVB UK. This was crucial for the success of HSBC’s takeover of SVB UK, because it ensured that HSBC was able to provide the necessary funds to its new subsidiary. HSBC has since stated publicly that it has so far provided approximately £2 billion of liquidity to SVB UK, money that it needed to continue to meet the needs of its customers. The Bank of England and the Prudential Regulation Authority fully support this modification to the ring-fencing regime as a necessary step to facilitate the sale.
In view of the urgency, and given that this statutory instrument was crucial in enabling the sale, the Treasury determined that it was necessary to lay this instrument using the “made affirmative” procedure under the powers in the Banking Act 2009. Parliament provided the Treasury with these powers for exactly these situations: recognising that exceptional circumstances can arise where the Government must take emergency action in the interests of financial stability, depositors and taxpayers.
The statutory instrument also makes a number of modifications to the Financial Services and Markets Act 2000 in relation to the rule-making powers of the Prudential Regulation Authority and the Financial Conduct Authority. Specifically, these rule-making powers are modified to ensure that the regulators can exercise them effectively, where these powers relate to the Bank of England’s transfer of SVB UK to HSBC and write-down of SVB UK’s shareholders and certain bondholders. The statutory instrument also waives the requirement for the regulators to consult on certain rule changes related to the sale.
In addition to the statutory instrument we are debating today, the Government will also lay a further statutory instrument to make further changes to the ring-fencing regime with regard to HSBC’s purchase of SVB UK. This is to permit SVB UK to remain exempt from the ring-fencing rules beyond the four-year transition period, subject to certain conditions. Unlike the legislation we are debating today, this second exemption is not required immediately and will be introduced in due course. The second exemption was also crucial to the success of the sale of SVB UK, as it ensures that it can remain a commercially viable stand-alone business as part of the HSBC Group.
A clear determination was made by the Bank of England and supported by the Government that these amendments were crucial to facilitating the purchase of SVB UK by HSBC. The UK has a world-leading tech sector with a dynamic start-up and scale-up ecosystem, and the Government are pleased that a private sector purchaser has been found. Therefore, I hope noble Lords will join me in supporting this legislation. I beg to move.
Baroness Noakes (Con)
My Lords, I declare my interest as a shareholder in UK banks which are subject to the ring-fencing regime. My husband and I hold shares in HSBC, which will benefit from this order, and in both NatWest and Lloyds, which are subject to the ring-fencing rules but do not derive a benefit from this order. I think my registered interests in this case probably cancel each other out.
I should say that I have never been a big fan of ring-fencing. The triple whammy of an electrified ring-fence, elaborate resolution planning and higher capital and liquidity requirements have imposed a very high set of costs on UK banks which can in the long run result only in disbenefits for UK bank customers —that is, all of us. I do, however, believe passionately in fair competition and level playing fields, and my concern about this order—and, more so, the one that we are promised that will come later—is that it distorts competition and creates an unlevel playing field by creating unfair advantage for one particular bank in relation to the ring-fencing rules.
I completely understand that the Bank of England had to operate under pressure to achieve a sale of Silicon Valley Bank over a weekend and that avoided having to place it into an insolvency procedure, and we owe the Bank a debt of gratitude for what it achieved over that weekend. But there are some aspects of the transaction—and therefore this order—which I find mysterious. I am also, as I said, concerned that HSBC has obtained an unfair competitive advantage compared with other UK banks, so I have some questions to put to my noble friend.
First, SVB UK is not a ring-fenced bank under UK legislation and it remains outside that legislation. Why did the Bank not agree to sell the bank to HSBC itself rather than to HSBC’s UK ring-fenced subsidiary? Had it done that, I do not believe that any special legislation would have been necessary. HSBC operates a narrow definition of ring-fencing—unlike other UK ring-fenced banks—such that the majority of its commercial customers are serviced within the non-ring-fenced part of HSBC. Why was it decided to place Silicon Valley Bank UK into the ownership of the ring-fenced bank? Would it not have been more appropriate to have put it somewhere else within the HSBC Group along with other commercial customers?
Secondly, what activities of Silicon Valley Bank UK would disqualify it from being housed within a ring-fenced bank? Commercial banking business can be satisfactorily included within a ring-fenced bank provided that the business within the ring-fenced bank is in effect plain vanilla business—that is, conventional lending and very simple derivatives, which are allowed. What does Silicon Valley Bank UK do which would disqualify it from being placed properly within the UK ring-fence of HSBC, and what policy grounds make it necessary to allow the ring-fenced bank to own this kind of business when it cannot carry out that business itself?
Thirdly, the Minister has said that the order was necessary to allow HSBC’s ring-fenced bank to provide funding out of the ring-fence at preferential rates to Silicon Valley Bank UK. Why was this funding not provided out of HSBC’s other, non-ring-fenced resources? Of course, I can see the attraction to HSBC of using the cheap funds that it has from its ring-fenced depositors, but the ring-fence regime was set up precisely to stop such funds leaching out of the ring-fence. Related to that, is there any limit on the amount of funding that HSBC UK can provide from within the ring-fence to Silicon Valley Bank in breach of the ring-fencing philosophy, and if there is not a limit, why not? Are there any limits to the generosity with which the ring-fenced bank can provide the funds, since it is going to be providing at rates below market rates? Will there be any limit to that degree of discount that it will allow, and again, if not, why not?
Fourthly, can the Minister confirm that Silicon Valley Bank UK will not be allowed to form part of HSBC UK’s Bank Domestic Liquidity Sub-group, or DoLSub, and that liquidity will be monitored separately for the ring-fenced and non-ring-fenced parts of HSBC UK? If that is not the case, can the Minister explain the position on how liquidity is to be managed and monitored within the ring-fenced bank and its new subsidiary?
Lastly, it is clear that the intention is to provide some long-term exemptions from the ring-fencing regime, and the Minister referred to this. I appreciate that the precise details may not yet be finalised, but will the Minister set out what exemptions are likely to involve? I believe that the Minister said that this would be in a separate statutory instrument and therefore Parliament would be able to look at that, but it would be good if she could confirm that. My main concern when we come to the second order is whether it will be fair and reasonable for ring-fencing exemptions to be provided on a long-term basis, which disadvantages other UK banks which have to operate completely within the ring-fence rules. Put another way, when considering the case for HSBC to be allowed special treatment, will the Government ensure that they consider the case for equivalent relaxations to be more generally available? I look forward to my noble friend the Minister’s response.
Baroness Kramer (LD)
My Lords, first, let me say that obviously we will support this order—although I cannot see any way in which one could not. In retrospect, it confirms the regulatory adjustments that were necessary or enabled the efficient rescue of Silicon Valley Bank UK and the transfer of ownership to HSBC, effectively protecting customers from the implications of the collapse of the US parent. We need to congratulate the Government, or the Treasury, the Bank of England and indeed the industry—Coadec, Tech London Advocates and BVCA—for acting together, co-operating and moving swiftly to make sure that a problem did not turn into a crisis or catastrophe.
That said, I have a whole series of questions. I am incredibly grateful to the noble Baroness, Lady Noakes, who in far more detail and far more effectively than me raised the relevant questions on ring-fencing. Where she and I slightly disagree is on her request that, if there is going to be a long-term exemption that gives a competitive advantage to HSBC, let us let everybody have it, whereas I am concerned about the undermining of ring-fencing in a fundamental way. I can understand that sometimes one has to act to undermine ring-fencing on a short-term basis, but this has pinned into it that second exemption, which effectively makes this a life-long exemption.
I will not repeat the points that the noble Baroness made. I have a lot of them down on the piece of paper in front of me, but she made those points so well that I think the Minister needs only to hear them once—they were so detailed and rightly crafted. We have to understand whether to some extent the Government are pre-running the changes that they anticipate making under the Edinburgh proposals. We saw that with previous financial services Bills, when powers were given to the regulator ahead of the consultation processes that would all be relevant to it, so the consultation process then led to a phase 2 or part 2 Bill that came in later. I am very anxious to understand whether this is reflective of the Government’s approach to ring-fencing from now on—in other words, that they no longer intend to separate retail banking from investment banking.
I recommend to everybody the work that we did in the Parliamentary Commission on Banking Standards, in taking evidence for more than two years. The reasons for ring-fencing retail banking from investment banking were multiple and complex, and certainly included culture. Retail banking is essentially a utility and investment banking is very different in its risk profile. There is no question but that some of the misbehaviour that we saw in retail banks, PPI being just one of many examples, was inspired by that cross-cultural flow between the investment bank and the retail bank.
It was also true that many risks that we saw banks take, which were entirely inappropriate and not well understood and which led to a crash, for which we all continue to suffer, were inspired by access to what was seen as very cheap and easy money—money sitting in retail deposits, checking accounts and saving accounts, and not protected to a certain degree by insurance, which took away any sense of responsibility to customers. Banks took on risks that they would not have been able to take on had they been financing themselves wholly in the financial markets, because the markets would have recognised those risks and demanded far higher returns if they were going to finance such activities. So that access to a pool of cheap money was absolutely critical to the structures that led to the financial crash of 2007-08. I am really concerned that we have changes here that foreshadow a much more extensive undermining of ring-fencing, and I hope that the Minister will respond to those broader issues, as well as to the detail that the noble Baroness, Lady Noakes, asked for.
Lord Tunnicliffe (Lab)
My Lords, I am grateful to the Minister for introducing this order. I begin by reiterating the Labour Party’s thanks to the officials at the Treasury, the Bank of England and the regulators to secure a rescue deal for the UK arm of Silicon Valley Bank. While there will be important lessons to learn from SVB’s collapse, it was vital that swift action was taken to preserve financing for the life sciences and tech companies that will play such an important role in our future economic growth.
I also thank the noble Baronesses, Lady Kramer and Lady Noakes, for bringing out areas of concern, which I certainly have not seen raised in the same sharp relief. I hope that the Minister will be able to give us some feel as to the extent to which this reach of the ring-fence will be of significance or not, and, if it is significant, why it is intended to be made perpetual by a subsequent order. Equally, when we are discussing lessons learned, the noble Baroness, Lady Kramer, shone a light on the issue of the speed of collapse. The physical queues outside Northern Rock created time; today, very little time need be created between an area of significant concern turning into total collapse. I hope that the regulators, when doing a proper lessons-learned exercise on this will ponder on that point, to see what, if anything, we need to do to be better able to manage the rate of collapse that is potentially available.
The collapse of SVB was the catalyst for several other major events in the global financial system, including the very serious difficulties faced by Credit Suisse. In many senses, the UK regulatory system has functioned as hoped, which we welcome. It certainly makes the many hours spent on previous legislation worthwhile. Financial institutions and regulators in other countries have taken their own steps in recent weeks to deal with issues with entities in their own jurisdictions. The collective action seems to have calmed the markets, which is important for us all. However, I hope that the Minister can assure us that the Treasury, the Bank and the regulators continue to monitor the situation very closely, and that they stand ready to act, should that be required. With inflation still in double digits, and with the implications that is likely to have on interest rates in the short to medium term, will the Treasury finally commission a review of the risks that this could present to the financial system?
On SVB itself, the Government have thus far been unable to provide a proper justification for exempting the bank from ring-fencing requirements, which makes the four-year transition period turning into a perpetual one all the more puzzling. In another place, the Minister sought to reassure colleagues that they need not worry about the potential implications of this exception, as the number of SVB UK customers is low, particularly as a percentage of HSBC’s total client base. Is that really the most that the Treasury can say, or does the Minister have more to offer, given that this debate comes three and a half weeks after the Commons one?
Another question in that debate was on potential reform to ring-fencing requirements in this country. Andrew Griffith promised that
“there will not be any tinkering, but there might … be appropriate reforms”.—[Official Report, Commons, First Delegated Legislation Committee, 27/3/23; col. 7.]
I am not sure that those words are particularly reassuring. We expect news on those reforms in advance of the Autumn Statement, but can the Minister be a little more specific about dates and processes? How swiftly would any reforms be implemented once announced, for example? Will changes require primary legislation? If so, could this come in the Financial Services and Markets Bill, or would the Government bring forward a further Bill?
The action taken to protect SVB UK worked because it provided certainty. Customers of that bank knew within days that they would be able to continue their relationship with it, because of the acquisition by HSBC. However, in other areas, certainty is in short supply. The Prime Minister says he has a plan to halve inflation and bring interest rates down, but inflation remains in double digits and the Monetary Policy Committee is expected to announce a 12th consecutive rate hike. Under this Government, our economy is weaker, prices are out of control and never have people paid so much to get so little in return.
Baroness Penn (Con)
My Lords, I thank all noble Lords for their detailed questions on this statutory instrument. While everyone agreed that we reached a good resolution in this instance, it is absolutely right that we look at how it was delivered in detail and how we should reflect from this instance on the resolution regime in our wider regime. The noble Baroness, Lady Kramer, asked explicitly—but I think all noble Lords wanted to know—what the Government will do to ensure that we can learn lessons from the events around SVB UK. The Treasury and the Bank of England are working together to ensure that we properly reflect on these events and will consider how best to draw on the lessons learned and share them as needed in future.
The noble Lord, Lord Tunnicliffe, remarked on wider financial stability events, including Credit Suisse. I reassure him that the UK financial sector is fundamentally strong. The resolution of SVB UK on 13 March highlights how the resolution regime can be effectively used to protect UK financial stability. However, we continue to monitor the situation closely and remain in close contact with the Bank of England, the Prudential Regulation Authority, the Financial Conduct Authority and relevant foreign and international authorities. We are absolutely committed to protecting the stability of the UK banking sector, which is key for supporting economic growth and for the UK’s world-leading financial sector.
The noble Lord, Lord Tunnicliffe, also asked whether we would commission a review of the risks that higher interest rates pose to the financial system. I reassure noble Lords that the Bank of England already has in place processes to monitor and assess risks to our financial sector and banking system. In particular, each year, the Bank of England carries out a stress test of the major UK banks, which 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, as well as higher global interest rates.
Baroness Kramer (LD)
I do not want to pre-empt the noble Baroness, Lady Noakes, in trying to press her question, but it seemed to me that she was asking why was the ring-fenced part of the bank used to make this purchase? HSBC presumably had a very wide range of options of pieces of corporate structure that it could have used. There may be a very good answer to that, such as “This was the only one we could do over a weekend”, or something. However, the Minister also said that it was explicit in the agreement that the extended exemption would be a part of the package. That has not yet gone through a parliamentary process, and it will, but it is clear that the Government have taken a position that they will support that extended exemption. There is stuff going on here that we are trying to unpick, and I just wonder whether the Minister can help us to do that.
Baroness Penn (Con)
I was only at the beginning of my attempt to answer my noble friend Lady Noakes’s questions. I think that I will cover a fair amount of ground in dealing with them, but I am also very happy to follow up in writing.
I moved between the permanent exemption and the intrabank lending, so I will deal with the intrabank lending question first, then I will move on to the matter of a subsequent SI. As I say, the provisions in today’s SI were essential for the sale and allowed for the provision of around £2 billion of liquidity. My noble friend asked whether this exemption was permanent and whether there was any limit to the funding that HSBC could provide through this route. This exemption is permanent to ensure that HSBC can continue to provide liquidity support, should that be needed at any point in the future. There is no limit to the amount of funding that can be provided through this route. The PRA has stated that it has the tools to effectively supervise HSBC, even with this exemption in place.
Baroness Noakes (Con)
Before my noble friend leaves this point, I do not think she has addressed the question of why the ring-fence resources had to be used to do this. HSBC is very large and has very large UK operations that are not within the ring-fence, so I have been probing—and I know that the noble Baroness, Lady Kramer, is also interested in this—why the ring-fence has to be used. Why did the ring-fence exemption have to be used, because it is clearly not necessary in any absolute sense for HSBC to provide liquidity support to Silicon Valley Bank out of the ring-fence?
Lord Tunnicliffe (Lab)
In bringing this back to us, as the Minister will have to do for the second SI, and responding to these questions, can we have some analysis of the competitive advantage that HSBC will get out of this transaction?
Baroness Penn (Con)
That point was also raised by my noble friend, and I was hoping to come to it. Whether my answers mean that we will not have a further discussion on it either on the Bill or when the future SI comes forward remains to be seen. I shall try to address some of the points around the ring-fenced bank, the need to go down that route and whether SVB UK needed to be purchased by HSBC’s ring-fenced bank. That was a commercial decision made by HSBC, and it would not be appropriate for me to comment further on it.
Baroness Kramer (LD)
I am sorry to interrupt, but the only rationale I can think of is that from a ring-fenced bank you have that very cheap source of funding known as bank checking accounts and savings accounts. That precisely gives the commercial advantage to HSBC that the noble Baroness, Lady Noakes, is describing. Is that the only basis on which the Government were able to negotiate the deal: to make sure that the ownership of Silicon Valley Bank and the business it would pursue in future would be advantaged compared to similar activities by its rival banks? Is that what we are talking about here?
Baroness Penn (Con)
I am afraid I have to disappoint noble Lords and say that I have no further comment to make on the decision to purchase it by the ring-fenced bank. It was a commercial decision for HSBC.
My noble friend had some other questions on the use of the ring-fenced bank. She asked what activities SVB UK undertakes that are not allowed under the ring-fence regime. SVB UK provides lending to certain types of financial institutions, such as venture capital funds, which is not allowed under the ring-fencing regime. It also provides certain equity-related products in relation to its lending, which is also not allowed under the ring-fence regime. She also asked whether I could confirm that SVB UK will not be added to HSBC’s domestic liquidity subgroup. That is a matter for the regulator to decide.
All three noble Lords asked about the implications for competition and whether this move has given a competitive advantage to HSBC. The exemption is limited to the acquisition of SVB UK by HSBC, and was necessary to facilitate this acquisition—something I think all noble Lords welcomed. As Sam Woods explained at the TSC recently, a necessary condition of HSBC moving forward was that it could keep the entirety of SVB UK as one business. The value was in the integrated nature of the business, and HSBC could make that work only if it had it as a subsidiary of HSBC UK, the ring-fenced bank.
It is also worth reiterating that SVB UK remains very small compared to HSBC. Its assets amount to around £9 billion compared to HSBC’s $3 trillion group balance sheet.
To come on to the second statutory instrument and the permanent exemption from ring-fencing for SVB UK, the second exemption was also crucial, as it ensures that SVB UK can remain a commercially viable stand-alone business, as part of HSBC UK. It will be subject to conditions, which are intended to ensure that the exemption is limited to what was needed to facilitate the sale of SVB UK. We will set out details of those conditions alongside the second statutory instrument, which noble Lords will have the opportunity to debate. Alongside that, as I said earlier, the PRA outlined in its response to the Treasury Select Committee that it has a range of tools that it can and will draw on to ensure the effective supervision of HSBC and the protection of retail deposits.
Baroness Noakes (Con)
Can I just clarify something with my noble friend? I can just about understand why, for the transaction to happen over the weekend, HSBC was allowed to bully the other participants into breaking the ring-fence rules to allow it to be set up. However, allowing a permanent change means that the ring-fenced bank will be allowed to provide liquidity, and presumably capital as well, on advantageous terms to a bank which can be used as a growth vehicle within HSBC, thereby increasing the risk to ring-fenced funds. I understand why you might have to do that initially, to get the deal through, but I do not understand whether there are any limits at all on what can happen after the acquisition has happened. These permissions have been set up in a way, and are likely to continue in a way, that will allow Silicon Valley Bank to continue to operate in a way that is completely antithetical to the ring-fenced banking regime. As I have said, I am not a fan of it, but I have a strong objection to one bank being allowed to operate in a distinctly different way from other banks.
Baroness Kramer (LD)
I shall just add something, so that the Minister does not have to repeat herself constantly. The Minister was very clear that the flow of funds out of the ring-fenced HSBC would go into the hands of a body that will then use it to fund venture capitalists. That is not normally permitted under the ring-fence because it is a very high-risk speculative activity. The whole purpose of ring-fencing is to split activity like that away from the utility role of retail banks. Since there is, apparently, no constraint on the amount of money that can be moved, it has just opened up a massive chasm in the separation, and a massive advantage for one particular high street bank versus the others. I think that the Minister said that the amount of money that could be moved was limitless —so it is really a big issue.
Baroness Penn (Con)
In relation to the provision in this statutory instrument, my understanding is that the exemption to this aspect of the ring-fencing regime is on a permanent basis. The subsequent SI that we will debate will have conditions applied to it, and we will set out those conditions at the time.
I refer my noble friend and the noble Baroness to the comments from the regulators when they were asked about this issue. The PRA was confident that it
“has a range of tools that it can and will draw on to ensure the effective supervision of HSBC and protection of retail deposits”.
As the noble Baroness mentioned, that is one of the aims of the ring-fencing regime.
Lord Tunnicliffe (Lab)
Can the Minister confirm whether I have understood this correctly? My understanding was that we are assured that any impact on the ring-fence regime will be brought about through primary legislation.
Baroness Penn (Con)
It is important to distinguish between the near-term reforms that the Skeoch review recommended—I listed some examples of what can be taken forward through secondary legislation—and any more fundamental changes, which are the subject of the questions in the call for evidence, which would need primary legislation to be amended to take forward. So it is possible to make alterations to the ring-fence regime through secondary legislation; in fact, the Government have been quite clear about their intention to do so. We will consult on that before we do so, and we will set it out then. However, the call for evidence sets out more fundamental options, and that would require primary legislation. So there is a mix, but anything such as abolishing the ring-fencing regime, or other more fundamental changes, will be set out in primary legislation. I hope that provides sufficient clarity on that point.
The noble Baroness, Lady Kramer, asked about the interaction between SVB UK and its parent in the US. I will write to her on that subject. It was a UK subsidiary, was subject to UK regulation, and had its own requirements under that regulation. However, to provide absolute clarity on that point, I will write to her. I will also look back on this debate because it has been detailed and technical—as well as very important—and will endeavour, where I can, to improve on my answers to noble Lords in writing. However, there may be areas where there is nothing further to add, even if that is not to the satisfaction of noble Lords.
It is worth concluding on the more positive note that most noble Lords started with: that the outcome of the Government’s action, together with the Bank of England, to facilitate the sale of SVB UK protected its customers and UK taxpayers. It was a good result in that respect, but the Government will continue to monitor the financial system and consider ongoing events. The final note of reassurance I offer is that the Bank of England has confirmed that the UK banking system remains safe, sound and well capitalised. I beg to move.