Grand Committee
Arrangement of Business
The Deputy Chairman of Committees (Viscount Stansgate) (Lab)
My Lords, if there is a Division in the Chamber while we are sitting, the Grand Committee will adjourn as soon as the Division Bell rings and resume after 10 minutes. I do not think that we are expecting any Divisions.
Employment Rights (Amendment, Revocation and Transitional Provision) Regulations 2023
(5 months ago)
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Lord Johnson of Lainston
That the Grand Committee do consider the Employment Rights (Amendment, Revocation and Transitional Provision) Regulations 2023.
Relevant document: 3rd Report from the Secondary Legislation Scrutiny Committee (special attention drawn to the instrument).
The Minister of State, Department for Business and Trade (Lord Johnson of Lainston) (Con)
My Lords, on 12 May 2023, the Government launched a consultation on three areas that could benefit from reform and where we could remove unnecessary bureaucracy: record-keeping requirements under the Working Time Regulations; simplifying annual leave and holiday pay calculations in the Working Time Regulations; and consultation requirements under the Transfer of Undertakings (Protection of Employment) Regulations—the TUPE regulations. The consultation sought views on proposals for these areas of retained EU employment law to ensure that they are tailored to the needs of the UK economy.
I turn first to the record-keeping requirements. The Working Time Regulations are derived from the EU working time directive and create various entitlements for workers, including minimum rest breaks and maximum working hours, as well as an entitlement to paid annual leave. While the regulations provide important protections to workers, they can also place disproportionate burdens on business in relation to recording working hours and other administrative requirements. That is why we consulted on removing the effects of a 2019 judgment of the Court of Justice of the European Union, which held that employers must have an objective, reliable and accessible system enabling the duration of time worked each day by each worker to be measured. Our proposed regulations make it clear that employers will not be required to keep burdensome and disproportionate records of daily working hours of each worker. Instead, employers will need to keep adequate records to demonstrate compliance with their working time obligations—I stress that point. This clarification could help to save businesses around £1 billion a year, without changing workers’ rights.
I assure noble Lords that people will continue to be able to enforce their rights under these regulations. Workers can take a case to an employment tribunal where they feel they have not been permitted to exercise their rights under the Working Time Regulations, including the rights to annual leave and to daily and weekly rest. The Health and Safety Executive, other state enforcement bodies and local authorities can also directly enforce maximum working hours and record-keeping requirements. It is important that employers comply with the Working Time Regulations and that they are held to account if they do not.
I turn to the Transfer of Undertakings (Protection of Employment) Regulations 2006. Before a TUPE transfer, the current employer and the new employer need to consult the affected workforce’s existing representatives or arrange elections for employees to elect a new representative if they are not already in place before the transfer. We want to simplify the process for businesses where worker representatives are not already in place. Currently, micro-businesses have the flexibility to consult directly with workers rather than hold elections. The SI would extend that flexibility to small businesses, with fewer than 50 employees, undertaking a transfer of any size and to businesses of all sizes involved in transfers of fewer than 10 employees if there are no existing employee representatives in place. That means that they will not be required to undertake the time-consuming process of arranging elections for new employee representatives.
This reform will simplify the TUPE process, while ensuring that workers’ rights continue to be protected. It does not erode the role of trade unions in the work- place. We are only proposing changing the consultation process in instances where businesses do not have employee representatives to consult. Where employee representatives, including trade unions, are in place, employers will still be required to consult them. I make it clear that the reforms will not change the requirement for businesses to consult employees on transfers; they will only change the requirement to elect employee representatives if they are not in place. Clear guidelines remain in place for employers regarding what they must consult employees on. Employers who fail to properly consult their employees about TUPE transfers could be taken to an employment tribunal.
The regulations also introduce reforms to holiday entitlement and pay. We have defined irregular-hours and part-year workers in these regulations to ensure that they are clear to employers and workers to whom some of the reforms apply. How a worker is classified will depend on the precise nature of their contractual working arrangements. We encourage employers to ensure that working patterns are clear in their workers’ contracts. We recognise that there are a vast number of different working patterns. The definitions seek to take all of these into account, so that the regulations are relevant for modern working practices. We will keep them under review.
I turn now to the holiday accrual method for irregular-hours and part-year workers. The regulations respond to the 2022 Harpur Trust v Brazel Supreme Court judgment. This resulted in part-year workers being entitled to a larger holiday entitlement than part-time workers who work the same total number of hours across the year. To address this disparity, the regulations introduce a simplified method to calculate holiday entitlement for irregular-hours and part-year workers. This will be calculated as 12.07% of hours worked in a pay period, in the first year of employment and beyond. This accrual method was widely used before the Harpur Trust judgment and better reflects what workers actually work in a leave year. The introduction of this accrual method could save businesses up to £150 million over the long term.
The regulations also introduce a method to work out how much leave an irregular-hours or part-year worker has accrued when they take maternity leave, family-related leave or sick leave. Introducing a 52-week reference period will allow employers to look back and work out an average of hours worked across that period. Employers will need to include weeks not worked and not on maternity leave, family-related leave or sick leave so that leave is proportionate to the time actually worked. This will ensure that workers are not unfairly disadvantaged when on maternity leave, family-related leave or sick leave. For example, if an irregular-hours worker goes on maternity leave, her holiday entitlement is reflective of how much she worked in the 52 weeks prior to going on maternity leave.
We are also legislating to allow the introduction of rolled-up holiday pay for irregular-hours and part-year workers. Rolled-up holiday pay is where an employer includes an additional amount with every payslip to cover a worker’s holiday pay, as opposed to paying holiday pay when a worker takes annual leave. We consulted on introducing rolled-up holiday pay for all workers. However, taking into account stakeholder feedback, rolled-up holiday pay will be introduced as an additional method of calculating holiday pay for irregular-hours and part-year workers only. Employers do not have to use rolled-up holiday pay for these workers if it does not suit their business; they can continue to use the 52-week reference period to calculate holiday pay.
Employers that use rolled-up holiday pay will calculate it based on a worker’s total earnings in a pay period. This will avoid the complexity of applying the rolled-up holiday calculation to different rates of holiday pay. Despite the fact that it has been unlawful since the 2006 European Court of Justice case of Robinson-Steele v RD Retail Services, rolled-up holiday pay is already used in a lot of sectors due to the simplicity that it offers to calculate holiday pay for irregular-hours workers. Allowing holiday pay to be paid as an enhancement to a worker’s pay at the time that the worker performed work instead of when they are on holiday will ensure that the worker’s holiday pay is as closely aligned as possible to the pay that they would have received. Rolled-up holiday pay also ensures that a worker receives the holiday pay that they are due even if they work for that business for only a short period of time. For example, an irregular-hours worker who works for a company over a period of three months will receive holiday pay as part of each payslip.
We note the concerns that allowing rolled-up holiday pay may disincentivise workers from taking leave. Compared with full-time workers, people who work irregular hours and part-year contracts are already likely to have periods when they are not working and, as a result, these concerns are less applicable. We also consider that existing safeguards are proportionate in addressing these concerns. For example, employers are already required to provide an opportunity for workers to take leave and we have heard through our stakeholder engagement that this is taking place. We also have safe- guards in relation to the 48-hour working week, where a worker cannot work more than 48 hours a week on average, unless they choose to opt out.
I turn now to the issue of retaining two rates of holiday pay and distinct pots of leave. We consulted on a further reform: the introduction of a single annual leave entitlement with a single rate of pay. We will not introduce this as part of the package. These regulations maintain the two distinct pots of annual leave and the two existing rates of holiday pay, so that workers will continue to receive four weeks at the normal rate of pay and 1.6 weeks at the basic rate of pay, totalling 5.6 weeks. Following a review of case law in this area and engagement with stakeholders, we are legislating to restate the case law in respect of the four weeks of leave. This is to ensure that workers continue to receive pay for those weeks at their normal pay rate, rather than having the whole pot paid at the basic rate, which for some workers can be a reduced amount. The intention is for workers to continue to enjoy the same rates of holiday pay from 1 January as they do now. We would like to assess the take-up of rolled up holiday pay and then consider more fundamental reforms to the rate of holiday pay. This will allow employers to continue with their current payroll systems, while providing clarity on what elements form part of normal remuneration.
I turn to restatements and revocations. In addition to these reforms, the statutory instrument revokes the European Cooperative Society (Involvement of Employees) Regulations 2006 and the Working Time (Coronavirus) (Amendment) Regulations 2020. The main European co-operative society regulations were repealed in 2021 and the regulations on involvement of employees therefore no longer have any effect in practice. The Covid regulations referred to in the statutory instrument were introduced as temporary legislation intended to prevent workers from losing annual holiday entitlement if they were unable to take it due to the effects of Covid. Therefore, these regulations are clearly no longer needed.
The scope of the statutory instrument is limited to Great Britain, other than the revocation of the European Cooperative Society (Involvement of Employees) Regulations 2006, which extends to Northern Ireland. Employment law in Northern Ireland is a transferred matter.
In addition, the statutory instrument mitigates the risk that the removal of interpretive effects on employment law could lead to a reduction in workers’ rights by restating the following three principles: the right to carry over annual leave where an employee has been unable to take it due to being on maternity or other family-related leave or sick leave; the right to carry over annual leave where the employer has failed to inform the worker of their right to paid annual leave or enable them to take it; and the rate of pay for annual leave accrued under regulation 13 of the working time regulations.
Northern Ireland has its own employment legislation. Accordingly, any secondary legislation on this would be for the Northern Ireland Executive, or the Northern Ireland Civil Service in their absence, to decide, with support from the UK Government to legislate if needed.
Although interpretive effects will cease from the end of 2023, the Government’s position is that the UK will remain in compliance with our international obligations under Article 2 of the Windsor Framework. The REUL Act’s restatement powers are available until June 2026. Therefore, the UK Government and the Northern Ireland Civil Service will keep all decisions on restatements under continuous review in both Northern Ireland and Great Britain.
As mentioned, the Government’s approach to restatements seeks to mitigate the risk that the removal of interpretive effects on employment law could lead to a reduction in workers’ rights. We undertook an analysis of the employment law, including domestic and EU legislation and case law, to assess the full extent of the risk that certain principles would be lost. Our assessment concluded that the three principles we are restating carried a high level of risk of being lost because they are largely or wholly dependent on the special features of EU law that are removed by the 2023 Act with effect from 1 January 2024. Therefore, the instrument will restate the three principles before the end of 2023 to ensure these employment rights continue, notwithstanding the removal of the special features of EU law by the 2023 Act. We are confident that these changes comply with our international legal obligations, including those in the EU-UK Trade and Cooperation Agreement.
In conclusion, under this Government we have seen employment reach near record highs. The number of payroll employees for September 2023 was 30.2 million, 370,000 higher than this time last year and 1.2 million higher than before the pandemic. Through Brexit we regained the ability to regulate autonomously, and we are using these new freedoms to ensure that our regulations are tailored to the needs of the United Kingdom economy. In addition to providing cost and administrative savings for businesses, these reforms aim to provide clarity on complex holiday pay legislation so that it is simpler for employers to follow and comply. Approximately 5.1 million workers will be affected by the holiday pay reforms. By simplifying the legislation, workers will receive the holiday entitlement and holiday pay that they are entitled to, and the restatements of the three principles mentioned above will retain existing rights. I beg to move.
Lord Hendy (Lab)
My Lords, this draft statutory instrument is the tip of the iceberg which noble Lords on this side of the House warned would appear over the horizon during the debates on the Retained EU Law (Revocation and Reform) Act 2023. Workers’ rights are on a collision course with it. We said that the Act would be used to remove workers’ rights. We moved amendments to try to protect those rights, but they were all rejected by the Government. For example, the then Minister, the noble Baroness, Lady Neville-Rolfe, said:
“I should say straightaway, as my noble friend Lord Callanan already has, that this Government have no intention of abandoning our strong record on workers’ rights, and nor are the delegated powers intended to undermine the UK’s high standards on workers’ rights.
Our high standards were never dependent on our membership of the EU. Indeed, the UK provides for stronger protections for workers”.
She then gave some examples.
Lord Davies of Brixton (Lab)
My Lords, it is a pleasure to take part in this debate. It is a particular pleasure to be under the chairmanship of my noble friend Lord Stansgate. We are long-term colleagues; we worked together many years ago. As I said, it is a pleasure to see him in the chair.
My noble friend Lord Hendy has really said it all. I have very little to add, but I will say something specifically about the TUPE regulations to make it clear to the Minister and the Government in general that people do care, that these provisions are important and valid, and that they deliver real benefits to workers.
No doubt the Minister will tell us in his reply that the changes proposed are very limited, which raises the question of why the Government are bothering to make these changes. There is no evidence presented to us that in any way suggests that there was an upswell of demand to get rid of these provisions. It is as if the civil servants—the officials—were told, “We’ve got to show that we’re doing something with these new powers”. On this provision, the TUPE part—I make no comment on the other parts of the regulations—it is as if they were told, “Let’s work out what’s the smallest change we can possibly make to claim that Brexit is having some advantage”. What is that big advantage? Some people are not necessarily going to be consulted if they had been consulted previously.
The results of the consultation as presented to us were very much as one would expect. When asked, “Would you like to get rid of this requirement?”, some people said “Yes, we would”. Equally, there were a lot more people who said, “No, we still need these protections”. In truth, the consultation told us nothing that we did not already know.
I emphasise that the changes are limited, but I am still against them on the grounds of death by a thousand cuts. If you come back and chip away at workers’ rights time after time, sooner or later you find that there are serious depredations in the protection that we rightly provide for working people. Will the Minister repeat, for the purposes of this Committee, the reassuring remarks that were made in the Government’s response to the consultation? In particular, they said:
“The government agrees that the TUPE regulations provide important protections for employees, and they provide a strong legal framework for staff transfers”
and went on to say that
“workers’ rights will continue to be protected”.
Earlier in that response, talking specifically about the concerns many trade unions had expressed that this was an incremental move against their rights, the Government stated:
“In response to concerns about the TULRCA, the government would like to reassure respondents that the reforms we are proposing will not affect how”
the Act
“works. Employers will still be prohibited from undermining collective bargaining in breach of Section 145B”
of that Act. Will the Minister simply reassure this Committee that the Government stick by those commitments?
Baroness Brinton (LD)
My Lords, I will make two very brief interventions on this. There is not much left to say, following the noble Lords, Lord Hendy and Lord Davies of Brixton, but it is important just to note a couple of things.
First, from these Benches, we contest the assumption of the Government that implementing the 2019 judgment to the CJEU, known as the CCOO case, would be
“disproportionate, particularly while the economy is recovering from the impact of the Covid-19 pandemic and the impacts of war in Ukraine”.
I can completely understand the concern about the effect of the pandemic. Having been health spokesperson during the first three years of it, I really understand why that is the case. But I struggle to understand exactly what the effect of the war in Ukraine is on record keeping by employers. I would be grateful if the Minister could give me some guidance on that, because I do not see a logic.
Secondly, the Government keep talking about using artificial intelligence to reduce bureaucracy. Many companies already use such systems. The hand-written timekeeping systems that I used in my youth are long gone. Even the spreadsheets of a decade ago are gone. One now fills in something that feeds straight back into a database that runs the organisation. It takes far more information than just the 15 minutes of work, or whatever it is, on a particular project, and it is then used to assess the progress of the company and the progress of individuals—whether some of that is right or not is another matter, but it is there. It seems to me that a Government who are arguing that we should be focusing on using AI are—by saying, “Actually, we’re assuming there is a massive burden”—not keeping up with what is happening in the workplace at the moment. So can the Minister explain this massive burden, in the light of the way that records are currently kept by most organisations?
Lord Leong (Lab)
My Lords, I thank the Minister for introducing the regulations, and all noble Lords who contributed to this debate. It is a pleasure to see my noble friend Lord Stansgate and welcome him to the chair.
As we have heard, this instrument does three main things. It reduces requirements under the working time directive, simplifies annual leave and holiday pay calculation and streamlines the regulations that apply when a business transfers to a new owner. This results from the retained EU law Act removing the interpretive effects of EU law on the UK statute book.
As my noble friend Lord Hendy mentioned, during its passage through the House, many of us on these Benches made it absolutely clear that the Act should never be a vehicle for the removal of important existing rights of British citizens. The Government seek to assure us that these changes do not amount to that, and that they simply remove extra bureaucracy. However, in my relatively short time in this place, I have learned to be wary of such assurances. It is said that the devil definitely lies in the detail. However, accurate records leading to accountability surely should not be seen as an evil in itself.
First, I turn to the change to the working time regulations. This represents the greatest risk to workers’ protection. It means that businesses will not have to keep records of their workers’ daily working hours if they can demonstrate compliance without doing so. Will the Minister accept that removing the requirement for accurate record-keeping, tilting the balance of power away from workers to the employer, in fact removes workers’ rights, not unnecessary bureaucracy?
The Explanatory Memorandum says that the instrument will “remove the uncertainty”, without quite explaining what this actually means. The Government argue that the obligations were disproportionate and could damage relationships between employers and workers. Can the Minister expand on how removing clarity could damage this relationship and do anything but actually increase uncertainty? Can he also explain how businesses will demonstrate compliance without records and how a lack of compliance could be evidenced or enforced? Can he expand on the implied relationship between recording working hours and reducing economic activity, or is he prepared to accept that such a correlation does not in fact exist?
Secondly, the instrument provides a simplification of annual leave and holiday pay calculations. In all my years of owning and managing businesses and employing thousands of employees, I have never seen such a complicated system—so much for reducing unnecessary bureaucracy. Can the Minister guarantee that, as a result of this regulation, no workers will lose out on the annual leave and holiday pay to which they are currently entitled?
Finally, I turn to rights under the Transfer of Undertakings (Protection of Employment) Regulations —TUPE. My noble friend Lord Davies of Brixton eloquently set out why this change is totally unnecessary. As TUPE transfers currently stand, employers must inform and consult with representatives from a trade union or, if there is none, other employee representatives. Employers can inform and consult directly with employees only if there are fewer than 10 employees in the organisation. This instrument will amend TUPE consultations so that they can take place directly with employees in the absence of existing representation, if either the company has fewer than 50 people or the transfer involves fewer than 10 employees. This clearly represents a reduction in the existing rights of workers in such organisations. Can the Minister confirm whether ACAS has been consulted on these changes? I look forward to his response.
Lord Johnson of Lainston (Con)
As always, I thank noble Lords for their valuable input in this crucial statutory instrument debate. I also join in the thanks to the noble Viscount, Lord Stansgate, and welcome him to his position.
I will try to go through the various points raised, beginning with those of the noble Lord, Lord Hendy; by answering some of his questions, I will have a chance to answer others as well. The point about rolled-up holiday pay is important because, if you are an irregular-hours contractor and you work for an employer for a very short period of time, for example, it would be impractical for you to take a fraction of a day’s holiday paid in that way. It is much more reasonable, useful and suitable for the employee to have their holiday pay rolled up into the work they are doing.
This is important, and we consulted on whether we should bring it in for all employees in the UK. We decided that that was very much not the right thing to do, precisely for the reasons raised by the noble Lord: it is essential, in many respects—in order to have a good and functioning workforce—that holiday is taken at the right time and that people have the right level of rest, let alone in relation to the implications for health and safety. As a result, this only applies to part-year and irregular-hours workers. Whether the employees wish to receive their pay in that way is at the discretion of the employer, in consultation with them. From my point of view—I have been an employer—this strikes me as eminently reasonable. It does not necessarily change anything significant; it just clarifies the important point about how that can be rolled up. We also brought in important clarifications between part-year workers’ holiday entitlements and irregular hours workers’ holiday entitlements, which now bring them into line. Again, this is about fairness, which I know that the noble Lord is keen on.
On record-keeping, it is relevant to mention the court case that has been referred to: CCOO v Deutsche Bank—I will use the acronym “CCOO”, rather than try to pronounce the full name. It is important to note that we are not changing anything at all. I am not sure whether noble Lords realise that this was never implemented in the UK, so the point is that we will not implement it in the UK and it is currently not implemented. Tomorrow morning, or whenever the statutory instrument comes into effect, there will be no change in employment systems for any company—no one would see any difference—because we are not implementing this necessity to track every minute of every worker’s day. Instead, employers will have the rights that they have today, so if we are comfortable—which we are—with the obligations that employers have to confirm under the working time directive, we should be very comfortable with where we are.
We believe very firmly that bringing in this necessity would in many instances be unnecessary. This does not relate to making sure that irregular-hour workers, workers in part-time roles or those who work complex shifts, and so on, have worked the right amount of time. In most instances, this is for regular office-hours workers who work roughly nine to five; to have them clocking in and out, and having complex systems monitoring them, is entirely unnecessary. We do not do it now and do not see why we should do it. We think that the cost to industry in this country could be much as £1 billion in terms of new systems and familiarisation.
The noble Baroness, Lady Brinton, mentioned Ukraine. The consultation referred to the fact that in a cost of living crisis, and with other global headwinds and challenges, it would seem unnecessary and wrong to impose burdens on businesses that we are not already imposing on them. There is nothing to lose. It is important to be reassured that employers’ obligations have not been changed. There are no changes as a result of this instrument. It simply ensures that we do not have to conform to unnecessary and restrictive paperwork-oriented activities.
The noble Baroness, Lady Brinton, also raised an important point about the use of AI and technology. I completely agree with her raising those points. I do not think it is in doubt that employers will want to use AI to ensure that they are conforming to their obligations and that their workforces are properly managed, but we should not forget that it is important that we respect small businesses in this country, which may not have the time or capital to invest in such systems. In most of these instances, we think it is unnecessary. I believe that, collectively, we are doing a sensible act in not implementing this judgment, by keeping things as they are and ensuring that workers are protected. Employers have obligations and we are allowing the system to function appropriately.
The third point covered by noble Lords was on TUPE. I know that the noble Lord, Lord Hendy, has been described as the barrister champion of the trade union movement, and it is a title of which he should be proud, but this relates to organisations with fewer than 50 employees—currently, it relates to organisations with fewer than 10 employees—who do not have a representative force in place. While he is indeed the barrister champion of the trade union movement, it may surprise him to know that some companies do not have trade union movements or representative organisations in them. We find ourselves in a bizarre situation where small companies with few employees are obliged to have elections for representative organisations that do not exist. Even in the world of the noble Lord, that would seem bizarre, unnecessary and indeed unkind to small businesses. It does not at any point derogate the rights of employers when it comes to TUPE transfers where there are representative organisations.
The noble Lord, Lord Leong—perhaps it was the noble Baroness, Lady Brinton, or the noble Lord, Lord Davies—rightly raised whether this can be used as a way round, so that large companies transferring small units to other companies could do it piecemeal, say 10 employees at a time. I do not believe that that would be the case. The obligations of an employer under TUPE regulations—the liabilities accruing to them—have not changed in any material way whatever. Tribunals where they could be found at fault would clearly see through such a plan. I am sure noble Lords know that when you buy businesses that are relevant in terms of team transfers to other companies, it simply does not work in that way, so I do not believe there can be an abrogation of rights.
Let me give an example, which I am sure noble Lords will agree is common sense: if you are transferring a small unit of two people, I understand that you are currently obliged to have an election and a representative for two people who are not members of a union and do not have a representative organisation. That does not mean they cannot receive external advice; of course, we would always advise people to receive the advice they need. In this instance, we are clarifying the situation, simplifying it and making it completely reasonable. At no point are we rolling back on any of the workers’ rights that we hold so strongly in this country and which we are committed to, either through trade agreements with Europe or any agreements that we have undertaken.
Genuinely, I have looked very carefully at each aspect of this statutory instrument and think it is a welcome tidying-up of paperwork and bureaucracy, alleviating burdens on businesses while at the same time simplifying the rights of workers and ensuring that the economy can function effectively. I commend this instrument to the Committee.
Lord Hendy (Lab)
I wonder whether the Minister would care to say something about the trade and co-operation agreement. If he does not want to, that is for him.
Lord Johnson of Lainston (Con)
I am always delighted to talk about the trade and co-operation agreement, as it is one of my favoured specialist areas, but I am not sure what the noble Lord wants me to refer to. If he is relating this back to the relationship with the CCOO v Deutsche Bank SAE case, the important point is that we have not brought this into effect as it stands, in any event, so I am not sure what the relevance there is. I cannot really see how his comments on the need to protect workers’ rights in terms of derogation of input production capabilities in relation to our European colleagues are relevant here. These are paperwork changes; they do not negatively change the rights of any workers in the UK.
Retained EU Law (Revocation and Reform) Act 2023 (Consequential Amendment) Regulations 2023
(5 months ago)
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Lord Johnson of Lainston
That the Grand Committee do consider the Retained EU Law (Revocation and Reform) Act 2023 (Consequential Amendment) Regulations 2023.
The Minister of State, Department for Business and Trade (Lord Johnson of Lainston) (Con)
My Lords, these regulations were laid before the House on 16 October 2023 under the Retained EU Law (Revocation and Reform) Act 2023. The retained EU law Act brought about significant changes to the domestic body of law named retained EU law. First, it provided that EU interpretive effects would cease to apply to UK legislation at the end of 2023. Secondly, it provided the Government with powers to revoke, reform and amend retained EU law more easily. Finally, to reflect the loss of interpretive effects, it provided that “retained EU law” would be renamed “assimilated law” at the end of 2023. Therefore, the Government are bringing forward this instrument to ensure that references to “retained EU Law” in primary legislation are changed to “assimilated law”, and to make related consequential changes.
The SI will enact consequential amendments to 107 pieces of primary legislation in order to implement the renaming of retained EU law as assimilated law and to make related textual changes. These changes reflect what has already been agreed to by Parliament as part of the passage of the REUL Act. This SI simply implements consequential changes that both Houses have already agreed. For example, the SI states that, in Section 4B(3A) of the International Organisations Act 1968, “retained EU” should be substituted by “assimilated”. The changes are necessary to ensure that the statute book reflects the REUL Act and to provide legal clarity and accessibility to users of legislation.
The SI will make technical amendments to Acts of Parliament containing areas of devolved competence, including making changes to Northern Ireland primary legislation. I am pleased to confirm that the Welsh and Scottish Governments have provided consent, as has the Northern Ireland Civil Service in the absence of an Executive and Assembly. I thank officials for their close working and collaboration on this matter.
It is worth noting that this SI is a standard example of using a consequential power. These powers are common in many Acts. They simply allow the Government to make consequential amendments to legislation that both Houses of Parliament have already passed. The fact that we are debating such technical changes as this demonstrates the Government’s commitment to ensuring proper scrutiny for all statutory instruments laid under the REUL Act.
Finally, although this SI does not enact reform or make any policy changes, the Government’s commitment to reform remains unchanged. Our priority is to bring forward reforms that will unlock innovation, reduce burdens for business and ensure that our regulations are the best fit for the UK. I am the Government’s lead on smarter regulation, so reforming our regulations is a personal priority for me. I look forward to sharing additional reform SIs with the House in coming months.
With all that in mind, the principles behind the changes we are proposing today have already been agreed by both Houses as part of the passage of the retained EU law Act. These changes are necessary to ensure that the statute book reflects the provisions enacted by that Act and to ensure that the terminology is consistent throughout primary legislation on our statute book. Nothing that this SI does will enact policy changes. I beg to move.
Lord Leong (Lab)
My Lords, I confess I struggled to find the controversy in this statutory instrument. All it actually does is bring into effect the use of the phrase “assimilated law” instead of “retained EU law”. Paragraph 7.1 of the Explanatory Memorandum states:
“This instrument does not result in any change in policy effect, but rather provides clarity to users of legislation that the specific changes made by the REUL Act have taken effect—thereby helping to further modernise our statute book and improve its clarity and accessibility for businesses and consumers alike”.
It is basically a linguistic update. We on this side of the Committee very much welcome any bit of clarity and assistance that can be offered to business. From what we can see, it certainly is not a controversial statutory instrument. On that basis, we will support it.
Lord Johnson of Lainston (Con)
I thank the noble Lord, Lord Leong, as I always do, for his wise words. I will say no more than that.
Financial Services and Markets Act 2000 (Financial Promotion) (Amendment) (No. 2) Order 2023
(5 months ago)
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Baroness Vere of Norbiton
That the Grand Committee do consider the Financial Services and Markets Act 2000 (Financial Promotion) (Amendment) (No. 2) Order 2023.
Relevant document: 3rd Report from the Secondary Legislation Scrutiny Committee
The Parliamentary Secretary, HM Treasury (Baroness Vere of Norbiton) (Con)
My Lords, these regulations amend the exemptions from the financial promotion regime for high net worth individuals and self-certified sophisticated investors. I note that this statutory instrument was raised as an instrument of interest by the Secondary Legislation Scrutiny Committee. I will address the SLSC’s comments in the course of my remarks.
The exemptions that the Grand Committee is considering are designed to help small and medium-sized businesses raise finance from high net worth individuals and sophisticated private investors, or “business angels”, without the cost of having to comply with the financial promotion regime. These exemptions allow businesses to make financial promotions related to unlisted companies without being authorised by the FCA or having to follow FCA rules on financial promotions.
The existence of these exemptions reflects the important role that private individuals play in enabling SMEs to raise finance. However, as financial promotions made under the exemptions are not subject to the stringent safeguards of the financial promotion regime, the scope of the exemptions must be designed carefully to reduce the risk of consumer detriment.
These exemptions were last substantively updated in 2005. Since then, there have been significant economic, social and technological changes to the context in which they operate. For example, we have seen the development of an online retail investment market, which has made it easier for individuals to invest in unlisted companies. There has also been significant price inflation over the past two decades. Together, this means that many more consumers will fall within the eligibility criteria to use the exemptions than in the past.
In addition, there are concerns about misuse of the exemptions. They includes the risk of businesses seeking to use the exemptions to market investments inappropriately to less sophisticated ordinary retail investors. This risk was recognised in a report by the Treasury Committee in the other place, and it led to a recommendation for the Government to re-evaluate the exemptions to
“determine their appropriateness and consider what changes need to be made to protect consumers”.
In light of this changing context and that committee’s recommendation, the Government reviewed the exemptions and consulted on a set of reforms. Having considered the feedback to the consultation, the Government are bringing forward a set of amendments to the exemptions to address the risks that have been identified.
I now turn briefly to the substance of the statutory instrument. These regulations raise the financial thresholds to be eligible for the high net worth individual exemption to require an income of at least £170,000 in the last financial year or net assets of at least £430,000 throughout the last financial year. For the purposes of this exemption, net assets do not include an individual’s primary residence or their pension.
The regulations also amend the criteria to be eligible for the self-certified sophisticated investor exemption. They do this in two ways. First, they remove the criterion of having made more than one investment in an unlisted company in the previous two years. Following the rise of online investing, it is much easier for individuals to invest in unlisted companies than it was in 2005 when this exemption was introduced. The Government are of the view that this criterion is no longer an indicator of investor sophistication and that it should be removed. Secondly, the regulations increase the company turnover required to satisfy the criterion related to being a company director from £1 million to £1.6 million. This will mean that directors of companies with at least £1.6 million of turnover will remain eligible for the self-certified sophisticated investor exemption.
These regulations also improve the statements that investors are required to sign when using the exemptions. This should ensure that investors have a better understanding of the protections they lose when receiving financial promotions under these exemptions. The regulations will make minor and consequential changes, including applying these changes to promotions of collective investment schemes that invest in unlisted companies.
Further, the instrument amends the separate exemptions to the regulatory gateway for financial promotions, ensuring that those exemptions apply as intended. This is a rather technical area of policy, and I hope noble Lords will forgive me for taking a moment to explain the effects of these changes. First, the instrument amends the exemption that applies to authorised persons approving financial promotions of unauthorised entities that are part of the same group. Secondly, it amends the exemption that applies to authorised persons approving financial promotions of their appointed representatives in relation to regulated activities for which the authorised person, as principal, has accepted responsibility. The effect of these changes is to allow onward communication of the promotion by any unauthorised person. This brings the scope of those exemptions into line with the approach for the exemption that applies to authorised persons approving financial promotions that they have prepared themselves. This correction intends to ensure that any unauthorised person will be able to communicate a financial promotion where that financial promotion has been approved by an authorised person within the scope of any of the exemptions to the gateway.
I turn to the comments made by the SLSC. In its third report of this Session, the committee highlighted this statutory instrument as an instrument of interest. It encouraged the Treasury to reassess the financial thresholds more regularly in future, and the committee is right to note that these thresholds have not been updated in quite some time. The Government will keep the financial thresholds under review to ensure that they remain fit for purpose into the future.
The changes being introduced through these regulations take account of inflation over the past two decades and amend other eligibility criteria to reduce the risk of capturing ordinary consumers. Overall, these regulations are designed to reduce the risk of consumer detriment while ensuring that SMEs can continue to raise capital as a result of financial promotions made under these exemptions. I beg to move.
Lord Sharkey (LD)
My Lords, let me say at the outset that we support this statutory instrument and the two that are to follow—but we do have some questions and comments. I note that, last week, the Commons debated all three instruments together, as one group. Why have the Government chosen to take a different approach in this House by splitting the debate into two sections? What does this signify, if anything?
Dealing with the instrument before us, we believe that it contains relatively uncontroversial and appropriate updates to existing legislation, following on from the TSC’s recommendations as made in its report on the collapse of London Capital & Finance in June 2021, as the Minister noted. The committee said that the FPO
“would benefit from reform due to the increasing risks associated with the exemptions that allow customers to self-certify as high net worth or sophisticated”.
It continued:
“The Treasury should—as a matter of priority—re-evaluate the Financial Promotion Order exemptions to determine their appropriateness and consider what changes need to be made to protect consumers”.
That was two and a half years ago. Perhaps the Minister could explain why it has taken so long to address the TSC’s recommendation. It is obvious that the risks addressed by the TSC continue to increase, as even a cursory glance at the inviting investment ads on any Tube train will show.
Some questions arise directly out of the consultation carried out by the Treasury in preparation for the SI. Angel investors had some doubts about raising the high net worth thresholds. They noted that raising the thresholds
“could reduce the potential for broadening angel network participation, including among less represented groups such as women and ethnic minorities. They also raised concerns that lower angel investor participation in the future could reduce SME investment, particularly for younger start-ups”.
I would be grateful if the Minister could tell us why these worries were discounted, particularly for the SMEs.
The consultation report also noted that
“many responses provided suggestions for improvements to the investor statements to ensure greater investor engagement. These included adding additional risk warnings and positive frictions, to encourage investors to engage meaningfully”.
These suggestions appear not to have been taken up by HMT. Can the Minister tell us why that is?
We also note that, in its third report, the SLSC encourages HMT to reassess the thresholds contained in this instrument on a more timely basis, as the Minister has mentioned. It is 18 years since the thresholds were last updated. Why cannot the Government agree to a regular—say, quinquennial—change to smooth out the boundary changes? In closing, I confirm again our support for the clearly necessary updates proposed by this SI.
Lord Livermore (Lab)
My Lords, we agree with these regulations, but I will ask the Minister just one question, which follows on from the final question of the noble Lord, Lord Sharkey. As the Minister said in her opening remarks, the exemptions to the financial promotions regime were last substantively updated in 2005, nearly 20 years ago. Given current high inflation rates, and the fact that prices have already risen nearly 5% since the January 2023 data used to reset the thresholds in this instrument, these new figures could arguably be said to be already out of date. I note what the Minister said in her opening remarks, but can I push her to provide at least an approximate timeframe for when the thresholds are likely to be reviewed again?
Baroness Vere of Norbiton (Con)
I am grateful to both noble Lords for their contributions to this short debate. The noble Lord, Lord Sharkey, asked why we are doing this in two debates rather than one. I do not know, but I think it was probably decided by the business managers—whoever they may be. If one looks at the two SIs, they are substantially different and deal with different parts of the financial services market, so potentially that is why. Anyway, I for one am delighted to have the opportunity to get up twice and introduce two SIs, because I will be able to focus very much on the questions the noble Lord raised, and indeed the follow-up question from the noble Lord, Lord Livermore.
I only partially agree with the charge made by the noble Lord, Lord Sharkey, that the Government were too slow in addressing the TSC recommendation. The Government did take action: we launched a consultation in December 2021 and then took the time to consider the feedback we received. It is fair to say that we received a range of feedback, so we needed to think about the proposals and how we would take them forward. We reflected very carefully on that feedback. There was a balance to strike between better protection for consumers and being able to get much-needed capital into the SME sector. The noble Lord will know there is then that period during which nothing appears to be happening, but lots of lawyers are working very hard and drafting and preparing all the relevant legal and associated documents. So we are in a good place now and I am relatively content with the speed of progress.
The noble Lord asked whether the Government feel that there would be a reduction in investment in angel networks and SMEs. Again, we considered very carefully the various views shared by respondents on the financial thresholds to qualify for the high net worth individual exemption, because we recognise the importance of the angel investment community. We considered the responses and decided to increase the thresholds only in line with inflation, rather than bring forward a more substantial rise—which was advocated by some; obviously, others would not have wanted such a significant rise.
The exemptions will continue to facilitate angel investment in early-stage businesses and enable a broadening of angel network participation. This is the important point: where a person has been a member of a network of business angels for more than six months, they will still qualify for the self-certified sophisticated investor exemption. So there is a route through, provided that an investor joins the angel network, attends it and ensures that they fully understand what they are doing with their hard-earned cash.
The noble Lord, Lord Sharkey, then talked about investor statements; he felt that we had not gone far enough. However, the regulations make significant changes to the investor statements. First, the format of the investor statement is being updated, including making changes to the conditions to be considered a high net worth or self-certified sophisticated investor more prominent, and making it clearer to investors that promotions made under these exemptions may not be accompanied by any protections. So there will be change in what the statements look like.
Secondly, the language in the statements is being simplified: we are removing references to other pieces of financial services legislation, as that is unhelpful. We need to make it more consumer-friendly, such that all the information is in one place in plain English. Lastly, the statements will require greater investor engagement. The updated statements will require a prospective investor to select which criterion they meet. So they cannot just sign it; they will have to say that they meet a certain, specific criterion to be either a high net worth or sophisticated investor.
There has been much discussion about the updating of the thresholds, and I accept that 18 years is probably too long. However, I will not commit the Treasury to a particular date in the future for when the thresholds should be looked at again, because that will depend on what happens to inflation. There will be periods of very low inflation, when one would not want to update the thresholds, because, on the flip side, there would be an awful lot of familiarisation from investors and investee companies to ensure that they are keeping track with the exemptions. There is a balance, but I accept that we should—and we will—keep these financial thresholds under review, such that there is not a significant disconnect in future.
The noble Lord, Lord Livermore, asked why we used January 2023 inflation data. This is not rocket science. When we did the consultation, there were people who wanted the thresholds to be higher and those who wanted them to be lower. To a certain extent, that is why we came up with an approximation of the past 18 years’ inflation. Whether we chose January or a slightly later date for inflation probably would not have made a significant difference. It was necessary to choose a moment in time to make the revised calculation and we chose January to provide that certainty. We will watch inflation and review the limits and thresholds again in due course.
Financial Services and Markets Act 2023 (Consequential Amendments) Regulations 2023
(5 months ago)
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Baroness Vere of Norbiton
That the Grand Committee do consider the Financial Services and Markets Act 2023 (Consequential Amendments) Regulations 2023.
The Parliamentary Secretary, HM Treasury (Baroness Vere of Norbiton) (Con)
My Lords, these two instruments make updates to financial services regulation to ensure that it remains effective following the passage of the Financial Services and Markets Act 2023, which I will refer to as FSMA 2023.
The Financial Services and Markets Act 2023 (Benchmarks and Capital Requirements) (Amendment) Regulations 2023 make two targeted changes to financial services retained EU law or REUL. FSMA 2023 repeals REUL in financial services, allowing the Government to deliver a smarter regulatory framework for the UK with regulation designed specifically for UK markets and consumers.
The repeal of each individual piece of REUL will be commenced once the Government and the regulators have made appropriate arrangements to replace it with UK rules or determined that no replacement is needed. Until financial services REUL has been fully replaced, FSMA 2023 ensures that it can be kept up to date through a power to modify REUL before its repeal takes effect.
The first change made by the instrument reintroduces a discount factor into the UK Capital Requirements Regulations. The discount factor reduces the amount of capital that small and medium-sized financial services firms are required to hold for certain derivatives activity.
The Secondary Legislation Scrutiny Committee raised this SI as an instrument of interest, noting the timeline of the original removal of the discount factor from UK legislation and the Government’s policy on mirroring changes in EU law. The Government removed the discount factor in April 2021 through the Financial Services Act 2021. The EU also removed the discount factor from its version of the Capital Requirements Regulations at that stage before reintroducing it later that year. The Government do not have a policy of mirroring EU law and, through the smarter regulatory framework, will tailor regulation to the UK. After industry raised concerns with the Government about the removal of the discount factor, we acted swiftly to reinstate it through this instrument. This will provide certainty to firms and align regulation to best practice globally.
The instrument also amends Article 51(5) of the benchmarks regulation to extend the transitional period for the third-country benchmarks regime to the end of 2030. Thanks to the transitional period currently in effect, UK users of benchmarks have access to non-UK benchmarks. The third-country regime, once it takes effect, would require administrators of those benchmarks to pass through one of the three access routes—equivalence, recognition or endorsement—for UK users to rely on them. There is a variety of issues with the third-country regime as originally drafted in the EU. For example, some third-country benchmarks are provided on a non-commercial basis, and administrators may therefore lack the economic incentives to come through these access routes. If the transitional period were to end with the third-country regime in its current form, many administrators may be unable or unwilling to use this regime for continued UK market access. Losing access to these third-country benchmarks could undermine the UK’s position as the centre for global foreign exchange and derivatives markets and have further repercussions given the widespread use of third-country benchmarks by UK firms.
This instrument therefore extends the transitional period from the end of 2025 to the end of 2030. This extension will provide time to review the UK’s third-country benchmarks regime and implement any changes in time for industry to take the necessary steps to comply with the regime before it comes into force.
The Secondary Legislation Scrutiny Committee asked about any risks posed by this extension. Although extending the transitional period entails some risk by allowing the continued use of lower-quality third-country benchmarks in the UK, those risks are outweighed by the risks that would arise from allowing the transitional period to end with the third-country regime in its current form. Risks arising from the use of third-country benchmarks during the transitional period can be mitigated through regulation in the home jurisdiction of those benchmarks and through international co-operation for jurisdictions where specific benchmarks regimes are not in place.
Lord Sharkey (LD)
My Lords, we have no comment to make on the second statutory instrument in this group, except to say that we agree with what the Minister said during the debate in the Commons that for the entirely consequential changes brought about by this instrument “consequential” means “necessarily following on from” not “of consequence”.
We support this instrument, but we have a little more to say about the first. As a mathematician by education, I should start by saying how pleased I was to see e—Euler’s number, the base of natural logarithms —make an important appearance on page 2 of the instrument, albeit without any explanation at all for the reader of what it might mean. I think that may be rather odd.
The EM explains that the discount factor—a means of reducing the amount of capital that small and medium-sized firms hold for their trading and derivative activities—was removed in error from the capital requirements regulation, both here and in the EU. Reinstating it via this SI will help ensure that the UK remains competitive with other jurisdictions. We entirely support this remedial measure but note the SLSC’s comments about the matter. The Minister has already mentioned some of them.
The question really is: how is it that the mistake, and it was a mistake, was introduced into the UK after it had already been corrected in the EU? Does this not suggest incompetence or, at the very least, insufficient awareness of relevant activity in key trading partners? What steps has the Treasury taken to eliminate this kind of error?
We also support the extension of the transitional period for third-country benchmark regimes for five years to 31 December 2030. As the Minister said, if we were to lose access to these third-country benchmarks, it could weaken our position as a centre for global FE and derivatives. This SI gives us six years to sort out a new regime, as I believe the EU is also contemplating.
How, when and with what do we intend to replace these transitional arrangements? What steps are currently being taken to make sure that we do indeed replace them, or are we content to extend this supposedly transitional arrangement indefinitely? Are we engaged in discussion with our EU counterparts over the matter? The Treasury told the SLSC that the risks arising from the extension of the transition period were “small, manageable and temporary”. The Minister mentioned and addressed that issue, but I would be grateful if she could expand on exactly what the risks are, how they are manageable and why they are temporary. Having said all that, I close by saying that we support this SI.
Lord Livermore (Lab)
My Lords, overall, we agree with these regulations. When the first of these two grouped SIs was debated in the House of Commons, my honourable friend Tulip Siddiq, the shadow Economic Secretary, posed two questions to the Minister. Unfortunately, he did not address either of them in his response, so I will ask them again today. Of course, the noble Baroness is welcome to write with an answer, if that is preferable.
The two questions are on changes to capital requirements. First, given that the Prudential Regulation Authority is proposing to remove the SME supporting factor when it confirms its final rule, are the Government not reintroducing a measure that the PRA plans subsequently to abolish? Secondly, if the PRA goes ahead with its plan, what reassurance can the Government provide that the UK’s SME lending market will not be left at a significant competitive disadvantage against its European counterparts due to the increased cost of capital?
The noble Lord, Lord Sharkey, asked about the reintroduction of a discount factor, which was mentioned by the Minister in her opening remarks. I note that the discount factor was previously “unintentionally” removed from the relevant regulation in both the UK and the EU. I also note that the discount factor was removed from UK law in January 2022, and that this was identified as an issue only 18 months later, in July 2023. However, apparently, the factor was reinstated by the EU into its own laws four months prior to it being unintentionally removed from UK law back in September 2021. As the noble Lord, Lord Sharkey, observed, it is odd that a mistake was introduced in the UK after it had already been corrected in the EU. The Minister is clearly correct to note that the UK does not mirror changes to EU law post Brexit, but does she think that keeping up to date with developments in the EU, where parallel measures remain part of UK legislation, could help to ensure that avoidable errors such as this do not occur?
Baroness Vere of Norbiton (Con)
Once again, I am grateful to both noble Lords for their contributions to this short debate. I will write further on what the noble Lord, Lord Sharkey, said about the formula—it is not that complicated; I am an engineer by training, and it is not beyond the wit of man to understand this. But we might provide a little more explanation in due course.
I am not sure I can say much more about the timing of the removal and reintroduction of the discount factor. It is not a particularly widely used element within the system, and therefore the industry took a while to notice that the change had happened. Obviously, there are lessons to be learned in these circumstances, and we moved to reintroduce it as quickly as we could. Of course, the regulators are well aware of what happened. I am grateful to noble Lords that we are able to get it back on to the statute book today.
That brings me on to the various discussions we have with the EU, as close trading partners. The noble Lord, Lord Sharkey, asked what changes will be next. There will be potential changes to the third-country benchmarks regime, but that is in the context of much wider changes within the smarter regulatory framework, so the repeal of each piece of retained EU law will be commenced once appropriate arrangements are in place with the UK rules—or, as I said in my opening remarks, when the Treasury has determined that no replacement is needed. Alongside that, we are delivering our smarter regulatory framework in order to replace retained EU law as necessary.
It will be a carefully planned and phased approach. We believe that we have given ourselves sufficient breathing room by making the transitional period last until 2030. It may be that we need all that time, or it may not, but we want to make sure that it fits into the wider reform of the programme to ensure that we prioritise those things that we feel are needed first in order to benefit our very successful financial services sector. Of course, we continue to have enduring and sensible dialogue and co-operation with other jurisdictions, including the EU. For example, on 19 October, the Treasury hosted the first joint EU-UK financial regulatory forum, which welcomed participants from not only the European Commission but UK and EU regulators to discuss common issues. It is clear that the UK and the EU regulatory frameworks will change over time and ultimately remain the autonomous concern of the respective parties, but it is also important that we discuss changes for the benefit of sharing our understanding.
The noble Lord, Lord Sharkey, asked about the risks from the benchmark extensions. It should be noted that systemically used benchmarks pose the greatest risk. These benchmarks are subject to UK benchmark regulation because they are administered in the UK. They might be subject to another jurisdiction’s benchmark regime or be created by a third country’s central bank. That also means that there are some benchmarks that do not fall into those categories—these are possibly the lesser-used ones. But it is the case that UK benchmark regulation places additional requirements on the users of benchmarks that continue to apply where they use third-country and domestic benchmarks. These requirements include, for example, robust fallback provisions in the contract should the benchmark become unavailable for whatever reason, or fail—so there are protections there. As I noted in my opening remarks, we recognise the risks and also the benefits that those benchmarks have in underpinning a very significant part of our financial services sector.
The noble Lord, Lord Livermore, asked about the questions raised by his colleague in the other place. I will write with more information. I have lines here on the Prudential Regulatory Authority, Basel III et cetera, but his question deserves a fuller answer about how we see this transitioning into that regime.
Motion agreed.
Financial Services and Markets Act 2023 (Benchmarks and Capital Requirements) (Amendment) Regulations 2023
(5 months ago)
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Baroness Vere of Norbiton
That the Grand Committee do consider the Financial Services and Markets Act 2023 (Benchmarks and Capital Requirements) (Amendment) Regulations 2023.
Relevant document: 3rd Report from the Secondary Legislation Scrutiny Committee
Motion agreed.
Equality Act 2010 (Amendment) Regulations 2023
(5 months ago)
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Baroness Barran
That the Grand Committee do consider the Equality Act 2010 (Amendment) Regulations 2023.
Relevant document: 3rd Report from the Secondary Legislation Scrutiny Committee
The Parliamentary Under-Secretary of State, Department for Education (Baroness Barran) (Con)
My Lords, this instrument was laid on 7 November 2023 and debated last Wednesday in the other place. Its purpose is to reproduce select interpretive effects of retained EU law in order to maintain equalities protections against discrimination. These protections are reproduced by making amendments to the Equality Act 2010. I thank the Joint Committee on Statutory Instruments for its consideration of and comments on the regulations.
It is important to make clear from the outset that the overwhelming majority of our equality law is contained in domestic legislation—the Equality Act 2010, approved and voted on by our own Parliament. The interpretive effects of retained EU law have a bearing on our equality framework in only a limited number of areas.
This instrument uses the powers of the Retained EU Law (Revocation and Reform) Act 2023 to ensure that necessary protections are put into our statutes. This will end the inherent uncertainty of relying on judicial interpretations of EU law and instead ensure that strong and clear equality law protections are set out in our domestic legislation. It applies across Great Britain.
The instrument safeguards and enshrines key rights and principles across a range of areas. First, it protects women’s rights: maintaining equal pay protections where employees’ terms and attributable to a single source, but not the same employer; protecting women from less favourable treatment at work because they are breastfeeding; protecting women from unfavourable treatment after they return from maternity leave, where that treatment is in connection with a pregnancy or a pregnancy-related illness occurring before their return; ensuring that women are protected against pregnancy and maternity discrimination, where they do not have a statutory right to maternity leave but have similar rights under alternative occupational schemes; and ensuring that women can continue to receive special treatment from their employer in relation to maternity—for example, ensuring that companies continue to offer enhanced maternity schemes.
I am sure that all of us in this place agree that women should not face discrimination for being pregnant or taking maternity leave. They should continue to receive equal pay for work of equal value and they should not receive less favourable treatment in the workplace because they are breastfeeding.
This instrument reproduces these principles in domestic law to ensure that women can continue to rely on these protections. It also maintains protections for disabled people in the workplace, so that they can participate in working life on an equal basis with other workers. It is of course important that disabled people have the same opportunities as everyone else to start, stay and succeed in work. This amendment will mean that disability protections continue to apply where someone’s impairment hinders their full and effective participation in working life on an equal basis with other workers.
Finally, the instrument maintains two protections that apply more broadly. The first maintains the status quo, whereby employers and their equivalent for other occupations may be acting unlawfully if they make a discriminatory public statement relating to their recruitment practices, including when there is not an active recruitment process under way. This ensures that groups that share certain protected characteristics are not unfairly deterred from applying for opportunities in an organisation.
The second maintains protections against indirect discrimination for those who may be caught up and disadvantaged by indirect discrimination against others, so that they are also protected where they suffer substantively the same disadvantage.
We intend that there will be no time gap and no break in protections between this law coming into effect and the removal of the special status and EU-derived features of retained EU law at the end of the year. By maintaining these important protections, we will ensure that our domestic equality framework has continuity. Importantly, these amendments do not add any regulatory burdens on business, as the legislation reproduces the status quo, meaning that the regulatory environment will not change.
I hope your Lordships will join me in supporting the draft regulations. I beg to move.
Baroness Thornton (Lab)
My Lords, those of us who participated in the REUL Bill debates were aware that the Government would need to safeguard important protections derived from EU case law and ensure they were retained—and do so by the end of this month. Indeed, I spoke during the passage of that legislation about my concerns for women and equalities legislation.
We do not regard the SI as controversial. Rather, the protections being restated today underline why this process is so important. People cannot lose rights that are being reasserted in these regulations. As the Minister said, they are massively important to women, protecting them through and after pregnancy, against pay inequality and from discrimination, and are crucial in providing people who have disabilities with protection against discrimination. Of course these vital protections need to be retained, and I agree with the Minister that it is also important that we give people certainty in law by restating these principles.
However, my questions are about the fact that we are getting round to restating these protections only a matter of weeks before they could have disappeared. That is a little concerning. So I ask the Minister about the Government’s wider approach to identifying which bits of important case law they wish to retain and then pass, through regulations, on to our statute book. It worries me that we are doing this a week or so before this law would fall. I just hope that nothing else will be lost in this process. Can the Minister tell us what measures the Government are taking to ensure that important decisions are taken about the interpretive effects of retained EU law? Do the Government have an equivalent to the dashboard—everybody will remember the dashboard that was mentioned during the passage of the REUL legislation—which was introduced to identify statutory instruments for European Union judgments that have an impact on domestic law? “How’s that going?” is, I suppose, what I want to say.
I am not going to go into detail about the regulations, because they are very straightforward and do exactly what we hoped they would do. It is therefore important to note that putting them on to the statute book and ensuring stability about this does not mean that the battle for equality is over. For example, the earnings gap between disabled and non-disabled people has increased. It is over half a century since the Equal Pay Act was passed in 1970, so I am sure the Minister will join me in agreeing that we still both have work to do in this area. This is providing us with the legislative infrastructure to do it, but we still have work to do.
Baroness Jenkin of Kennington (Con)
My Lords, is it possible to ask a point of clarification of the Minister? I came in a bit late, so if it is not, I quite understand.
Lord Gascoigne (Con)
I apologise to my noble friend; she was late. Forgive me. Perhaps she could do it after the meeting, if possible.
Baroness Barran (Con)
My Lords—or my Ladies— I am grateful to the noble Baroness for speaking in this debate. I would like to recognise her work on women and equalities over many years. Britain has a proud history of justice and fairness, with some of the world’s strongest and most comprehensive equalities legislation thanks to the Equality Act 2010. By setting out these EU-derived protections in domestic law, we will ensure that our equality framework provides clarity and continues to protect the fundamental rights and freedoms of people in this country.
I understand very well the spirit of the noble Baroness’s questioning. She asked about the principles that underpin our approach in this area. I seek to reassure her, and the Committee, that the Government remain absolutely committed to upholding the highest standards in equalities and ensuring that the necessary protections are preserved after the end of this year. We are using the powers in the retained EU law Act to ensure that necessary protections are put in statute.
The Equality Hub has considered over a hundred judgments and undertaken legal analysis to ensure that Great Britain maintains that history of equality, and that the necessary protections are clearly set out in our domestic legislation. As the noble Baroness knows, the REUL Act’s restatement powers are available until June 2026; that will allow the Government to keep the position under review within this timeframe. We will publish a REUL progress report in January, in line with our statutory six-month reporting requirements. The REUL dashboard—I think the noble Baroness described it as the beloved dashboard—still exists and is available on GOV.UK. It most recently had a minor update in November, but there will be the regular update in January.
I am also happy to agree with the noble Baroness that the battle for equality is far from over. With that, I commend the regulations to the Committee.
York and North Yorkshire Combined Authority Order 2023
(5 months ago)
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Baroness Penn
That the Grand Committee do consider the York and North Yorkshire Combined Authority Order 2023.
The Parliamentary Under-Secretary of State, Department for Levelling Up, Housing & Communities (Baroness Penn) (Con)
My Lords, the purpose of this order is to implement the devolution deal agreed between the Government and the councils of York and North Yorkshire on 1 August 2022. Since then we have been working closely with those councils on implementation, and on 3 November 2023 they consented to the making of this order.
This order, if approved, will establish the new York and North Yorkshire combined authority and the office of mayor for the area, with the first election to take place on 2 May 2024. The elected mayor will then take up office on 7 May, with a four-year term ending after the next mayoral election in May 2028. Thereafter, there will be elections every fourth year, to be held on the ordinary election day for that year—that is, on the first Thursday in May. Following the enactment of the Elections Act 2022, these mayoral elections will be on a first past the post basis.
The mayor will be chair of the York and North Yorkshire combined authority, which comprises as constituent councils the city of York and North Yorkshire. The combined authority will be established on the day after the order is made, subject to parliamentary approval, which is likely to be before the end of the year. Until the elected mayor takes office there will be an interim chair of the combined authority. The combined authority will appoint one of its members as the interim chair.
The order also transfers police, fire and crime commissioner functions for North Yorkshire to the combined authority, to be exercised by the mayor. Additionally, the mayor and the combined authority will be conferred a range of other significant powers agreed in the devolution deal. These include a concurrent power with Homes England, powers on regeneration and transport, and powers for establishing mayoral development corporations. Education and skills functions, along with the devolution of the adult education budget, will be conferred on the combined authority at a later date, as agreed with the area. This is with a view to the area being responsible for skills and adult education from the academic year 2025-26. This is subject to the area meeting the readiness conditions and parliamentary approval of the secondary legislation conferring these functions.
The order also contains detail on the governance arrangements of the new combined authority, to reflect these powers and the role of the mayor. Each constituent council will have two members on the combined authority, one of these members being appointed by the mayor as deputy mayor. The mayor will also appoint a deputy mayor for policing and crime, who may be any person the mayor considers appropriate.
These governance arrangements include that the PFCC functions and certain other functions—including, for example, the power to designate a mayoral development area or to draw up local transport plans and strategies—are to be exercised by the mayor personally. The mayor may also delegate the exercise of these functions to another member or officer of the authority, with particular specified arrangements for the PFCC functions.
Baroness Pinnock (LD)
My Lords, I remind the Committee of my interests as a councillor in the adjacent West Yorkshire area and a vice-president of the Local Government Association.
Devolving powers on local decisions to locally elected representatives has been an aim of the Liberal Democrats for a very long time. It is very important that there is strategic thinking and decision-making across regions and subregions. Perhaps the Minister will therefore expect wholehearted support from the Liberal Democrats for the proposals before us, but she will be only partially right. I will detail the reasons for that.
First, mayoral combined authorities have delegated powers rather than devolved functions. Functions such as transport, housing, regeneration and planning are currently exercised centrally and delegated to the mayoral authority with, as we heard, skills following later. This particular mayoral authority will be granted, from Westminster, the grand sum of £18 million a year, which is specifically referenced within the order, as is the offer from the Government, as part of this deal, of £540 million over the next 30 years, plus additional sums which the Minister referenced. There is no mention of whether these are fixed cash sums, as they appear, or whether they will be index linked. Over 30 years, that potential £540 million will buy a lot less than it will now and be a lot less attractive than it appears within the order. Maybe the Minister can comment on that and say whether it will be index linked.
I acknowledge that this order enables a greater degree of local input in, for example, determining major highways schemes. However, the act of creating a mayoral authority is not a game-changer for more locally determined decision-making, as would occur in comparable local areas across western Europe.
My second point is the loss of democracy. The proposal before us is for the election of a single person to represent the whole of the City of York Council and North Yorkshire Council. The elected mayor will chair the combined authority of the two councils. The Schedule to this SI confirms that two representatives from each of the constituent authorities are required, with a third person acting as a substitute member. No other existing mayoral combined authority that I can think of has so few constituent member councils. It will be interesting to see how effectively this arrangement works in practice. There will be five people making decisions for the combined authority, on these very important functions that have been referred to.
This is a bit of a leap in the dark because of the small number of councils and, therefore, the small number of members on them. My second question is will there be a review of these constitutional arrangements, say within three years, to evaluate its success or otherwise? I think that is important.
The extension of the mayoral model to very rural areas, when the model does not recognise the very significant differences with urban areas, makes this a bit of a leap in the dark. I do not know whether the Minister has been to North Yorkshire. I live next door to it, so I know North Yorkshire and it is a very rural area. It has a population of 615,000, in—importantly—an area of 3,340 square miles, of which 40% is designated as the national parks North York Moors and the Dales. It is huge. With the City of York Council, which deals with a population of 142,000, the mayoral authority will be responsible for just about three quarters of a million people in a vast rural area, from the coast of Whitby to the border with Lancashire, and from the border with Northumberland to the border with Leeds. It is huge. There will be a single person directly elected to take responsibility not just for the mayoral functions but, in this instance, for both the role of police and crime commissioner and fire and rescue, for this vast county and historic city.
Of course, this is too large a range of responsibilities for one person. The arrangements in this order therefore allow for the appointment of a deputy mayor, who will presumably be responsible for police and fire. The upshot of that arrangement is that there is no longer a directly elected commissioner for policing or an elected councillor taking responsibility for the fire and rescue service across this vast county and the city of York. The conclusion I reach is that the Conservative experiment of police and crime commissioners has failed; otherwise, there would still be a directly elected police and crime commissioner for North Yorkshire and the city of York. At the minute, they are going to be appointed. Can the Minister explain whether there is now a policy of gradually removing elected PCCs?
The order states the expected allowances for the mayor, which will be determined by an independent panel. The scale of remuneration packages for combined authority mayors is instructive. In West Yorkshire, the mayor receives £105,000 per year while the appointed—I emphasise that word—deputy mayor receives £72,000 for taking responsibility in West Yorkshire for policing, but with no direct accountability to the people whom they are there to serve. Do not say “scrutiny” to me because it is ineffective.
The order also allows for the employment of a political adviser. I would like some explanation of that. From what I know, those do not exist in other mayoral combined authorities within the orders, so that is an interesting addition here.
In conclusion, a strategic political and democratically elected role is important. However, we Liberal Democrats cannot condone this cynical approach to removing elected police and crime commissioners—they are elected with responsibility for the fire and rescue service—and replacing them with appointed political people where there is no direct accountability through the ballot box, which is the least that taxpayers can expect in a democracy.
Given all that, I look forward to the Minister’s response.
Baroness Taylor of Stevenage (Lab)
My Lords, I remind the Committee of my interests as a serving councillor at both county and district level. I am also a vice-president of the Local Government Association.
As a councillor for almost 27 years, a former leader of my council for 16 years, one of the instigators of the Hertfordshire Growth Board and a local enterprise board member since its inception, I am a great believer both in the transformational powers of local government and in far deeper and broader devolution. I see this, as does my party, as the quickest and most effective way of creating economic growth tailored to local circumstances, as well as of providing the levers of economic, social and environmental well-being where they can best be deployed flexibly, speedily and to the greatest benefit of the area concerned.
So, as a passionate advocate of devolution, it would be churlish of me not to welcome an agreement between York, North Yorkshire and the Government where all believe that it is in their interests. If I needed further convincing, it was pleasing to see that one of my local government colleagues—Councillor Mark Crane, the leader of Selby, who had always been deeply sceptical of such a deal for North Yorkshire—now welcomes the proposals; I am pleased to see that. I thank all the leaders and officials from that area who have done so much work to get this deal over the line. My comments concern the principles, with some specific questions about this deal, and are not intended to intervene in this two-year-long process between the councils in York and North Yorkshire, the people whom they represent and the Government.
We have seen highly effective outcomes from devolution in Greater Manchester—with which I worked extensively as part of the Co-operative Councils’ Innovation Network—and in West and South Yorkshire, but no one could argue that the progress of devolution has not been slower than a snail’s pace. It remains fragmented, patchy and piecemeal, with large areas of the country not subject to deals at all, even where they have worked carefully to draw together political, business and social partnerships, because they have clearly not passed the mysterious and indeterminate tests set by the Government. I cite Hertfordshire as an example here. I was very pleased to hear the Minister in the other place reiterate yesterday that a mayor is not the right solution for everybody, but it seems that, if your proposal does not include one, you are far less likely to shimmy under that government bar.
We would like to see a presumption in favour of handing back powers to our towns, cities and communities, with everywhere having the powers and flexibility to turbocharge the growth that works for their area and to attract investment, with the ability to negotiate longer-term finance settlements from government. That would give every area the ability to be ambitious for their residents and businesses and to deliver the real changes on the ground to deliver that ambition.
Too many areas are held back by our antiquated, struggling and definitely not fit for purpose local government funding system. It has been further weakened by years of cuts, use of outdated data that is out of touch with changes in local areas and, more recently, the further blow to finances caused by runaway inflation following the mini-Budget just over a year ago. To authorities in such straitened financial times, a devolution deal can bring some much-needed financial relief, so it is perhaps not surprising that local leaders are tempted. However, we need to see this in context. The York and North Yorkshire deal, for example, apparently equates to £20 per resident of the region per year over the term of the 30-year deal—incidentally, that is more than West Yorkshire but less than Liverpool, the Tees Valley and South Yorkshire, so I hope that local government colleagues working on deals are tough negotiators.
However, IPPR North tells us that the north of England has seen a £413 reduction per person in average annual council spending in each year between 2009-10 and 2019-20, so the deal does not come close to the losses that communities in the north have experienced due to austerity. Does the Minister see this as such a marvellous deal in that context? Is it envisaged that further money might be on the table as plans for the area develop? That was a bit ambiguous in the SI, so I am interested to know whether it is the case.
On the consultation process, I can see from the papers that extensive efforts were undertaken—which the noble Baroness, Lady Penn, went through—to elicit responses from the public on these areas, but does the Minister consider that just over 2,000 responses from a population of almost 1 million people represents a clear mandate? What work have the Government done with the Local Government Association on how we might improve these consultation processes in future? I appreciate that the structure of local government can be confusing, particularly in areas with two or three tiers of local government, but introducing changes of such magnitude on the basis of a mandate of just over 50% of such a tiny percentage of the local population surely suggests that we need more innovation in the consultation processes.
On general questions of governance, the Minister will be aware that we tried very hard to ensure that every place in the area would be represented on the combined authority during the levelling-up Bill, but that was not the outcome. Like the noble Baroness, Lady Pinnock, I remain concerned about so many powers being vested in one person. It has been the practice in mayoral authorities for mayors to appoint deputy mayors and for them not to be elected. This also applies to police commissioners. These are very important roles, so does appointment rather than election impact on accountability? This is especially the case if the mayor cannot fulfil their role, as it is then delegated to an unelected deputy mayor. Why do the Government consider appointment the best model here and, to go back to my earlier point, why do appointed deputy mayors enjoy a role on combined authorities which is denied to locally elected council leaders?
Have the Government given any thought, for example, to local public accounts committees to mirror their function in the other place? This would widen the scope of the police and crime commissioners, which, I agree with the noble Baroness, Lady Pinnock, have not proved terribly effective, and would provide joined-up accountability for the mayor.
We note that for this deal the adult education budget transfer is to come later than the introduction of the combined authority in May 2024. I appreciate that this has been agreed with the partners in this devolution deal, but with skills and training so essential to economic growth, why are they not an early priority for all devolution deals?
I have carefully read Part 5 of the order, which means the authority may introduce bus franchising if it chooses to do so. How would the Government, including the Department for Transport, support the combined authority if it chooses to exercise this power? Do the Government envisage any issues arising from the different transport roles of the mayor, the York and North Yorkshire Combined Authority and the constituent authorities in relation to local transport plans, bus partnerships and highways and traffic authority functions?
In July, the BBC reported that £1 million would be given to support the set up of the new combined authority in addition to £582,000 already spent. Can the Minister update the Committee on funding the direct cost of the combined authority after the inaugural mayoral election? That is not the money allocated for spend for the authority, but its direct set up cost.
In conclusion, we strongly support the principle of devolution to local areas and congratulate all local areas that have navigated the current complex system to get their deals over the line. We will certainly not be opposing a deal negotiated at local level, however we urge that the Government consider how they will accelerate the devolution process and how some of the questions that have come up under this deal and others are to be answered in future.
Baroness Penn (Con)
My Lords, I thank both noble Baronesses for their contributions. I will seek to address as many of their points as possible. First, it is worth recognising the in principle support for this deal and the process overall.
Like the noble Baroness, Lady Taylor, we recognise the work that has gone on among local councils, representatives and others in making this happen. To pick up the point about consultation, it is important to place that consultation in the context of the involvement of a great many people within the York and North Yorkshire area who are representatives of their communities and constituents. Given the diversity of the areas covered, the broad support for it among councils, MPs and others involved means the reach for how we have gone about agreeing the devolution deal process is not represented just by the consultation. However, I think we should always look at how we can better engage local areas and people as we go through this process of devolution, so we would always open-minded about how we can improve on that process.
I will address the other, broader point around the process of devolution about how far this deal goes in terms of delegation versus devolution and how much of the country benefits from either and should in future. We are absolutely committed to having every area that wants it benefitting from more devolved government. Since we set out our ambitions for this in the levelling up White Paper, we have moved at a faster pace than we would expect. I think that more than half of England’s population will be covered by a devolution deal.
We are also keen to reflect that devolution deals can work for rural areas as well as urban areas. The noble Baroness, Lady Pinnock, is right that this deal is in some ways a trailblazer for that. However, I do not think that that is a reason not to go ahead. If we want devolution to be available to every area of the country, we need to find the geographies and structures that work that mean that it can be extended.
The Government are going further: we have the two trailblazer areas of Greater Manchester and the West Midlands Combined Authority as regards moving towards that next stage, where you will get closer to a single settlement for the combined authority with much greater flexibility. Those are intended to be trailblazers for other areas that wish to go further in this process—so I think we agree on the direction of travel as regards those aspects of it as well.
Baroness Pinnock (LD)
I am sorry to interrupt, but government Ministers continually say that above-inflation grants have been provided to local authorities in the last year or so. However, for those local authorities that have social care responsibilities, the social care precept is an additional burden on council tax payers. It is not exactly the case that more money has been provided; it has, but the Minister should give the addendum that part of it is provided by an additional burden on council tax payers. In my local authority, it costs council tax payers £200 extra a year to provide for the social care precept.
Baroness Penn (Con)
I absolutely acknowledge the point made by the noble Baroness. I think I referred to an increase in core spending power, and my understanding of that metric is that it reflects the government grant, the council tax and the additional social care precept. I did not refer only to the government grant. I am sure she will be well aware that additional grant funding has also gone into social care over the last two years to reflect additional pressures in that sector.
I was simply making the point that, since 2019, I believe, above-inflation increases to the core spending power of councils have been made available. The terms of the devolution deal and the money attached to it are as set out. The noble Baroness, Lady Taylor, asked about further funding. I will not speculate on that, but I point out to all noble Lords that the Government have made significant amounts of funding available for levelling up through the levelling up fund, the towns fund and the future high streets fund. We are working to simplify that funding landscape, but there is an ongoing commitment from this Government to make funding available for local economic development and regeneration. We have seen that in the significant amounts made available in recent years and the ongoing commitment from the Government in that area.
I am conscious that I have not addressed a couple of the questions, in particular on transport, which the noble Baroness, Lady Taylor, asked. If both noble Baronesses will forgive me, I will write to them with further details.