Leasehold and Freehold Reform Bill (First sitting)
Tuesday 16th January 2024
(2 years, 7 months ago)
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The Chair
Before I begin, I have a couple of announcements. Hansard colleagues would be grateful if Members emailed their speaking notes to [email protected]. Obviously, electronic devices should be switched off. Date Time Witness Tuesday 16 January Until no later than 9.50 am The Leasehold Advisory Service (LEASE) Tuesday 16 January Until no later than 10.25 am Leasehold Knowledge Partnership; Velitor Law Tuesday 16 January Until no later than 11.00 am The National Leasehold Campaign Tuesday 16 January Until no later than 11.25 am Law & Lease Tuesday 16 January Until no later than 2.30 pm The Law Commission Tuesday 16 January Until no later than 3.00 pm The Financial Conduct Authority Tuesday 16 January Until no later than 3.40 pm Free Leaseholders; Commonhold Now; HoRnet (the Home Owners Rights Network) Tuesday 16 January Until no later than 4.15 pm The Property Institute; Fanshawe White Tuesday 16 January Until no later than 4.50 pm The Home Buying and Selling Group; The Conveyancing Association Tuesday 16 January Until no later than 5.15 pm Public First Tuesday 16 January Until no later than 5.40 pm Dr Douglas Maxwell Thursday 18 January Until no later than 12.10 pm HomeOwners Alliance; The Federation of Private Residents’ Associations; Shared Ownership Resources Thursday 18 January Until no later than 12.40 pm Professor Andrew J. M. Steven (Professor of Property Law, University of Edinburgh); Professor Christopher Hodges OBE (Emeritus Professor of Justice Systems, University of Oxford) Thursday 18 January Until no later than 1.00 pm The Building Societies Association Thursday 18 January Until no later than 2.20 pm Competition and Markets Authority Thursday 18 January Until no later than 2.40 pm Policy Exchange Thursday 18 January Until no later than 3.10 pm The Law Society; Philip Rainey KC Thursday 18 January Until no later than 3.30 pm The Residential Freehold Association Thursday 18 January Until no later than 3.50 pm End Our Cladding Scandal
Ordered,
That—
(1) the Committee shall (in addition to its first meeting at 9.25 am on Tuesday 16 January) meet—
(a) at 2.00 pm on Tuesday 16 January;
(b) at 11.30 am and 2.00 pm on Thursday 18 January;
(c) at 9.25 am and 2.00 pm on Tuesday 23 January;
(d) at 11.30 am and 2.00 pm on Thursday 25 January;
(e) at 9.25 am and 2.00 pm on Tuesday 30 January;
(f) at 11.30 am and 2.00 pm on Thursday 1 February;
(2) the Committee shall hear oral evidence in accordance with the following Table:
(3) proceedings on consideration of the Bill in Committee shall be taken in the following order: Clauses 1 to 4; Schedule 1; Clauses 5 to 11; Schedules 2 to 5; Clauses 12 to 19; Schedule 6; Clauses 20 and 21; Schedule 7; Clauses 22 to 37; Schedule 8; Clauses 38 to 65; new Clauses; new Schedules; remaining proceedings on the Bill. (4) the proceedings shall (so far as not previously concluded) be brought to a conclusion at 5.00 pm on Thursday 1 February.—(Lee Rowley.)
Resolved,
That, subject to the discretion of the Chair, any written evidence received by the Committee shall be reported to the House for publication.—(Lee Rowley.)
The Chair
I take it that we do not need to move the motion about deliberating in private; just intimate to the Clerk or me that you want to speak, and we will proceed informally. We are sitting in public, and the proceedings are being broadcast. Do any Members want to make a declaration of interest?
Matthew Pennycook (Greenwich and Woolwich) (Lab)
My wife is the joint chief executive of the Law Commission, and we are hearing evidence from it.
Examination of Witness
Mr Martin Boyd gave evidence.
The Chair
We will now hear oral evidence from Martin Boyd, chair of the Leasehold Advisory Service. Before I call the first Member to ask a question, I remind all Members that questions should be limited to matters within the scope of the Bill. We must stick to the timings in the programme order that the Committee has agreed. For this panel, we have until 9.50 am. Perhaps the witness could introduce himself briefly.
Mr Martin Boyd: Good morning, everyone. My name is Martin Boyd. I am the newly appointed chair of the Government’s Leasehold Advisory Service. I am also chair of the charity the Leasehold Knowledge Partnership, and I am chair of the resident management company in the place where I have a flat.
The Chair
I think perhaps the Opposition spokesperson wants to start off with the questions.
Matthew Pennycook
Q
Ms Marie Rimmer (St Helens South and Whiston) (Lab)
Excuse me, Chair. Is the loop system on? No? Can we arrange to have it on, please? [Interruption.] Oh, we cannot; I understand.
Matthew Pennycook
One of the aims of the Bill—certainly in the terms of reference handed to the Law Commission, whose recommendations frame a lot of parts 1 and 2—was to provide a better deal for leaseholders as consumers and increase transparency and fairness. In your view, to what extent does the Bill as a whole do that? Are there any specific clauses or elements of the Bill that we might seek to tighten up to further improve the experience for leaseholders as consumers? I am thinking of the fact that leaseholders are still liable to pay certain non-litigation costs and that right-to-manage companies are still liable when claims cease.
Mr Martin Boyd: As you may recall, when the Law Commission originally looked at this area of the law, it suggested to the Government that a consolidation Bill was warranted. However, there was not the budget at the time, so it was then given the three projects on right to manage, enfranchisement and commonhold to look at. The enfranchisement proposals and some of the right-to-manage proposals, but none of the commonhold proposals, have been brought forward in the Bill. The difficulty with the Bill is that there is an almost endless list of things that could be added. In removing the one-sided costs regime, the Bill does quite a lot to balance the system during the enfranchisement process. It also attempts to address the problem of the costs regime at the property tribunal. In the current system, the landlord is in a win-win position. Even if they lose the case, they are able to pass on some of their legal costs under most leases. The Bill tries to address some of those issues.
We still have a whole set of problems in the way that resident management companies and RTMs operate. They do not have a legitimate means of passing on their company costs within the service charge. There are still sites where they effectively have to cook the books to pass on the legitimate costs to the service charge payers. There are still many more things to add to the Bill. Clearly, we will continue to have problems with multi-block right-to-manage sites as well. They do not operate effectively anymore, and unfortunately the Bill does not address that element of the problem.
Matthew Pennycook
Q
Mr Martin Boyd: Yes. There are several things that could be added.
Matthew Pennycook
Q
Mr Martin Boyd: The RoPA—regulation of property agents—report, which the Government undertook some years ago under Lord Best and which proposed statutory regulation of managing agents in this sector and within the estate agency world, has unfortunately not moved forward. There are proposals in the Bill to bring estate agents within codes of practice, but nothing in particular changes on property management. We have a slightly strange position at the moment. In the social sector, there is now an obligation for a property manager to have a proper level of competencies to look after high-rise buildings, or high-risk buildings, as they are still called. In the private sector, though, we have nothing. There are no requirements to have any qualifications to look after and manage the highest of our high-rise buildings in this country. That is simply wrong, so I would support fully a move to the statutory regulation of agents.
Mike Amesbury (Weaver Vale) (Lab)
Q
Mr Martin Boyd: Yes, there are risks. Currently, we do not have a viable commonhold system. Even if the Government were to come forward with the full Law Commission proposals, those had not reached the point where they created all the systems necessary to allow the conversion of leasehold flats to commonhold flats. I see no technical reason at the moment why we should not move quite quickly to commonhold on new build for extant stock. I think it will take longer—and, at the end of the day, conversion will be a consequence of consumer demand. People would want to do it. On my side, I would not want us to convert to commonhold, because I could not yet be sure that it would help to add to the value of the properties. It would make our management of the site a lot easier, but I could not guarantee to anyone living there that it would add to the value of their property—and that is what people want to know, before they convert.
Richard Fuller (North East Bedfordshire) (Con)
Q
Mr Martin Boyd: I do not think the Leasehold Advisory Service would have a specific preferred path. At least two of those are important. I will add a fourth, actually. It is illogical that we do not have a requirement for professional qualifications for those managing particularly complex buildings.
Richard Fuller
Q
Mr Martin Boyd: I will be cautious, so that I am not rude in answering that. There are a set of skills that you would expect to acquire as an MP, and a certain set of skills that you need to acquire as a property manager. Buildings are complex entities, particularly large buildings. They have a lot of plant and a lot of complex systems. There is quite a complex interaction with the people who live in those buildings. There are voluntary qualifications that we have in the sector. The Secretary of State decided recently that there should be a mandatory level of qualification in the social sector. I do not see there being a logic in saying that we need one or the other.
In terms of regulation of managing agents, there is a problem. The ex-chair of the managing agents’ trade body said that it is perfectly legal to set up a property management company in your back bedroom in the morning and be collecting a large amount of money in the afternoon, without any regulation. I think that is a problem. One of the issues not considered in the Bill—perhaps it would not be relevant, although the Government need to consider it at some point soon—is that there is still no proper control of leaseholders’ funds. It is very likely that the two largest managing agents in this country hold between them somewhere between £1 billion and £2 billion. There is no Financial Conduct Authority regulation of how that money is held.
Richard Fuller
Q
“to champion the rights of leaseholders and park homeowners.”
I have a number of park home owners in my constituency, as I am sure many colleagues do. Are there any provisions in the Bill, or is there anything that could be added to it, that would improve the lot of park home owners?
Mr Martin Boyd: Yes, there is, but again that goes on to the long list of things that could be added to the Bill. Park homes have been a difficult area for many years. It is a relatively small part of LEASE’s work, but it is work that will be expanding as we move forward. I am more than happy to talk to you about some of the provisions on park homes that could be added.
Richard Fuller
There is nothing that leaps out at this stage.
Mr Martin Boyd: Nothing leaps out.
Barry Gardiner (Brent North) (Lab)
Q
Mr Martin Boyd: There were proposals in sections 152 to 156 of the 2002 Act to help to improve protection for leaseholders’ funds. Currently, we are left with a set of voluntary codes. One is applied by the Association of Residential Managing Agents—the Property Institute, as it is now called—and sets out that managing agents should hold separate bank accounts for each of the sites that they manage. The Royal Institution of Chartered Surveyors’ code does not require that. I am aware from experience of my and other sites that, in the recent period of higher inflation, some managing agents used consolidation accounts, accrued the interest in the service charge funds to themselves and passed very little on to the leaseholders. So yes, I think it would be very helpful if we had greater transparency and protection.
Barry Gardiner
Q
Mr Martin Boyd: I can tell you why it did not move forward. One of the reasons it did not move forward is that, when there was a consultation, the organisation that I now chair argued very strongly against the implementation of that section. That was one of the things that annoyed me when I found out about it over a decade ago. It is not something that we would argue for now.
Barry Gardiner
Q
Mr Martin Boyd: It was a very good provision, yes.
Rachel Maclean (Redditch) (Con)
Q
Mr Martin Boyd: I am proud to say that it was LKP that restarted the whole commonhold project in 2014. At the time, we were told, “The market doesn’t want commonhold.” The market very clearly told us that it did want commonhold; it was just that the legislation had problems in 2002. One of our trustees, who is now unfortunately no longer with us, was part of a very big commonhold project in Milton Keynes that had to be converted back to leasehold when they found problems with the law.
I think the Government have been making it very clear for several years that they accept that leasehold’s time is really over. I do not see any reason why we cannot move to a mandatory commonhold system quite quickly. What the developers had always said to us—I think they are possibly right—is that they worry that the Government might get the legislation wrong again, and they would therefore want a bedding-in period where they could test the market to ensure that commonhold was working, and they would agree to a sunset clause. They had fundamentally opposed that in 2002, and we managed to get them in 2014 to agree that, if commonhold could be shown to work, they would agree to a sunset clause that would say, “You cannot build leasehold properties after x date in the future.” I think that that is a viable system.
Ms Rimmer
Q
Mr Martin Boyd: As some of you may know, I have been very critical in the past of the organisation that I now chair, because I thought that it was doing the wrong thing. The Government took what some might see as a brave decision in asking me to take on the role as chair. LEASE is going to become a much more proactive part of the system, and, as far as I see it, we now have several roles rather than one. While we are predominantly there to help advise consumers about the legislation and how to use it—and hopefully when not to use it—we will also have a role in helping to press Governments to make sure that they improve the legislation. That was not a remit that we had, but it will be very much part of our remit going forward.
Ms Rimmer
Q
Mr Martin Boyd: As I said to the all-party parliamentary group yesterday, the organisation does not currently have the budget. The Government have said that they will give us the relevant budget. If they do not give us the budget, I will not be staying, so I am very hopeful that we do get the budget.
Some aspects of the Bill do quite a lot to reduce the amount of time that leaseholders would need to spend asking for help. If the enfranchisement process goes through and we get to an online calculator system, where you simply feed in your data and it produces the answer, that will make that whole system much easier. That will reduce not only the amount of work that comes to us, but the amount of work that goes to various solicitors and surveyors in that field.
The Chair
That is the end of our allotted time for this session; I think we got everybody in who wanted to ask questions. Thank you for coming to talk to us today.
Examination of Witnesses
Sebastian O’Kelly and Liam Spender gave evidence.
9.50 am
The Chair
Q
Sebastian O’Kelly: I am Sebastian O’Kelly, director of the Leasehold Knowledge Partnership. I am not a leaseholder; I am a commonhold owner in another jurisdiction, not in the UK.
Liam Spender: I am Liam Spender, senior associate at Velitor Law. I am a leaseholder in London. I am also a trustee of the Leasehold Knowledge Partnership.
Matthew Pennycook
Q
Various provisions in the Bill touch on ground rents. You will know, for example, that schedule 2 imposes a 0.1% cap on their treatment in valuation. Clause 21 and schedule 7 deal with existing ground rents and how we will treat those. What are your views on the fact that those provisions provide leaseholders with the enfranchisement right to buy out their ground rent under a very long residential lease, but we also have the consultation ongoing with five options? How do those provisions interact? Why have the Government specified an option in clause 21 for a particular type of very long residential lease, while we also have this consultation ongoing and, in theory, a commitment to bring forward further measures that apply to all existing ground rents? Does clause 21 in the Bill as drafted make sense to you?
Sebastian O’Kelly: Not especially. We are eager to hear the result of the consultation on ground rents. We very much support the peppercorn ground rent option and are delighted that the chairs of the all-party parliamentary group also support that. It would be a game-changing measure if that did come about—frankly, stripping out the one legitimate income stream in this ghastly system—but I can see that, as a precautionary measure, you might have that 0.1% provision in the Bill for dealing with enfranchisement. It will assist with some of the enfranchisements where you have very onerous ground rents.
Liam Spender: I agree; it is not clear why the 150-year threshold has been chosen. As far as I understand it, the Law Commission did not consider that in its work. That might be something that could be fruitfully explored in this Committee’s more detailed work.
Matthew Pennycook
Q
On the right to manage, only eight of the 101 Law Commission recommendations on right to manage have found their way into the Bill. We face the issue that Mr Boyd referred to—we could add in many more provisions to the Bill. Are there any specific RTM recommendations from the Law Commission that it would be really worthwhile to try to incorporate into the Bill?
Sebastian O’Kelly: In relation to leasehold houses, it is a bit of an embarrassing omission that the proposal is not there. The spreading of leasehold houses around the country simply to extract more cash from the unwitting consumers who had purchased houses from our plc house builders was a national scandal, actually, and it was frankly a try-on too far and caused a huge amount of kerfuffle. There will be times when you would have to build a leasehold house—when the builder does not actually own the land—but they are very isolated cases, and largely this scam has self-corrected through the adverse publicity.
On the right to manage, one of the most egregious issues is where groups of leaseholders have attempted to get a right to manage and have been hit for extortionate legal costs, where their petition for right to manage has been resisted by the landlord. There are certain landlords out there who always, always, unfailingly take this through the legal steps. They rack up legal costs, but of course they can get that back through the service charge. That is an issue that I urge is the worst deterrent to right to manage.
Liam Spender: The lack of right to manage for fleecehold estates—for estates subject to management schemes—is one of the most obvious omissions in the Bill. The Law Commission did an awful lot of work on how to improve the process for multi-block sites, particularly following the Supreme Court decision two years ago on Settlers Court. I think that is another missed opportunity.
Rachel Maclean
Q
Sebastian O’Kelly: This is for Liam really, because I am not a leaseholder at all; it is Liam’s court case.
Rachel Maclean
Sorry, I was looking at Mr Spender and I misspoke.
Liam Spender: I quite understand anyone being distracted by Mr O’Kelly. Thank you for the question. In our case to date, the freeholder has put £54,000 of its legal costs through the service charge. It did so in breach of a section 20C order, which is the current restriction that is supposed to prevent landlords from doing so. We complained and got most of that money back, but they have served something called a section 20B notice: they intend to recover the costs in the future if they prevail on appeal, by which point we could be looking at a substantial six-figure sum. This is all to do with us fighting to get back unreasonable service charges.
We are currently owed about £450,000—to give a round number—pending appeal. There is an appeal in April and I am carrying the burden of doing all that work myself. I quite understand why leaseholders without legal training give up and things will fall by the wayside. The system is very much stacked in landlords’ favour.
The cost provisions in the Bill are welcome. As you probably know, they changed the default so that the landlord has to ask for their costs. The issue is what has been created as a just and equitable jurisdiction; the tribunal can do what it thinks is fair in the circumstances. I believe—I think many people who have much more knowledge of this than I do would agree—that what that will mean in practice is probably that the tribunal will be inclined to give landlords their costs if they have won the case, so it will not change anything.
The other problem is that the first-tier tribunal considers itself a no-cost jurisdiction, and that is a generational way of thinking, so that has to be overcome and it has to get into the mindset of awarding costs to leaseholders and against landlords. Provisions could be included in the Bill that would make that that process easier—for example, prescribing a regime of fixed costs as applied to other low-value civil litigation. It is not a magic bullet, but I think that would be better than the current provisions in the Bill.
Mike Amesbury
Q
Sebastian O’Kelly: We would like to see a commitment to mandatory commonhold for new builds, frankly. How many more times are we going to try to reform the leasehold system? How many goes have we had at this since the 1960s? If you keep having to reform leasehold, is the answer not that it does not work? Why do you want this third-party investor—now, invariably, somebody offshore—hitching a ride on the value of somebody else’s home? It is a nonsense. One Duke of Westminster we can accept—the political continuity of our country maybe allows a freehold such as that—but we will create 1,000 of them with this. It is a nonsense. Bring it to an end and bring us in touch with the rest of the world—that is my statement.
Andy Carter (Warrington South) (Con)
Q
Liam Spender: Yes, happily. The main items in dispute are our intercom, car park gates and barriers. Our satellite TV dishes are rented in perpetuity; they were costing £240,000 a year, which is somewhere between 10 and 20 times what they should cost. The reason for that is that the developer chose to enter into a long-term rental and maintenance contract. That contract has never actually been—the technical term is “novated”—transferred to the current landlord, so there is no legal obligation on the current landlord to pay those costs at all. However, the landlord has dug in, so we are more than two and a half years into a service charge dispute. We prevailed in the first instance—that was the largest single item we won—and we must fight an appeal in April, and potentially another one after that, depending on what the landlord chooses to do.
Andy Carter
Q
Liam Spender: I knew the general amount of service charges. I was not aware that there was a perpetual maintenance contract, because it was not disclosed in the searches.
Barry Gardiner
Q
Liam Spender: I agree; you have summarised it very well. To borrow a loose analogy from company law, there is something called a tag-along right. If someone comes along and buys a certain proportion of shares in a company, the other shareholders can exercise the right to tag along to join the purchase. That could be adapted to those who do not participate in an initial enfranchisement to address exactly the issue that you raise.
Barry Gardiner
Q
Liam Spender: I think the provisions introduce a degree of complexity into buildings because, exactly as you say, you are creating a new class of landlord. That could be solved by—
Barry Gardiner
Q
Liam Spender: That is right: there is no statutory mechanism to transfer to the newly enfranchised freeholders.
Barry Gardiner
Q
Liam Spender: The Bill creates a lot of new areas of complexity, and that is certainly one that would merit detailed attention.
The Chair
Well, gentlemen, I think that is it. Thank you very much.
Examination of Witnesses
Katie Kendrick, Jo Derbyshire and Cath Williams gave evidence.
The Chair
Q
Katie Kendrick: I am Katie Kendrick. I am the founder of the National Leasehold Campaign, which has been running for seven years. I am also a trustee of LKP.
Jo Derbyshire: I am Jo Derbyshire. I am one of the co-founders of the National Leasehold Campaign and a trustee of LKP. I am not a leaseholder; I enfranchised and bought the freehold on my home. I had one of the now-infamous 10-year doubling ground rents on my house.
Cath Williams: I am Cath Williams. I am one of the co-founders of the National Leasehold Campaign. I am no longer a leaseholder, but I did buy a leasehold house.
Matthew Pennycook
Q
Katie Kendrick: The Bill is very much welcomed and long overdue. As we all know, the Law Commission reports were fantastic and very detailed. The Bill is lacking significantly on the detail of the Law Commission recommendations. The headline was that the Bill would ban leasehold houses, and obviously the Bill as it stands does not do that. I am confident that it will, in the end, ban leasehold houses, but currently that has not been achieved.
The Bill improves the transparency of service charges, but just being able to see the fact that leaseholders are being ripped off more does not actually fix the root cause of the problem. As we all know, the root cause of the problem is the leasehold system per se. I am concerned that the Bill sticks more plasters on a system that we all agree is immensely outdated and needs to go. There is no mention anywhere in the Bill of our long-term vision of achieving commonhold. That is our vision, and it is the elephant in the room. The Bill does not even mention commonhold and how we can move towards it.
A peppercorn ground rent would massively change the playing field and help us to move towards our vision of commonhold, so we need to get a peppercorn ground rent for existing leaseholders in there. With the Leasehold Reform (Ground Rent) Act 2022, which means new builds do not have a ground rent, we have created a two-tier system. The Bill really does need to look at existing leaseholders and what can be done to help to put them in a similar position to new leaseholders. If ground rents are wrong for the future, they were wrong in the past and we therefore need to be bold enough to go back and fix that. Peppercorn ground rent has to be the solution. This is an amazing opportunity and I hope that will be the outcome of the consultation.
Cath Williams: On peppercorn ground rent, we have noted a new definition of a long-term lease being 150 years, which we have never come across before. Many members in our group—there are over 27,000 members in the National Leasehold Campaign—have modern leases with ground rents at significantly less than 150 years, at around 99 or 125 years. That means that the provisions in the Bill do not give them the opportunity to revert to a peppercorn ground rent. If we have read it correctly—we are not legally trained—they would be excluded as having a non-qualifying lease. That is our understanding: that they would be excluded. That could be a significant number of leaseholders who will not benefit from the peppercorn ground rent opportunity in the Bill.
Rachel Maclean
Q
Jo Derbyshire: I had a ground rent that doubled every 10 years. It meant that my ground rent would be £9,440 after 50 years. It certainly is not a trivial issue in my experience. A ground rent is a charge for no service. That is the big thing for me. Some warped genius at some point in the mid-2000s decided to create an asset class on our homes. It is just wrong.
Rachel Maclean
Q
Jo Derbyshire: I think that is project fear. I work in pensions. I work in administration, not investments, but I sit on a lot of pension committees where we talk about the assets that pension schemes hold. They have investment strategies and they protect themselves from over-investing in one asset class. The amount of ground rents held by pension funds in this country would pale into insignificance compared with, for example, the impact of the mini-Budget and what happened with equities shortly after that. This is deliberate scaremongering.
Mike Amesbury
Q
Katie Kendrick: You cannot just ban leasehold houses and not flats—70% of leaseholders live in flats, so you are not tackling the problem. You are cherry-picking the easy things, and banning leasehold houses is easy. It is more tricky with flats, but that does not mean it is not achievable. As you have said, it has been achieved everywhere else in the world. We do not need to continue to mask that leasehold system. It is deeply flawed and it ultimately needs to be abolished.
We do understand that there is no magic wand and this is not going to happen tomorrow, but there have been a lot of campaigners, well before us, who have highlighted the issues of leasehold, and yet here we are, still, again, trying to make it a little bit fairer. It does not need to be a little bit fairer—it needs to go. That needs to be the ultimate aim. Everybody needs to work on this. There is something better out there, despite what the other lobbying groups will tell you.
Richard Fuller
Q
Jo Derbyshire: It is long overdue; bring it on.
Richard Fuller
Q
Jo Derbyshire: If I think of my estate, there was no reason whatsoever to create leasehold houses other than to make money from the people who had bought them. That is partly why, going back to an earlier question, it is taking so long to dismantle the system in this country: it is because there is so much money for nothing in it. That is why it is so hard to dismantle it.
Richard Fuller
Q
Jo Derbyshire: I work in a pension fund.
Richard Fuller
Q
Jo Derbyshire: From my perspective, it is just about how all investment carries risk. This is no different. This is about rebalancing the scales in terms of leaseholders and freeholders. For me, it is about fairness for leaseholders. That is what the Law Commission was tasked with a few years ago, it is what we have been fighting for over the last however many years and that is what this does.
Barry Gardiner
Q
Ms Kendrick, you said that there were things that the Law Commission report had talked about that have not been included in the Bill. One of those is in relation to shared services. Often, in a mixed development, if there is a commercial element to the block of flats, with flats above, you will find that there is a common plant room or a common car park. I welcome the provisions in the Bill that say that you can go from 25% commercial to 50%; that is a good move. However, the Law Commission actually said something specific about whether you should be allowed, if there are shared services such as the car park or the plant room, to be able to take over control, because the flats—the leaseholders—would only have control over the plant room as it related to their block. Is that a provision that you think should be introduced? Otherwise, it makes a mockery, to a certain extent, of increasing from 25% to 50% if you are still going to be precluded from gaining control of your block because of the plant room or shared services.
Katie Kendrick: Yes, there are clever ways in which they exclude people from being able to do that. We welcome the increase to 50%, but they are very creative when they design these buildings, with the underground car parks and stuff, as to what they can do to exclude the leaseholders from taking back control of their blocks. It is all about trying to have control over people’s homes. We should be able to control our homes—what is spent. No one is saying that you should not have to pay service charges, but it is about being in control of who provides those services. At the moment, leaseholders have no control. They just pay the bills.
Barry Gardiner
Q
Katie Kendrick: Absolutely, yes.
Barry Gardiner
Q
Katie Kendrick: Absolutely.
Barry Gardiner
Q
Katie Kendrick: Absolutely. If they are saying that commonhold is not ready to rock and roll, to have a share of freehold to mandate, a share of freehold for new flats moving forward would be a good step closer.
Andy Carter
Q
Katie Kendrick: All three of us have now successfully bought our freehold. Yes, we are still here.
Jo Derbyshire: There are a number of things. The first is that most leaseholders do not understand the difference between the informal way and the statutory way to do that. The more unscrupulous freeholders will write to leaseholders with a “Get it while it’s hot” type of offer, which can be quite poor value for money. So, there is understanding the process in the first place. Then, regardless of which way you go—if you go the statutory way, currently you pay your own fees and the freeholder’s fees. There is an element of gamesmanship that goes on at the moment, which is why the online calculator is so important. Your valuer and the freeholder’s valuer will argue about the rate used to calculate the amount and then you will try and have some kind of an agreement. It is not a straightforward process at all. Cath will tell you what happened with her transfer, because they leave things in the transfer documents.
Cath Williams: Yes, they did. In my case, it took 15 months and £15,000 to get my freehold.
Andy Carter
Q
Cath Williams: Yes, £15,000 on a house. It took that long because I found—this is one of the problems that leaseholders have—that I knew more than the alleged leasehold-specialist solicitor who was dealing with my case at the time. That was very early in the campaign, so a lot of education needs to go on for everybody: leaseholders, conveyancers and solicitors. Because I had done some research and tried to get my head round leasehold clauses and what were fee-paying clauses, shall we say, in the TP1, which is a transfer document, they tried to carry across all the fee-paying clauses. Essentially, it would be freehold but fleecehold, because I would still have to pay to the freehold investors.
It took that long because I kept redacting my own TP1, putting a red line through it and sending it back, saying, “I am not doing that, that or that.” Eventually, we got rid of them. The problem now is that we still have a lot of conveyancers who do not do that for the leaseholders. If the leaseholder does not understand the system or the lease terminology, that is always a big barrier. The way that leases are written—all their legalese—means the general public generally cannot understand; so, it is difficult.
Andy Carter
Q
Cath Williams: No, there was nothing on the site or in the paperwork to say that it was leasehold.
Andy Carter
Q
Cath Williams: I found out on the day that I paid my deposit and went in to look at the extras list, which you tick to say, “I’m going to have carpets, curtains” and so on. The sales person said, “There’s something I need to add”, took a pencil and wrote “leasehold” along the bottom. [Interruption.] It is a true story. I said, “What’s this?”, because I had bought so many houses that were newbuild. I said, “I don’t understand why you are writing ‘leasehold’.” They said, “Did we not tell you?” I got a story about how it was local council land and had to be leasehold, which turned out to be completely untrue.
Andy Carter
Q
Cath Williams: Yes, I paid the deposit, and I had sold my other property. We were very late on in the process, so I believe that I was mis-sold and misled, as were many members of the National Leasehold Campaign. We hear very similar stories.
Andy Carter
Q
Cath Williams: That is right. You are committed, and you are at a point where if you do not continue, you will lose even more money. You have an emotional connection to the property that you want to buy and lots of other pressures as well—people might be moving jobs or trying to increase the size of their home.
Jo Derbyshire: I knew, but the salesperson told me that we could buy the freehold at any point for about £5,000. What they did not tell me was that the business model was to sell it on and what the implications of that would be. They sold it on less than two years after I bought the house, and the price went from the £5,000 they asked for to £50,000.
Andy Carter
Q
Jo Derbyshire: No.
Katie Kendrick: No, because legally it is unlike in flats, where when they sell the freehold on they should offer the people in the flat the right of first refusal. That does not apply to houses, so the land was literally sold from beneath us and they told us afterwards. Because we were not entitled to buy the freehold for two years—you must live there to qualify to enfranchise—they sold the freeholds on before the two-year point, so the freeholder was no longer the developer that we originally bought from; it was an offshore investment company that then increased the price significantly. We were never told that that would happen.
Andy Carter
Q
Jo Derbyshire: That was the market value for a 10-year doubling lease.
Matthew Pennycook
Q
Katie Kendrick: It is a big concern, because leaseholders are trapped. They are in limbo, so they do not know whether to enfranchise now or to wait for the Bill to go through. The Bill says that it will make it easier, cheaper and quicker, but the devil is in the detail, and we do not know what the prescribed rates will be. We are being promised that it will be cheaper, but will it? It all depends on who programmes the calculator. Ultimately, will it actually be cheaper? The Bill says that it will abolish marriage value, which is hugely welcomed by leaseholders, so those people with a short lease approaching the golden 80-year mark are waiting. Do they go now?
Matthew Pennycook
Q
Katie Kendrick: No, some people do not have a choice. People’s lives are literally on hold, and have been for many years, waiting for the outcome of the legislation. If we need further legislation to enact the Bill, people cannot sell. Housing and flat sales are falling through every single day because of the lease terms and service charges. It is horrendous. It will grind the buying and selling process to a halt.
Barry Gardiner
Q
Under the Building Safety Act, the provision is to appoint a designated person—an agent—to deal with the safety of the building. Often it will be the developer who is responsible for the remediation of a building that has fire safety defects and so on, which the Government are quite rightly trying to address, but they will argue that it is not possible to do that unless they have control over the management of the block as a whole. Therefore, there is a conflict between the Building Safety Act and the provisions in this Bill to help leaseholders gain the right to manage.
You might have just enfranchised and got the right to manage your own block, yet there is now an appointed person who will be told by the court that they have the right to manage the block. Very often, it will be the person you have just liberated yourself from. You will have just enfranchised yourself from that freeholder, only to find that they are now back in control. Do you feel there is a way in which the Committee should try to remediate and address that problem when it is looking at the Bill, and do you have any ideas as to how we should go about it?
Cath Williams: First of all, the situation that flat leaseholders are in at the moment, where they have building safety issues and leasehold issues, is so complex. It is horrendous. We hear daily in the National Leasehold Campaign about these poor leaseholders. It is really heartbreaking.
Barry Gardiner
People have committed suicide, have they not?
Cath Williams: People have committed suicide, yes. That is worth noting.
They ask for advice. We have never been flat leaseholders; that is the first thing, but there is a lot of support in the group to try to help people navigate their way through the Building Safety Act first of all, and now we have this Bill as well. In principle, I think they would really welcome some sort of cohesion between the two. I don’t know what that would be; it is really hard.
Katie Kendrick: It is really difficult because we are encouraging people to take control, but by doing that they are liable for more of the building’s safety. The two Bills have to work together.
Barry Gardiner
Q
Katie Kendrick: There is.
Barry Gardiner
Q
Cath Williams: Yes.
Jo Derbyshire: The Leasehold Reform (Ground Rent) Act 2022 has essentially created a two-tier system where you have new builds without ground rent. As Cath mentioned, we are concerned that clause 21 and schedule 7 of the Bill seem to say a qualifying lease for buying out to a peppercorn rent must have a term of 150 years. We have seen lots of examples in the National Leasehold Campaign of new build properties—flats in particular—where the lease is 99, 125 or 150 years from the start, so a whole swathe of properties would be automatically excluded.
However, for us, because ground rent is a charge for no service, peppercorn is the answer. We also fear that, in terms of the timetable for legislation and getting this through, the sector will fight intensively and try to tie this up in the courts for years. It has nothing to lose; why wouldn’t it?
Andy Carter
Q
Katie Kendrick: Because an escalating ground rent worries mortgage lenders and buyers are unable to get mortgages because of an escalating ground rent. Where that is because of the £250 assured shorthold tenancy issue, my understanding is that that will be sorted through the Renters (Reform) Bill, so that will close that loophole, but lenders do not like—for most leases now, the doubling has half-heartedly been addressed and a lot of leases are now on RPI—the retail price index.
However, with RPI being the way that it is—it has been really high in the last couple of years—some of those ground rents are coming up to their review periods and are actually doubling. Therefore, RPI, as Jo said many years ago, is not the answer. Converting to RPI is not the answer because an escalating ground rent is still unmortgageable, and it takes it over the 0.1% of property value, which, again, mortgage lenders will not lend on.
Therefore, a lot of mortgage lenders are asking leaseholders to go to the freeholder and ask them to do a cap on ground rent, which is then costing the leaseholder more money to get a deed of variation from their freeholder. That is if the freeholder agrees at all, because the freeholder does not have to agree to do a deed of variation to cap the ground rent. That is coming at a massive cost if someone wants to sell, but without that people are losing three, four or five sales, and people have given up because their properties are literally unsellable.
Cath Williams: There is a house on my estate where sales have fallen through twice already. It is a townhouse; it is worth about £220,000. The ground rent currently—it is on an RPI lease—is £400, which takes it over the 0.1% of property value. Two sets of buyers have had problems getting a lender to lend in that situation.
Andy Carter
Q
Katie Kendrick: Absolutely. When I watched the programme, I was shouting out loud. The parallels—the similarities—are astounding. The system there was a computer system; the system here is leasehold. People have been ripped off for so many years and paid unnecessary fees, and lots of leaseholders are thousands of pounds out of pocket. And that is because the system—the leasehold system—has allowed that to happen, and it is a scandal of the same magnitude, as far as I am concerned. People have, unfortunately, lost their lives. I have become a bit of an agony aunt for people; my phone never stops because people contact me in tears, and I have stopped people from taking their own lives because of leasehold. It is horrendous—absolutely horrendous—when you are living it and you feel completely trapped. It is when they feel that there is no way out that people look at taking another way out, and it is horrendous.
Cath Williams: And we were both told, weren’t we, by the CEOs of the developers that we bought our houses from, that there was no leasehold scandal?
Katie Kendrick: Yes.
Mike Amesbury
Q
Katie Kendrick: Our campaign coined the term fleecehold, and it has been used as a bit of an umbrella to describe all of the different ways that we can be ripped off through our homes. It first began because, when we were enfranchising and buying our freeholds, the freeholder was trying to retain all the same permission fees—such as permission to put on a conservatory or to paint the front door—in the transfer document. Ultimately, you could be a freeholder but still have to pay permission fees to the original freeholder.
That is where fleecehold came from, but fleecehold is now used as a much broader phrase because we have estate management charges. The new build estates all have estate management charges attached to them. They have replaced one income stream—leasehold—by creating another asset in the open green spaces. We all have lovely big open spaces and lovely parks, but it is the residents who pay for that. Again, it is a private management company that manages them. You have no transparency over what they are spending.
I can remember somebody ringing me up and saying, “Katie, I have a breakdown of my estate management charges and they are charging me such-and-such for a park, so I rang up and said, ‘You’re charging me.’ ‘Yes, Mr Such-and-Such. You have to pay for the upkeep of your park.’” And he went, “I understand that, but I haven’t got a park.” It is outrageous. It is great that they are going to give people more right to challenge the costs, which they do not currently have with their freeholders. They have fewer rights than leaseholders to challenge at tribunal. But ultimately why have we gone to a private estate model? Why are people paying double council tax? They are paying full council tax the same as anybody else is, yet they now have to pay thousands of pounds in estate management charges. It is a ticking timebomb.
The estates look very nice now, but in the future when the pavements are falling to pieces—I spoke to a police officer and things are not enforceable because they are classed as private. Speeding restrictions? You could have a boy racer running through the estate, but the police cannot enforce anything. The same with double yellow lines and things like that. It is a ticking timebomb, because new build estates are popping up all over the place with private management companies.
Jo Derbyshire: There are some things in the Bill that try to stop things. Typically on fleecehold estates there might be freehold houses, but the estate management charge is secured legally by something called a rent charge. What most people do not understand is that if they withhold their estate management fees, the property can be converted from freehold to leasehold. Again, that cannot be right.
Rachel Maclean
Q
Rachel Maclean
You mentioned that in the new Bill leaseholders will have to pay to get their ground rent to zero. Can you set out what that provision is? Where is that in the Bill?
Cath Williams: I don’t think we know. That was one of our questions. There is a process in the Bill about how a leaseholder can acquire the peppercorn ground rent, but who pays for that is not clear. I think that was raised before. I do not think leaseholders should pay, because it should not have been there in the first place.
Katie Kendrick: Or there should be a prescribed cost—“apply for your peppercorn now”—with a simple process. Otherwise it will be exploited, and lawyer will charge different amounts to convert. You can see what will happen, so it needs to be streamlined. Whatever we go for, it needs to be streamlined.
Cath Williams: And we need an online system that cuts out everybody in the middle, so that there is no confusion or discussion about what it should cost.
Alistair Strathern (Mid Bedfordshire) (Lab)
Q
There are many estates in my patch where you can literally see where it becomes private because the condition of the road is shocking compared to 2 feet away, or the condition of the public space completely deteriorates. What measures would you like to see added to the Bill to help address that? Would you agree that ultimately we need mechanisms to ensure that a stated object can happen in a way that everyone can have confidence in?
Katie Kendrick: In an ideal world, the local authorities would be adopting these areas. I do not think there should be a private management at all. Local authorities used to, and they can charge the builders more for the land at the start.
Cath Williams: I agree.
Katie Kendrick: Adopt the lot.
Ms Rimmer
Q
We have to tie it down and not let the situation become like the one we have seen with the post offices. It is an obstacle course. People have committed suicide. Managers have broken down. Homes have been lost. Jobs have been lost. The management charges are unbelievable, and I do not think people understand that. I have not seen it anywhere, but a leaseholder has to write if they want to change the carpet; they then get charged a couple of hundred pounds for that, they get charged for the answer, and they get charged when somebody comes to have a look at it. That is how it goes on. The management charges are as big a fear as the lease, because leaseholders do not know where they are going.
The Government simply have to step in. It is the biggest money-making racket in this country now—and it is a racket. It is said that people have sat down and designed this system, and we should not leave these people to do the fighting on their own. I genuinely believe that there is desire to do so from both the Minister and our shadow Minister. Please come forward with your thoughts; do not give up. I do not believe for one minute you will give up.
Katie Kendrick: I believe there is political will to do this from across the House; there is unanimous agreement and there is no dispute. If there is no dispute, we just need to get it done.
The Chair
Right, that is probably it then—[Laughter.] Thank you.
Examination of Witness
Amanda Gourlay gave evidence.
The Chair
Good morning. Would our last witness like to introduce herself?
Amanda Gourlay: I am Amanda Gourlay. I am a barrister at Lazarev Cleaver LLP and I am an associate member of Tanfield Chambers. I have been in practice for nearly 20 years—I think it is 18.
Matthew Pennycook
Q
Amanda Gourlay: I would like start by quickly saying that while the Bill is welcome—as far as I am aware, we have been working towards leasehold reform for about six years now, from a service charge perspective—in an ideal world, although I appreciate that we are not starting with an ideal world, the best starting point would be to repeal everything we have so far so that we can codify and consolidate everything. I say that in relation to service charges, which apply only to leasehold properties, but also to bring all the charges relating to services and works that homeowners, occupiers and residents might pay within one regime, so that we are not looking at a separate regime for estate management charges or for estate management schemes, which are different from estate management charges, but we bring everything into one place. If I receive a demand for payment of maintenance of a park on my estate, it matters not to me whether I am a leaseholder or a freeholder—the money that I pay is exactly the same.
I wanted to set that out as my starting point, if I had a blank piece of paper and endless parliamentary time and patience. Having said that, we are where we are. I have made notes and, with your permission, I will run through them as quickly as I can, while still providing some degree of detail. I am a lawyer—I am one of those people whose living is derived from working with leasehold. I am one of the people who is often criticised in this arena.
I have had a good look at the clauses of the Bill. There are good things: there are time limits and an enforcement provision, and we are undoubtedly attempting to achieve some transparency. I wanted to put that out there as the good news to start off with.
From an improvement perspective, I want to start with clause 28, which deals with the provision of the written statement of account and the report the landlord will be required to provide. I have very little to say about clauses 26 and 27. Clause 26 brings the fixed service charge into the service charge regime. Clause 27, as you say, relates to the service charge demand. We do not know what the regulations are going to say. We do have an existing framework—a relatively limited one—for service charge demands, so there is something there, but we will need to see what the regulations do. What we would really benefit from is consistency in the regulations, so that across the board, as a leaseholder moves from one flat or property to another, they can expect to see the same charges set out in the same way, broadly speaking—so that they know what to look for when they go from one place to another.
The clause I have had quite a look at, with the benefit of some accounting input, is clause 28. It will insert two new sections into the Landlord and Tenant Act 1985, which is the framework we are looking at when looking at the Bill from the perspective of these clauses. It is good that we have a time limit for the provision of service charge accounts. I have come across many cases where leaseholders are repeatedly asked to pay on-account service charges and they never receive a reconciliation at the end of the year, so there is no real knowledge of what is being spent.
We could do with looking at a template for the provision of service charge accounts. That may be a matter for regulation, rather than the Bill, but I want to explain to you why I say that is important. When the service charge accounts come over, they have often been prepared by the managing agent, who has then instructed an accountant to review them in some shape or form. Often, the accountant will simply say, “I have agreed a set of procedures that I am going to follow in relation to the service charge accounts. I am going to check that the numbers have been properly extracted and check a small sample of the invoices to make sure that what is said has been invoiced has found its way into the accounts.” What we do not find for leaseholders, unless the lease requires something like an audit, is a proper review of service charge accounts with a balance sheet, an income and expenditure report, and notes to the accounts.
The first thing I must say as I am explaining this is that I am not an accountant—far be it. If I may make a suggestion, it would be extremely helpful for the Committee to engage with either a firm of accountants or, in fact, the Institute of Chartered Accountants in England and Wales; the Committee could then ask how they would go about formulating a proper system—probably in conjunction with the Royal Institution of Chartered Surveyors, under the fourth edition of the code, hopefully—in order to bring service charge accounting into the arena that it is currently in in the commercial code, or the professional statement that the commercial environment has in it.
Accounts is a big area, and it would be immensely helpful to have more involvement all round from accountants. I will not say accountants are the elephant in the room, as that would be a discourteous metaphor. They are the people who are never seen in tribunals. They are the people who do not speak loudly to Committees such as these. Yet, service charges are as much about the money as they are about the services. A balance sheet will give completeness. Income and expenditure will tell you what has come in and what has gone out. It makes sense.
While we are there, might I also invite the Committee to consider trying to bring together the differing understandings of “incurred” in the 1985 Act, as against what an accountant will understand. An accountant will understand a cost being incurred when that service is effectively provided. When I consume electricity, I incur a cost from an accountant’s perspective. From a lawyer’s perspective, I do not incur that cost until either, as a landlord, I receive the invoice, or I pay that invoice. So, they are very different dates and times. Some consistency between those professions would be helpful.
We would very much benefit from cost classifications that would support the provision of service charge accounting. It would also support the tribunal in understanding where to look for certain costs in relation to service charges. Cost classification would simply be some headings, some detail beyond that and then detail of the service that has actually been provided.
I am stepping entirely outside my area of comfort, but I confess I am married to a chartered accountant who specialises in commercial service charges. I have some wonderful Sunday morning conversations with him over breakfast. Those are points that, between us, we have come up with—looking at the way that service charge accounts have been prepared.
Further, in clause 28, there is a word I have not seen before in relation to service charges. That is that there is an obligation to provide leaseholders information about variable service charges “arising”. I am not sure what that means, and it would benefit from some explanation. That is the sort of word that will find its way into tribunals, I would expect. If “incurred” did, and found its way to the Court of Appeal, “arising” could do with some explanation.
The report, which is the second element in clause 28, which a landlord is required to—
The Chair
The point is not to make a long speech. The purpose is to answer questions. You might want to draw your remarks to a conclusion, so that my colleagues can ask you questions.
Amanda Gourlay: Certainly. I was asked a question and the only way I could answer was by taking you through the detail, because general comments are not going to help the Committee in formulating its way forward.
The Chair
I am a lawyer, too; I know that we manage to speak quite a lot.
Amanda Gourlay: I am grateful, thank you very much.
Dehenna Davison (Bishop Auckland) (Con)
Q
Amanda Gourlay: I am going to try not to go too far. I have been described as enthusiastic and I find I have to pull back slightly.
Dehenna Davison
Q
What did you make of that? Clearly, the Bill contains a number of provisions, particularly on consumer rights. From my perspective, the most interesting is around transparency. Do you think the Bill goes far enough? You have already given examples on service charge accounts, but are there other ways that the Bill could go further to improve that?
Amanda Gourlay: What I would say, to start with, is that my area of expertise is service charges. I know the Committee will hear from Philip Freedman KC (Hon) and Philip Rainey KC on Thursday. I would defer to them on all matters on enfranchisement. That is my preface to your question. Transparency is going to come from consistent information being provided in the service charge arena. Thinking specifically about the sale of properties—the assignment of leases and the sale of leases—one issue that comes up quite regularly is the provision of information on the position on service charges, including questions like, “Has the leaseholder paid all the service charges?”, “Are there any works proposed for the future?” and those sorts of general questions that we all want to know the answers to if we are going to buy a property. There is no regulation of that whatsoever at the moment, and it is quite a sticking point.
I have had one or two cases where I have been involved in those sorts of issues—where a leaseholder has wanted to sell on their lease and has simply not been able to obtain the information from whoever it is who should be providing it and to whom the request has been made. That information is really something that we need to see pushed forward.
The Bill does provide two clauses about the provision of information. Provided that it is understood that those provisions extend not only to the leaseholder—“Please tell me about my service charges”—but also to the packs that conveyancers will ask for when flats are being sold on, it would be a good thing to move that forward, because it has been a real struggle to impose an obligation or to find a way of obtaining that information in a reasonable time and at a proper price from the managing agent. That would be my answer in terms of sales.
Dehenna Davison
Q
Amanda Gourlay: Twenty-four hours would be great, but that would probably sow total panic at the receiving end—I know that it would if I received that and I was doing something else. It will depend very much on the nature of the property. There are some very complex developments over in the east end of London. On the other hand, there are Victorian houses that are only two or three flats, and that should be much more straightforward.
I am aware that people have been able to pay for, say, a seven-day or five-day service, and there has been an uplift in the price for that. I am not the best person to ask about what the price should be. What I would say is that if a managing agent to whom this request would normally go is keeping their records up to date, one would hope that with the progress we have in software nowadays, that should very much just be the pressing of a button.
On work that is going to be carried out in the future, I have heard talk about, for example, mandatory planned maintenance plans. I have not seen those in the Bill. If a building or property is being well managed, one would expect there to be a plan for the next five or 10 years—what is needed to be done in terms of decorating, lift replacement and so on. Again, if that is in place, I would anticipate that it should be relatively straightforward to produce the information. I cannot give a specific answer; what I would say is that if we are all keeping our records up to date, that should be a relatively speedy process.
Barry Gardiner
Q
Amanda Gourlay: That is correct—yes. Forgive me; I was involved in Canary Riverside between 2016 and 2017. My involvement finished in June 2017.
Barry Gardiner
Q
Amanda Gourlay: I am not sure that I am—no.
Barry Gardiner
Q
Amanda Gourlay: No, I was not involved in that element of it.
Barry Gardiner
Q
In relation to that case, and on the accountable person provisions and section 24 amendments in the Building Safety Act—this relates to a question I asked earlier—the tribunal decided in the Canary Riverside case that the section 24 manager cannot be the accountable person, and that risks the section 24 management order failing, and the failed freeholder coming back to take control of the leaseholders and their service charge moneys. The implications of that decision really are quite dramatic. It means that the lifeline of the section 24 court-appointed manager provision from the Landlord and Tenant Act 1987 has been removed from leaseholders, particularly those who cannot afford to buy their freehold or do not qualify for the right to manage. How should we address that problem in the structure of the Bill?
Amanda Gourlay: I do not think you need to do that in the structure of the Bill. Casting my mind back to the Building Safety Act, which is now in second place to the Leasehold and Freehold Reform Bill in my mind, my understanding is that there is provision for a special measures manager in that Act. If that were brought into force, one would have a recourse. I am very happy to open my computer and look at the Act, but I do seem to recall that there is provision for a special measures manager to take over the building safety or the accountable person role in a manner of speaking. I say that in the loosest terms, without having checked the law.
Barry Gardiner
Q
Amanda Gourlay: There is always a concern looking forward as to how things might play out. I will deal your question on “arising” first, then come to your other point. Clause 28(2) inserts proposed new section 21D, “Service charge accounts”. Subsection (2)(a)(i) talks about the variable service charges “arising in the period”.
Barry Gardiner
Ah, “arising in the period”. Gotcha.
Amanda Gourlay: Turning to the second part of your question, one of the very big difficulties with the reform of leasehold is that good and bad—to put it in very binary terms—do not sit on one side or the other. While it seems to me that in an appropriate situation it would be entirely reasonable for a leaseholder to be able to withhold their service charges, there may equally be leaseholders who consider that this is an opportunity not to pay, for different reasons. There is always that risk. If one does not pay one’s service charge and is obliged to do so—for example, by going to tribunal and the tribunal says that actually £2,000 is payable—one is at risk of legal costs, which I am sure we will come on to in relation to the risk of forfeiture.
Barry Gardiner
Q
Amanda Gourlay: Yes, and I understood your question that way. I think my concern is that if there is a minor breach, is that simply a situation where we withhold service charges entirely? The question is the nature of the breach and whether it is or is not a breach. In principle, I would agree that it would be a sensible form of enforcement, because it is the absolute. It is the most draconian form of enforcement. One should always bear in mind, however, that if a third-party management company—a residents management company—is obliged to insure a building and has absolutely no wherewithal to insure it, there is that risk. Things may need to be done that simply cannot wait but, in principle, I see no reason why that should not be a remedy for failure to follow the process.
Barry Gardiner
Q
Amanda Gourlay: Do you mean generally, or in relation to insurance?
Barry Gardiner
In relation to insurance—because it will no longer be possible to charge commission, but it will be possible to charge a fee.
Amanda Gourlay: That is always a risk. In fact, that is a risk across the whole Bill where more obligations are imposed on a landlord. If the costs of those obligations are recoverable under the terms of the lease as part of the management, it is almost inevitable that charges will go up. They will have to: I am going to have to do more work, so I would like to be paid more.” The only control of those that we have at the moment is under section 19 of the Leasehold Reform Act 1967, which is whether the costs are reasonable in amount for the standard of work that is provided. One would hope that there would be degrees of transparency, but of course there is no obligation to account necessarily for the fees, save for the limitation of administration charges and the obligation to publish a schedule of fees of administration charges.
Again, however—I am sorry that I am providing such long answers—where it comes to publishing a schedule of administration charges, that is quite straightforward for most cases, but clearly if someone wants to carry out a significant change to a flat on the 15th floor of a building, the costs will be difficult to quantify in advance. There is still wriggle room, I think, in the administration charge limitations for costs to be higher.
Barry Gardiner
Finally, proposed new section 21E of the 1985 Act talks about annual reports, while proposed new section 21D sets out the basis of the accounts and when they must be presented. What is your understanding of the difference between the report—as set out,
“before the report date for an accounting period, provide the tenant with a report”—
and the accounts, which have to be presented at the end of the sixth month after the period? Is there any requirement in the Bill as drafted to ensure that the information available in the accounts is greater or more detailed—indeed, in any way different—from the report?
Amanda Gourlay: That is a question with which I have battled for a number of hours. The conclusion I reached was that proposed new section 21D very plainly envisages the involvement of a chartered accountant—a qualified accountant; proposed new section 21E is different because it would appear to be more narrative, a more general description of the information that has to be provided.
If you look at the Bill, subsection 21E(3), which entitles the appropriate authority to make provision about information to be contained in the report, is extremely broad. It refers only to
“matters which…are likely to be of interest to a tenant”.
That is a very wide scope. The information in effect has to be provided within a month of the service charge year-end, whereas the service charge accounts must be provided within six months.
While I am on that point, proposed new section 21E is enforceable under the enforcement provision, which I think is clause 30; rather peculiarly, however, proposed new section 21D is not. I invite the Committee to consider whether that new section 21D should be brought within the scope of clause 30.
Matthew Pennycook
Q
In some senses, many of the new requirements in this section are covered by the enforcement measures in clause 30. Is proposed new section 21D the only example, or are there other examples, of where that power in the 2002 Act might be considered necessary for a leaseholder to use, because the enforcement provisions do not cover the full gamut, if you like? I suppose that I am trying to get to where the enforcement clause is lacking. Is Mr Gardiner correct in specifying that there are circumstances in which you would want to withhold because the non-payable enforcement clauses do not bite in the relevant way?
Amanda Gourlay: I am instinctively nervous about withholding, even if it is simply a question of process.
Matthew Pennycook
Q
Amanda Gourlay: It seemed to me that when I was reading through the clauses in the Bill that it was really section 25D that stood out as the measure that was not covered by clause 30. Clause 30 very clearly enumerates that we have section 21C(1) which is about the demand for a payment; 21E, which is about the reports—obviously, between C and E there is D, which is not in there—and then we also have 21E covered. You can literally trace those measures through. D was the one that stood out for me as being a necessity.
It might be said that that is because the provision of those accounts is outside the control of the landlord, because the accountant is the person who is preparing the accounts and they may—you will understand that I am trying to argue both against myself and for myself. There is that possible argument that may be proposed as a counter-argument to mine.
Richard Fuller
Q
You talked also about the provision of information and how important it is that people have access to annual reports and so on. In clause 49, there is a provision whereby the failure to provide things such as annual reports will carry a charge, with a maximum charge of up to £5,000. Then in clause 51, which addresses other aspects of what should be provided—in this case, charge schedules; you said how important they were—there is a maximum charge of £1,000. Does that sound like a sufficiently large sling from which a shot may be fired, or is it just a cost of doing business?
Amanda Gourlay: Again, we come back to the fact that for some landlords, particularly those that might be management companies with no other assets, £1,000 would be crippling; effectively, that might put them into insolvency unless they can recover those moneys from other leaseholders. For other landlords, even £5,000 will be next to nothing. It is a shot across the bows; it is clear that such failure is regarded with disapproval.
What I would like to do is to take those figures back, because they appear in part 3 as well as in relation to the estate management charges. The way in which they are formulated is that they are damages that can be awarded to a tenant if they make an application, certainly on the leasehold side of things—
Richard Fuller
Q
Amanda Gourlay: Not in that section.
If it is effectively a civil fine, there needs to be a sliding scale. In the tenancy deposit scheme, the way that things work is that, as you may know, if the landlord has not protected the deposit, they have to pay back an amount that is between one and three times that deposit. Some form of sliding scale would seem to be appropriate. I am not the right person to ask about sums and amounts; that is a policy question, really.
Richard Fuller
Q
Amanda Gourlay: I think it should be assessed on a sliding scale, to take account of the differences of interest—
Richard Fuller
Q
Amanda Gourlay: I would not anticipate that the first-tier tribunal would be overwhelmed. At the moment, I find that my hearings go through within a reasonable period of time. That is the best I can say.
Mike Amesbury
Q
Amanda Gourlay: In the first few years, it would make it more complex, because I would have to learn about it. I have read the Law Commission’s report, and any new scheme is going to involve some bedding down. From what I read and hear about commonhold, it should make matters less litigious. That is what I hear. I have no experience of commonhold directly, however.
Andy Carter
Q
Amanda Gourlay: The difficulty always comes back to what information people are given when they purchase a property, or when they take on the lease of a flat or a house. On the whole, those in the conveyancing industry who behave ethically do their best to inform people. I have very little conveyancing experience, so I am going to hold my fire on that a little. Clearly, if something is important, it should be drawn to a purchaser’s attention. Recurring charges are something I would have anticipated. Anecdotally, I have heard that people will say, “I don’t understand why I am paying a service charge—I own my flat.” “Education” always sounds slightly high-handed, but more information being made available or accessible would be useful.
Andy Carter
Q
The Chair
We have just three minutes left, as we are bound by the programme motion. We will hear questions from Rachel Maclean and then Barry Gardiner, and we will finish by 11.25, as per the programme motion.
Rachel Maclean
Q
Amanda Gourlay: I believe I have acted for freeholders against leaseholders on occasion.
Barry Gardiner
Q
Amanda Gourlay: That would make sense, but damages are not an appropriate remedy in this particular situation. It is very rare that a leaseholder will suffer financial loss. It is more about encouraging good behaviour.
Barry Gardiner
Q
Amanda Gourlay: I will, yes. I had no intention of making a speech, and I am sorry if I trespassed on people’s patience.
The Chair
That is fine. Do not worry.
Ordered, That further consideration be now adjourned.—(Mr Mohindra.)
Criminal Justice Bill (Seventh sitting)
Tuesday 16th January 2024
(2 years, 7 months ago)
Public Bill CommitteesRead Full debate Criminal Justice Bill 2023-24 View all Criminal Justice Bill 2023-24 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 16 January 2024 - (16 Jan 2024)
The Chair
Before we begin, I have a few preliminary announcements. Members should send their speaking notes by email to [email protected] and please switch your electronic devices to silent. As you know, tea and coffee are not allowed at these meetings.
Clause 15
Testing of persons in police detention for presence of controlled drugs
The Minister for Crime, Policing and Fire (Chris Philp)
I beg to move amendment 25, in clause 15, page 11, line 19, leave out lines 19 to 21.
The amendment and amendment 26 ensure that procedural provisions in respect of regulations made under new section 63CA of PACE 1984 operate as intended.
The Chair
With this it will be convenient to discuss the following:
Government amendment 26.
Amendment 133, clause 15, page 11, line 27, at end insert—
“63CB Diversion services for persons testing positive for controlled drugs
Where a person has tested positive for the presence of controlled drugs in a sample taken under section 63B, that person must be directed to an appropriate drug diversion service.”
This amendment would require the police to refer individuals who test positive for a controlled drug to a drug diversion service.
Clause stand part.
Government amendments 27 to 31.
Clauses 16 and 17 stand part.
Government amendments 45 and 46.
Government new clause 13—Testing of persons outside of police detention for presence of controlled drugs.
Chris Philp
It is a great pleasure, as always, to serve under your chairmanship this morning, Mrs Latham.
This series of Government amendments and associated clauses expands the police powers to drug test on arrest to include locations outside of custody. That includes introducing a new police power into part 3 of the Police and Criminal Evidence Act 1984 to drug test persons on arrest at a location outside of the custody suite when certain conditions have been met. It also amends part 3 of the Drugs Act 2005 to provide the police with a power to require people who test positive to attend an initial assessment—and, when appropriate, a follow-up assessment—in respect of their drug misuse.
The Government are keen to get more people into treatment: something that we have funded with £300 million of extra cash over two or three years, with the aim of creating 54,500 extra drug treatment places. I am sure that we can all agree that the best thing is to get people off drug addiction, to prevent criminal behaviour.
The assessments that I have just referred to will enable those people to be referred into treatment or support services, whose funding has just been increased, as I mentioned. The new power will operate alongside the existing power, as expanded in the Bill, to drug test people on arrest or charge in police detention under section 63B of PACE.
Jess Phillips (Birmingham, Yardley) (Lab)
During the evidence sessions it was made very clear, by both experts in the field and the police officers, that currently there is absolutely no possibility of this resource being available. Will the Minister please outline what resources the Home Office will put in place to ensure that the drug testing that he is rightly outlining will be able to take place?
Chris Philp
I thank the hon. Lady for raising the point. It is important to have capacity to deliver the testing. As I mentioned a couple of moments ago, we are now in the second year of a three-year funding commitment, as part of the 10-year drug strategy, to fund 54,500 extra drug treatment places across the country, delivered in partnership with local public health bodies. Those places have been created. There are now also liaison and diversion officers, I think, in every—or almost every—custody setting and in many courts as well, to help identify people who have a drug addiction.
Just before Christmas, I visited the custody suite in Northampton, where I met liaison and diversion officers. They speak to people who have been brought into custody and, if there is a substance problem, get them referred as we are describing. I accept that there is a need for resources, but those investments are being made. The implementation is being tracked by a cross-Whitehall taskforce that meets on a regular basis and includes officials from lots of Departments.
Jess Phillips
I thank the Minister for that and am fully in favour of more drug support services. What I was asking was whether the police have the resources to undertake the drug testing that the clause outlines. The police said no; this is not about whether somebody then gets referred on—the police, in the evidence session, said no. The Casey review into the Metropolitan police last year found that samples from rape cases were being kept next to packets of sandwiches in a police officer’s fridge. Yesterday, there was the story about the foetus in Rochdale. Also, if—
Jess Phillips
Okay. There are just not the clinical resources in police stations currently. Will the Minister outline how the testing will be funded?
Chris Philp
I have talked about the liaison and diversion officers and the treatment capacity, but on police resources, which the hon. Lady was asking about, we have just completed a substantial police recruitment programme. We now have 20,951 more officers than we had four years ago and 3,500 more than we have ever had before. The training takes two to three years; as officers complete their training, more and more will be available for frontline deployment. In addition, we are also—
Chris Philp
Well, the actual tests often get administered by police officers, and the hon. Lady asked about police officer capacity.
We are also removing some of the administrative burdens on policing by reforming the Home Office counting rules—that has already saved half a million hours of police time per year. Furthermore, the NHS are in the process of picking back up mental health cases where there is no criminality or threat to public safety. That is right; people in a mental health crisis need medical treatment, not the police. Once that is fully implemented, and we are in the middle of doing it now, it will free up more than a million hours of police time. In addition to record police numbers, we are removing some of the burdens keeping them from frontline activity, including what we are discussing.
I am satisfied that both police resources and medical treatment resources are available. If anything, the challenge is actually that we are not using all the treatment places available. Some of the proposals in this legislation will help the police refer more people for that initial assessment, which we hope and expect will lead to treatment in the extra places that we funded.
I do not want to stray too far from the clause, Mrs Latham. Following the community safety partnerships review and antisocial behaviour powers consultation, we are, as I mentioned, expanding drug testing on arrest to locations outside of custody so that the tests can be done quickly and easily and take up less time, to answer the point made by the hon. Member for Birmingham, Yardley. That expansion, in addition to the expansion of drug testing to class B and class C drugs, as the Bill already provides, will ensure that police have all the necessary powers to identify people with a drug problem and get them into treatment.
The Government amendments confer a power on the police to drug test when a person aged 18 or over has been arrested for an offence and the officer has requested that the person give a sample. The power is discretionary, to be used when the officer feels that it is an appropriate course of action. It is also worth being clear that when drug testing takes place outside of police detention—that is, not in a police station—only a non-intimate sample, such as a swab or saliva, may be taken, for obvious reasons.
As with the current powers to drug test in police detention, testing may take place only when a person has been arrested for a relevant trigger offence, or another offence where an officer of at least the rank of inspector has reasonable grounds to suspect that the misuse of a specified controlled drug has caused or contributed to the offence and expressly authorises the test. A refusal to provide a sample without good reason will be a criminal offence, as is currently the case with the existing regime for drug testing on arrest.
Jess Phillips
In many domestic abuse cases—the fatal ones, sadly—the fact that the perpetrator was on drugs is used as a mitigating factor to get, for example, a manslaughter charge rather than a murder charge; I could cite many cases, but I will not stretch the Chair’s patience. Will drug testing be done in cases of domestic abuse, and has the Minister thought about how that might help the perpetrator?
Chris Philp
As I just set out, drug testing might be done, particularly if the inspector thinks that drug abuse might have contributed to the offending. If someone is on drugs that are causing them to commit domestic abuse, I am sure we would all want that identified so that action can be taken.
On the hon. Lady’s point about homicide versus manslaughter, that is not in the scope of this Bill—we are not making any changes in that area. I do, however, share her concern about the cases of people who murder their partners. We should not be somehow excusing their behaviour or seeking to diminish their culpability by saying, “Oh, they’re on drugs,” and getting the charge dropped from homicide to manslaughter. Although that is not the topic of this Bill—the Bill makes no changes as far as that is concerned—I share the hon. Lady’s concern. I hope that the legal community have heard the point that she has just made, with which I have enormous sympathy. I think it sounds reasonable.
The safeguards for the new power include that it can be used only by approved constables; that the statutory PACE codes of practice must include provision about how the new drug testing power is to be exercised; and that the sample may be taken only for the purpose of a drug test. That is to ensure that the power is used proportionately and only by those with appropriate experience.
The individual being tested must also be given a notice setting out why, when and where they were tested, and the result of the test. Following a positive test, a person can be required to attend an assessment with a drug-support worker, as is the case with the current drug testing regime. Non-attendance without good reason will itself be an offence. We will probably debate Opposition amendment 133 later; that tries to go further on this issue.
The trigger offences and specified controlled drugs will be set out in secondary legislation. The Secretary of State will, in line with the regime for drug testing in police detention, have the power to specify in regulations those trigger offences within the scope of drug testing in locations outside of custody, and the controlled drugs to be tested for. Such regulations will be subject to the affirmative and negative procedures respectively. That will ensure appropriate parliamentary scrutiny and allow for the regime to be varied if circumstances require.
The amendments also make various—I hesitate to use this term after the comments from the shadow Minister, the hon. Member for Nottingham North, last time—technical and consequential amendments; I think we should excise the word “technical” from our discussions in future to avoid triggering the shadow Minister. The amendments make various important and consequential changes to ensure that the drug testing regime outside of custody has the same legal effects as drug testing in police detention.
In talking through the amendments, I have explained the intent behind clauses 15 to 17. I will rest my remarks there and reply later to any further points raised in the debate.
Alex Norris (Nottingham North) (Lab/Co-op)
As we have heard, clauses 15 to 17 expand police powers to test for drugs in suspects who have been arrested and are in police detention. Drug testing on arrest was originally introduced as a police power under the Criminal Justice and Court Services Act 2000, which inserted sections 63B and 63C into the Police and Criminal Evidence Act 1984. That legislation gave the police the power to drug test those arrested if aged 18 and over, or charged if aged 14 and over, for the presence of specified class A drugs if arrested or charged either for a trigger offence or where a police officer of at least the rank of inspector has reasonable grounds to suspect that specified class A drug use has caused or contributed to the offence and authorises the test. Trigger offences include theft, handling stolen goods, going equipped for stealing and possession of a controlled drug if committed in respect of a specified class A drug. We know that such offences have a significant link to substance misuse. Clause 15 expands police powers to test not just specified class A drugs but any specified controlled drug.
We were very keen on such measures 23 years ago in relation to class A drugs, and we support their expansion to include any specified controlled drug; my anxiety stems from the fact that, as my hon. Friend the Member for Birmingham, Yardley mentioned, we heard in the evidence session and we know from engagement with our local police forces that there is not likely to be the capacity to do this effectively.
The Minister said that there are record police numbers, but he knows that there are 10,000 fewer police in neighbourhood settings. His pushback to that in previous debates has been to classify response police as neighbourhood police, but they would certainly not be able to do this type of activity. The burden of proof is on the Minister and the Department to show where the capacity will come from. We have real doubts, although we hope the measure will work.
Peter Dowd (Bootle) (Lab)
Does my hon. Friend agree that the measure seems to be in contradiction to the position that many police forces are in? Because they lack resource capacity, they are withdrawing from dealing with issues relating to mental health and are saying, “We don’t have the capacity to do it.” Does my hon. Friend agree that this measure will put more pressure on police forces at a time when they are having to withdraw from some operational interventions?
Alex Norris
I am grateful to my hon. Friend. Routinely or in extremis, demand pressures can push officers to do just the basics—keeping people safe and putting people in detention—rather than dealing with the broader issues, as we want them to. That problem creates further issues, and that is a challenge for us all.
Chris Philp
On that point, it is important to clarify the reason we are introducing the national partnership agreement, which applies Right Care, Right Person across the whole of England and, we hope, Wales too. Following a successful pilot in Humberside, it was found that in many of the mental health cases that the police were dealing with there was no criminality and no threat to public safety, so a police response was not right for the person suffering the mental health crisis. Not only was that taking up lots of police time that should have been spent doing other things, such as dealing with drug offences, but the person suffering a health episode was not being properly treated. It was found in Humberside that it is better for everyone, including the patient, to get a medical response in those circumstances. That is the motivation for the national partnership agreement, which the hon. Gentleman just referred to.
Alex Norris
The evidence from Humberside was strong and gave us encouragement to expand the scheme nationally; the challenge will be whether we see the same level of thought in its implementation across the country as we saw in Humberside. As my hon. Friend the Member for Bootle said, the risk is that forces will apply the scheme by simply not responding or turning their phone off, and displacing the activity. Humberside is a really good example of something done thoughtfully and well, but we should not assume that we will see that nationwide.
Peter Dowd
On the point that the Minister made in his intervention, does my hon. Friend agree that the issue is circuitous? The reason why the police were involved in mental health interventions in the past, although they are pulling away from them, was that there were such strains and stresses on the health service and local government that they had to fill the gap. Does my hon. Friend agree that this is getting to the farcical stage, with gaps in resources left, right and centre?
Alex Norris
Sadly, it has been a defining feature of the past nearly 14 years that we have been left dealing with significant issues such as substance misuse at the latest and most expensive stage, and that is particularly pertinent in policing. We deal with mental health issues, to the degree that we do deal with them—certainly for children and adolescents, that is definitely not the case universally—at the point of crisis. We do not have earlier interventions.
My amendment 133 seeks to add a little bit of that back in. It is a point of agreement across parties that, if individuals are in custody for crimes that they are alleged to have committed and they test positive for substances in their system, then that support is necessary—it is critical—to stop their drug use and hopefully change their life. My amendment refers to that, and I will get to that in a second. Currently, under the Drugs Act 2005, an individual who tests positive for a class A drug may be required to attend an individual assessment relating to their drug use and possibly a follow-up assessment. I think that we can go a little further than that, as my amendment does.
Jess Phillips
I am not offended by the fundamentals of the clause—the idea that everybody is drug-tested. I can foresee possible abuses of the discretion that the Minister described, and I will not be surprised in a couple of years’ time if that discretion is used with black people more than it is with white people, for example, but time will tell. Let us have the triumph of hope over experience that this occasion will not be like every other one that came before.
But as somebody who deals with police forces and forensics and testing, I really do have to challenge the idea that the capacity currently exists to take even just a swab from someone. I do not understand this. What is the timeframe? How long will it take to get the results? I am currently working on a case that I started in May last year, and where are we now? Seven months in I am still waiting for lab results from my local police force. It is not some backwater, but the second largest force in the country.
In reality, I do not believe that this will happen for every person who comes into a custody suite. Let us say it takes a week for the results to come back. The Minister should feel free to intervene to say that the system will work like in an airport, where a bag can be tested to see if it has cocaine in it—not that I have any personal experience! He should feel free to say that every police force will get new machines to enable a result within the time that somebody is kept in custody, and that an intervention will be put in place sensitively. I would be delighted to hear that the world is completely not as I recognise it from being in custody suites just over this past year—not over many years, but just this year. This situation just does not stack up in reality.
The lag in getting a result could be a week—again, let us go for the triumph of hope over experience—but we are much more likely to be talking months. Will that slow down charging? I want to understand exactly how this is going to work in an already overstretched system. In the case from May that I talked about, a victim of multiple rapes, forced marriage and 10 years of abuse has waited seven months for anything. We just get, “Sorry, we’re waiting on forensics.”
Mark Garnier (Wyre Forest) (Con)
The hon. Lady’s points are well made and important, but, at the end of the day, does she fundamentally agree with the principle behind the measures? Is it just the process that she is worried about?
Jess Phillips
I believe in so many principles that I know in reality cannot be realised. I believe in the principle that when someone is in crisis with suicide, there should be a telephone line that I can call that means that they get what we used to call—because it used to exist—a safe and well check. I have done that many times myself. I believe in principle that that should happen. If a Minister were to stand in front of me and tell me that that was the policy, it would be like them telling me that the sky is green. It may very well be the policy, but the reality is completely different. In the evidence sessions, all the experts in the field backed me up.
I want to know how this will actually work. I absolutely want it to work, but, to the hon. Gentleman’s point, I am very concerned about some of the safeguards. One of the things that people who work in the criminal justice system notice is the trends in how wrong ’uns, essentially, start to get away with things—there is always some new defence coming down the line. In the days when we did not believe victims of domestic abuse and they could just be ignored—see yesterday’s report on Rochdale—people did not need a response. The current favourite of a domestic abuse perpetrator on a summary or more serious offence is a counterclaim against the victim—“Well, she’s abusing me”—and my God, does it work! The amount of women who are victims of domestic abuse currently being accused by police forces across the country of being perpetrators, not victims, of domestic abuse is plentiful.
We also know that if we look at our female prison population, or at the roll of women in any substance misuse service, we would go a long way before we found one who had not been a victim of domestic abuse or sexual violence—in childhood and adulthood—and exploitation. There is a reason why women end up substance-dependent. Incidentally, there is a reason why men do too, but the main reason why women end up substance-dependent is abuses they have suffered. It is very likely that a counterclaim that brings a woman into a custody suite will find that she smoked a few spliffs the day before. That will go against her not just in the criminal court, where she is much more likely to be convicted of those crimes than her partner, if we look at all the data on female convictions, but in the family court, where she will lose her children as a result of that evidence.
If a woman is distressed because she has just been attacked or has lived with fear and she is behaving erratically—who wouldn’t?—and somebody says, “I think she might be on drugs,” it will be used against her. On the defences I talked about, if a person commits domestic abuse and is on drugs, that will be considered a mitigating factor. I have seen it lots of times; in the most serious cases, it is the difference between manslaughter and murder. Let us flip it around: if a person murders or harms someone who is themselves on drugs, it is seen as an aggravation on their part, and they get manslaughter again. If a person kills a woman who is behaving erratically because she is on drugs, jackpot—manslaughter! If a woman takes drugs and is killed, it is a reason to give a man manslaughter. If a man takes drugs and kills someone, it is a reason to give him manslaughter. Frankly, the cards are stacked against us.
I agree with the principle of the clause, but what happens if there is a counterclaim and the woman is drug-tested and found to be on drugs and the man is not, or the other way round? Either way, there is a possibility—well, it is not a possibility, because every other law we have tried to change has been used by perpetrators; they are better than us in this regard and know their way around the system, as do their lawyers—that he will get a lighter sentence.
I wish the police were trained well enough, but only 50% are trained on coercive control, for example. We have to make sure that there is guidance so that, in cases of domestic abuse, where the woman has a potential counterclaim, these things are not taken into account; otherwise, they will be used to take her children off her—they will be used against her. I can already see it in my future. I ask that that is given some really serious thought, because I am a bit frightened about how this is going to play out.
As somebody with decades-long experience of living side by side with a heroin, crack and cocaine addict, who I am pleased to say is well now and has dedicated his life to the service of other people in that situation, I have to say that the idea that a person “has to” go to one session—it is about the compulsion—means that they are just going to go and tick a box. My mum sent my brother halfway round the world to have different interventions. They did not work. Thousands of pounds were spent trying to get somebody off drugs.
I hear what the Minister says about more money being put into this, and my brother was and continues to be part of Dame Carol Black’s review. However, there is this idea that just one interview will do the job. In reality, it is a tick-box exercise, and it will not work unless people’s initial trauma is dealt with. You would have to go a long way to see somebody with problematic substance misuse who has not suffered some form of trauma. Loads of people take drugs recreationally, and it does not harm them; they are not allergic to it and do not become problematic addicts. The reason why that happens to some people and they go on to commit crimes is that something else is wrong. One meeting will not a problem solve. If one meeting had been what it took, my mother would have died in a happier position than she did.
This proposal is not a panacea, unless we work with things such as the 12-step programme—I declare that I am on the all-party parliamentary group for 12 step recovery. The programme is completely free, so commissioners do not understand it; they do not know how to behave when no one is asking them for any money. I cannot stress enough that if this proposal is just to make a nice headline—“We are going to drug-test everybody”—rather than something that will work in reality, it is a massive waste of police time; it is pointless. I will leave my comments there.
Chris Philp
I will try to respond to some of the points made on this group of amendments and clauses. On mental health, as the national partnership agreement is rolled out, we are asking the NHS to do more to treat people when it is just a medical condition, and that is what the NHS should do, because a medical crisis requires a medical response.
To respond to the point about resources, the NHS is this year receiving an extra £3.3 billion above and beyond what was planned. A lot of extra money is going into mental health specifically, and things such as mental health ambulances and mental health places of safety are being invested in to create the capacity required for the NHS and the ambulance service to take on people who have, in the last few years, wrongly been picked up by the police.
On making sure that the roll-out is done as thoughtfully elsewhere in the country as it has been in Humberside, we are not taking a “big bang” approach; we have not just flicked a switch and said that it is going to happen nationally from tomorrow. Implementation is happening on a force-by-force basis. In each area, the police are working with the local hospital trust, the mental health trust and the ambulance trust to make sure that the capacity is in place before things get switched over.
The roll-out has already happened in some areas. In London, I think it went live on 1 October or 1 November, but it may not be implemented until the end of this year in other areas, because they are going through the process of making sure that the NHS side of the equation has the capacity and is ready. Things are being done in a thoughtful and measured way around the country to replicate the success in Humberside, to which the shadow Minister referred.
I will try to address one or two of the other questions.
Alex Cunningham (Stockton North) (Lab)
I did not intend to intervene in this debate, but will the Minister address one issue before he moves on? In my area, the mental health trust is under considerable stress, and there have been various patient deaths and things like that. The mental health services tell me that they are struggling to get professionals to join them so that they can provide what is needed. How can the Minister be confident in what he is saying if we do not have professionals joining the service and are more likely to see them leaving?
Chris Philp
We are getting a little way off topic. Briefly, since the shadow Minister has raised the question, the roll-out is happening in a thoughtful way, rather than immediately, to make sure that such issues are addressed. As I said a moment ago, extra money is being put in. The NHS workforce plan, which is now in place, is designed to make sure that the people needed are there to meet the challenges, not just in mental health, but across the whole NHS spectrum.
Fundamentally, we all want to see people who have a mental health condition treated medically. Where there is no criminality and no threat to public safety, it is completely inappropriate to get a police response, which has been happening in recent years. Those people need to be treated, not put in a police custody cell, for example. That is the right thing to do, not just for the police, whose capacity is freed up to protect us and our constituents and to catch criminals, but for patients, who need and deserve a medical response. We are now working to ensure that that happens across the country, building on the successful trailblazer in Humberside, which shows that this can work.
On the question from the shadow Minister, the hon. Member for Nottingham North, about using the negative versus the affirmative procedure in Government amendments 25 and 26, no substantive change is being made. Essentially, changing the list of specified controlled drugs is subject to the negative procedure, the trigger offences are subject to the affirmative procedure and, if the changes are some mix of the two, that is subject to the affirmative procedure. That does not substantively change the current position.
Let me turn to the questions that arose on drug testing outside of a custodial setting. To be clear, we are conferring a discretionary power on the police. We are not compelling them to test; we are leaving it up to the police officer. There may be occasions when, for operational reasons and to test more people, they find it more operationally appropriate to test on the spot outside of a custodial setting. It may be that they do not plan to take the person back to a custodial setting. That will save police time. This is a discretionary power, not an obligation; the police can use it where they judge it to be helpful.
The shadow Minister also asked about time. These tests are not sent away to the laboratory. I accept that we need laboratory tests to be a lot faster, as the hon. Member for Birmingham, Yardley highlighted in her remarks. However, these are on-the-spot tests, similar to those that might be seen in an airport—by the way, I think those are testing for explosives.
Chris Philp
I am relieved, but not surprised, to hear that. The result of these on-the-spot tests takes between 13 and 35 minutes to come back, so it is pretty quick.
I said these were so-called non-intrusive tests, and the shadow Minister asked, “What about urine samples?” To be clear, non-intrusive tests are defined in section 65 of the PACE code. That does not include urine samples but does include hair—excluding pubic hair—saliva and a swab taken from a non-intimate place, such as under the armpit. We are talking about pretty non-intrusive stuff.
Chris Philp
I beg to move amendment 32, in clause 18, page 14, line 13, after “application” insert “(including any appeal)”.
This amendment clarifies that for the purposes of clause 18(8)(b), the final determination of an application includes the determination of any appeal.
Chris Philp
The clause provides a new power for the police to seize, retain and destroy any bladed article—a knife, for example—held in private when they are on the private premises lawfully, but where they have reasonable grounds to suspect that the item is likely to be used for unlawful violence. Such knives are legal and held privately, but the police are concerned they might be used for unlawful violence.
Data shows that incidents with a knife or sharp instrument have fallen by 26% since December 2019, but it is still disturbing to see the number of cases admitted to the NHS every year—we look at NHS hospital admissions data because that is the most reliable measure of knife crime. As I say, hospital admissions for injuries with a bladed item have fallen by 26% in the last four years.
Currently, the police have no power to remove potential weapons from individuals unless those are to be used as evidence in an investigation or are subject to a ban. Even if the police come across several potentially dangerous knives while they are in a property with a search warrant for an unrelated matter—for example, a drugs charge—the only way they can legally remove those knives, even if they have reason to suspect they will be used unlawfully, would be if they were to be used as evidence in the investigation. These knives do not fall foul of the definition of knives that are inherently illegal, which we discussed in our previous Committee proceedings. We will widen the definition of illegal knives shortly via a statutory instrument, and such knives are always illegal, even if possessed in private. We are talking here about knives—a kitchen knife, for example—that will remain legal. I commend my hon. Friend the Member for Southend West for her campaigning on the issue of banning a much wider range of knives completely.
It might assist the Committee if I share a case study to illustrate the need for this measure. A police officer might be conducting a search in the residence of a male arrested for murder involving a firearm. The person might have multiple links to local gangs. A quantity of drugs might be recovered from the premises, along with a number of knives. Although there were drugs offences, if the knives found were not related to those offences, the police would have no power to seize them, even though they were found in the possession of a known criminal.
Jess Phillips
I seek clarity. There is a load of big kitchen knives on the wall in my house, and I can see them when I walk in. I deal with the issue of violence in a domestic setting all the time, but would that count?
Chris Philp
No, it would not count. For the police to exercise the proposed power, they must have reasonable grounds to suspect that the item is likely to be used for an unlawful purpose. I do not think there would be any reasonable grounds to suspect that kitchen knives hanging on the wall of the hon. Member for Birmingham, Yardley would be used for an unlawful purpose. By contrast, if the police were in the residence of a known prolific drug dealer and gang member, drugs had been recovered from the premises and they had been arrested or convicted for previous violent offences, that would be an instance where a quantity of knives—perhaps different knives beyond kitchen knives—would meet the threshold that I just set out. I hope that sets out the rationale.
In his evidence to the Committee on 12 December, Chief Constable Gavin Stephens, chair of the National Police Chiefs’ Council, said that giving the police this power is
“a very important preventive measure.”––[Official Report, Criminal Justice Public Bill Committee, 12 December 2023; c. 11, Q18.]
That is why are seeking to introduce the provision, justified in the way that I have set out. If somebody believes that their property—their knife—has been seized in error, they will be able to make a complaint to the police, as with any other police matter. In addition, we are providing a right of appeal in court to have the item returned, if the court agrees. If somebody did unreasonably seize the kitchen knives of the hon. Member for Birmingham, Yardley, she would be able to complain to the police in the first instance. If they did not address her complaint and return the knives, she would then be able to go to the court and get them returned.
It is also important to say that there is no additional power of entry associated with the new power. The police would need to be in the property lawfully, which, presumably, would also not be the case in the hon. Member’s house. For example, they would need to be there as part of an investigation into an unrelated matter or invited into the property. We will amend code B of the Police and Criminal Evidence Act 1984 to ensure that the codes of conduct reflect the new power, so that it is used in a fair and reasonable way.
Finally, amendment 32 is a minor technical amendment —we must not forget that—which clarifies that for the purposes of clause 18(8)(b), the final determination of an application includes the determination of any appeal. This provision will help the police to take dangerous knives off the street, or out of people’s houses, even if they are legal, where they are suspected of being used for unlawful violence. It is a useful additional power. The police asked for it in their evidence to the Committee, and I hope that it will command cross-party support.
Alex Norris
This provision is to some degree the less controversial—though not unimportant—counterpart to clause 19, so I will keep some of my arguments for the next debate. The Minister wants cross-party support and he will secure it on this matter. The consequences of the clause will be that if a constable is lawfully on a premises and they find a bladed or sharply pointed item that they think might be connected to unlawful violence, they can seize the article. It passes an important test, which I think about quite a lot: if I had to explain to my constituents that the reverse were true, would they think I am an idiot? In this case, I think that the test is passed. If bladed or pointed weapons that might be used for unlawful violence are found during a lawful visit relating to another purpose, they absolutely should be seized. It is in the public interest.
We will discuss this point in the next debate, but it is important that the principle of search warrants is upheld, and that they have a definition; they cannot be used for fishing trips or exploratory trips. Nevertheless, when these sorts of items are found, we must be able to take them out of use. I am interested in whether the Minister thinks there is a need for training or awareness among officers. We could apply a Phillips test quite easily: if someone has a knife but they do not have any food or a kitchen, that is probably a bad sign. That in itself is possibly not the quality of regulations a Secretary of State might wish to set, so I would be interested to hear how the Minister thinks that might work.
I am grateful for the clarity that clause 18(1)(a), which states,
“is lawfully on the premises”,
means that the power applies on any visit, for whatever purpose, whether that is a search warrant or a response call. I do not disagree with that, but it is important that we state that. It is important that it is understood. It must be demoralising for staff to visit for a certain purpose—say, on a search warrant—and then to have people there laughing at them because they cannot withdraw from circulation some dangerous weapons. I think, therefore, that the provision will be welcomed by officers as well.
Chris Philp
I will briefly reply to a couple of the questions. We propose to use the same processes already in place for property that is seized. There is a very standard form and process that the police routinely use, and the same would apply here. The hon. Gentleman asks about subsection (7), on the basis on which a court might hear an appeal, and about paragraph (b) in particular, which appears towards the top of page 14. The subsection states that the court may make an order if it appears to it that the person is the owner and that
“it would be just to make the order”.
The hon. Gentleman askes what that means. I think the meaning is that the test set out in subsection (1)(c) is met—that is to say, there are
“reasonable grounds for suspecting that the relevant article would be likely to be used in connection with unlawful violence”
were it not seized. I think the test of whether the decision to seize and retain the blade is “just” essentially refers back to the test set out in clause 18(1)(c). It would seem reasonable that if that is the statutory test that the police officer applies when deciding whether to seize the knife, one would expect the court to apply precisely the same test, and that is how, therefore, I would expect the court to apply the term “just”. I hope, should there be any ambiguity, the transcript of this answer will assist the court in interpreting the use of the word “just” in what will be section 18(7)(b).
Amendment 32 agreed to.
Clause 18, as amended, ordered to stand part of the Bill.
Clause 19
Stolen goods on premises: entry, search and seizure without warrant
Alex Norris
I beg to move amendment 61, in clause 19, page 15, line 17, at end insert—
“(8) A constable may search a specified premises for specified items without obtaining authorisation under subsection (1) if the constable believes that the search is necessary for the effective identification of stolen goods.
(9) If a constable conducts a search by virtue of subsection (8), they shall inform an officer of at least the rank of inspector that they have made the search as soon as practicable after the completion of the search.
(10) An officer who is informed of a search under subsection (9) shall make a record in writing—
(a) of the grounds for the search;
(b) of the nature of the items sought;
(c) confirming that the officer would have given their authorisation under subsection (2) had the constable sought it.”
This amendment aligns the power given under Clause 19 with that in section 18 of the Police and Criminal Evidence Act 1984, and enables a police constable to undertake a search for stolen goods without a warrant without obtaining authorisation from a superior officer.
Clause 19 is one of the more significant clauses. It introduces very significant new powers of entry, search and seizure without a warrant. That is not without controversy, as I think we will cover in the next three debates. Amendment 2, which proposed to leave out clause 19, has not been selected for debate, but it is worth noting that it received quite a lot of signatures spanning a very broad range of parliamentarians across the Conservatives, the Lib Dems and the Democratic Unionist party. Clearly, a significant range of colleagues with significantly different world views are discomforted by these provisions. That is always an interesting and important sign that we should get something right.
Again, I subject this to what my constituents think and the conversations that I have had with them in the past. So many items are now fitted with a GPS or geolocation tracker, but it is a matter of considerable frustration and no little confusion that the fact that we know where an item is does not provide appropriate grounds for a constable to retrieve it. That is deeply frustrating and, as we have seen in the explanatory notes and heard in the evidence sessions, is a problem that the clause seeks to solve.
The clause inserts into the Theft Act 1968 proposed new section 26A, which confers power on a police officer to enter and search any premises for stolen goods without a warrant. Under the current provisions in the Theft Act, a warrant would have to be issued by a magistrate before such a search could take place. Given the nature of the enterprises that pinch digital technology or expensive bikes, or that may even be stealing cars to order, we know that that delay involved could mean that our response is far too late and that the moment for retrieval, for detection and perhaps for breaking up an organised group of criminals has been missed.
Clause 19 goes on to state the parameters for the new power whereby the need for a warrant can be bypassed—namely, that a police officer of at least inspector level must authorise a constable to enter premises and search for the specified items, in this case stolen goods. It also sets out the conditions—namely, that the police officer of at least inspector level must be satisfied that there are reasonable grounds to believe that the items have been stolen, that they are on the premises and that it is not reasonably practicable to obtain a warrant without frustrating or prejudicing the search—and that authorisation can be oral or written. Again, this process seems reasonable, given that the crime that it is concerned with often involves the rightful owner having that degree of tracking information and being able to provide it to the police, showing the precise location of the stolen goods, but at present the police cannot do anything about it.
There are certain checks and oversights. A uniformed constable must conduct the search; it must happen within 24 hours of authorisation, although I suspect that such searches will take place much more quickly than that; and it must be done at a reasonable hour. Again, in principle we support these measures; without wanting to prejudge the stand part debate, I need to establish that context before I can turn to my amendment.
The current process for obtaining warrants to search properties for stolen goods with tracking information can be an inefficient use of police and magistrates’ time. It hampers investigations and allows criminal enterprises to benefit from their activities, using the slowness of the authorities to do things much more quickly, and obviously we know that that can have a knock-on effect for further crimes as well.
An interesting point was well made in the evidence session when we heard from Superintendent Nick Smart of the Police Superintendents’ Association. He challenged the Committee about why the Bill appeared to sit differently from existing powers set out in section 18 of PACE. Amendment 61, which I have tabled, sets out to probe that issue.
Section 18 of PACE allows entry and search without the prior authorisation of a more senior officer, provided that it is after an arrest and the officer has reasonable grounds to suspect that there is evidence on the premises being searched relating to the offence that has been committed, or to a connected offence. Therefore, there is precedent in current legislation for entry and search without a warrant or prior authorisation, and section 18 of PACE allows for consent to be sought afterwards, with a senior officer at the rank of inspector or above having to sign off on that, saying that they would have authorised the search if they had been there in that moment. That is also an important caveat.
Amendment 61 merely seeks to align the powers in clause 19 with similar powers in section 18 of PACE. The reason I think that would be quite helpful is that it would be more consistent from an officer’s point of view. I do not think that we would want officers to think, “Ah, am I using section 19 of the Criminal Justice Act or section 18 of PACE?” and therefore asking, “Can I, or can’t I?” The possibility for error is quite clear there.
More importantly, however, I think there would be some clarity for the public, too, because, once again, just as it would be challenging but not unreasonable to ask for officers to be very conscious of the different sections of the powers that they are using—of course they need to know that, although there are times in the heat of the moment when mistakes could happen—I do not think it is reasonable to expect members of the public to hold such things in their minds.
Therefore, consistency in the regime used is important; I think that was the point that Superintendent Smart was making, which is probably a good one. I want to press the Minister as to why that approach was not taken and why his approach is better.
Peter Dowd
Amendments 61, 58 and 59 are linked, but I will speak first to amendment 61, a thoughtful amendment tabled by my hon. Friend the Member for Nottingham North.
I want to address an issue relating to the Human Rights Act 1998, which incorporates the European convention on human rights into UK law, with particular reference to section 6, “Acts of public authorities”, which came into force in October 2000. I stand to be corrected, but as far as I am concerned, for the purposes of the amendment, the right to respect for private and family life informs the relevant police powers and sets them in context.
Article 8 of the convention states:
“1. Everyone has the right to respect for his private and family life, his home and his correspondence.
2. There shall be no interference by a public authority with the exercise of this right except such as is in accordance with the law and is necessary in a democratic society in the interests of national security, public safety or the economic well-being of the country, for the prevention of disorder or crime, for the protection of health or morals, or for the protection of the rights and freedoms of others.”
As paragraph 2 above sets out, it is unlawful under the Act for a public authority to act in a way that is incompatible with the convention right, unless it is compelled or permitted by statute to do otherwise. There is an excellent lecture by Robert Walker entitled “The English Law of Privacy: an Evolving Human Right”, which is well worth a perusal. I am sure that everyone in this room agrees, notwithstanding the current debate among some Government Members in relation to the ECHR more broadly, that article 8 is pretty uncontentious. What is perhaps more contentious is where it is breached. It is important that we keep that in mind.
Chris Philp
I very much welcome the Opposition’s support for the principle behind clause 19. As the hon. Member for Nottingham North mentioned, some people—a small number, I would add—have expressed reservations, but I am glad that we agree on the principle that the clause will help police officers to retrieve stolen goods; our constituents will welcome that. Amendment 61 aims to fine-tune the detail of how that is done. In fact, it goes a little further in its drafting than the Government are proposing. The hon. Gentleman referred to section 18 of the Police and Criminal Evidence Act 1984, noting that in some circumstances constables can enter premises without a warrant or prior authorisation from a more senior officer. He seeks to implement the same thing via his amendment.
The difference, however, is that under in the PACE provision the police must either suspect that a person is on the premises or be in pursuit of a particular person, whereas clause 19 is about stolen goods. Of course, individuals are a little more mobile than stolen goods: a stolen mobile phone, iPad or car can be moved, but that requires a person, whereas if the police think a person is in the premises, they can leg it pretty quickly. We do not need prior authorisation from an inspector under section 18 of PACE, because that relates to a person the police are after, whereas in this case we are talking about stolen goods. If the police think that there are both stolen goods and a person, the PACE provisions will apply and they can enter the premises without a warrant and without prior authorisation. The reason that we have built in the little extra step of prior authorisation by an inspector is that we are talking just about stolen goods, not about a person.
I can assure the shadow Minister that inspectors are used to authorising the use of various police powers—that is relatively routine—and inspectors are always available in each relevant area 24 hours a day, so there should not be any particular delay. We think that the clause is ECHR-compliant, and of course on the front page of the Bill there is a statement under section 19(1)(a) of the Human Rights Act that in the view of the Secretary of State, its provisions are consistent with our ECHR obligations—a topic that may be debated on the Floor of the House today and tomorrow.
It is very welcome that the Opposition support the clause in principle. I do not think that the calibration of the inspector’s prior authorisation will cause any delay practically. Because we are going after goods and not people here, I think the balance is right. While welcoming the Opposition’s support for the clause in principle, I therefore gently resist their amendment.
Alex Norris
I am grateful for the contribution from my hon. Friend the Member for Bootle. His points about human rights are really important. In this Committee, and during the Bill’s remaining stages in this place and down the other end of the building, we will have to fine-tune—I think that is the phrase he used—the balance of these provisions.
The Opposition certainly do not support routine warrantless searches, just on spec, of people’s lives, premises or property. We have to find a balance; that is why we have a warrants regime. If there are cases—I think that the clause provides us with one—in which it is reasonable to set that to one side, we must do so in a tightly defined and clearly understood way. I do not want to start the next debate prematurely, but that is very much my view, and I will be pressing the Minister further on it.
I am grateful for the Minister’s explanation, which is enough to give me comfort. It is slightly strange to hear conversation about the ECHR up here in Committee, given what we will hear downstairs on the Floor of the House this afternoon, but that is for others to debate. For the purposes of this debate, what the Minister said is a helpful caveat. What I offer perhaps would go further, and given that we are moving gently into this space, perhaps it is not wise to go the whole way. I suspect that this might have to be kept under review. The Minister talked about property not being fast-moving. Perhaps that will be tested by time, but at this point I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Alex Norris
I beg to move amendment 58, in clause 19, page 16, line 24, at end insert—
“(4) The Secretary of State must, as soon as is practicable after a period of two years from the date of Royal Assent to this Act, lay before Parliament a report on the implementation and utilisation of the police powers introduced by this section.”
This amendment would require the Secretary of State to publish a report on the police’s use of the new powers of entry, search and seizure.
The Chair
With this it will be convenient to discuss amendment 59, in clause 19, page 16, line 24, at end insert—
“(4) The College of Policing must exercise its powers under section 39A of the Police Act 1996 to issue a code of practice in relation to the use of powers introduced by this section.
(5) In drawing up the code of practice under subsection (4), the College of Policing must consult with such individuals or bodies as it sees fit.”
This amendment would require the College of Policing to publish a code of practice on the use of the new powers of entry, search and seizure.
Alex Norris
There are considerable concerns about clause 19, as colleagues have demonstrated by tabling amendment 2. As far as amendments to Bills tabled by people who are not Committee members go, the range of signatories to amendment 2 is interesting. It shows that there is interest from a wide range of colleagues with a wide range of world views, so it is important that we take the time to look at the matter properly.
We should be honest that allowing warrantless searches is a significant change. Search warrants are a well-established and well-understood part of our law and policing processes. My hon. Friend the Member for Stockton North mentioned how all-pervading they are in media and on television. There is a widespread acceptance and understanding of “You’re not coming in if you don’t have your warrant,” and that sort of thing. It is important that we in this place provide clarity and leadership, and that if we want to set that regime aside we explain how we will do it and what it will mean. We have to balance that against the public’s very reasonable expectation that we should use new technologies to get their things back.
I hope to hear from the Minister that the Government’s view is that this is a very narrow power for a narrow set of circumstances, that it is not a significant change to the search warrant regime in this country, and that people should understand that warrants are the default, primary and most important way for law enforcement agencies to enter their property. I hope to hear that this is a de minimis power that will be utilised in a targeted way for a specific purpose. I believe that to be the case, and I think that that is what came out of the evidence sessions, but I hope that the Minister will put it on the record.
Amendments 58 and 59 are designed to give the powers some shape, assurance and guardrails so that members of the public and interest groups watching our debates know that we are not just signing off on the Bill and forgetting about it, and that Parliament takes an active interest in seeing how and whether it works.
Amendment 58 would require the Secretary of State to lay before Parliament a report on the use of the powers within two years of the Bill’s Royal Assent. That would give us in this place a chance to have some oversight and scrutiny of what has happened. It would get the Government to state on the record, in an indisputable way, whether they feel that the powers have or have not worked, so that there can be an assurance of ongoing parliamentary interest. It would perhaps give us a jumping-off point to change direction if needed. Again, I would be interested to hear the Minister’s views. If he is not minded to accept the amendment, how will the Government keep track? How will Parliament get the chance to have its say about the effectiveness or otherwise of the new provision?
We will file amendment 59 under no good deed going unpunished. We heard typically excellent evidence in our session with Chief Constable Andy Marsh, the chief executive of the College of Policing. He said that there is an issue with the provisions in the Bill: the technology is not perfect. If someone has lost their phone or tablet and finds out that it is in their house, pinpointing it becomes quite the scavenger hunt, because the technology is not that accurate. Some of the inbuilt technology might be better than some of the trackers that are appended to an item, which can have varying ranges and be imprecise. There could also be challenges if someone is living in shared accommodation, because it might not be clear which room or dwelling an item is in or, if the building has multiple enterprises, which one is holding it. The technology is not so good that those concerns are removed.
My suggestion, which mirrors one of the Government’s ideas in clause 73, is that we ask Chief Constable Marsh and his College of Policing to issue a code of practice on the use of the new powers of entry, search and seizure. We should be very clear about what it is for and what it is not for, which would give confidence to colleagues and the wider public. This is primarily a conversation about technology, but not exclusively so. Again, there will be frustration if someone comes to us and says that their distinctively designed guitar is in the window of a pawn shop. It is deeply frustrating that the police have very little power to recover that item, so providing some shape through a code of practice would be helpful.
The code of practice ought to state—perhaps the Minister will say this himself in his response—that the purpose of the clause is not to change our warrant regime, but to ensure that a stolen item has some degree of locator or physical differentiator, so that it is known to be in a certain vicinity and it is not reasonable to think it could be anywhere else. That is the narrow circumstance under which the power should be used. That is certainly our view on how broad it should go. I think it is probably the Government’s view as well, and I hope to hear that from the Minister. Either way, my amendments seek to give the powers guardrails. I hope that they will be agreed to on that basis, but if not, I hope that the Minister will tell us what guardrails the Government have in lieu to ensure that the power is effective and retains public confidence.
Peter Dowd
My hon. Friend the Member for Nottingham North has laid out the context for amendments 58 and 59 with thoughtfulness and with consideration, as he did for amendment 61. I agree with him that seeking a review within two years or thereabouts of the application of the powers is really important. It is important to ensure that when we give additional powers to the police, we ensure that the operation, implementation and use of those powers are subject to review. I think we would all agree that it would be beneficial on various levels, including operationally and in policy terms, to step back after a period of time and take a look at the implementation of the powers.
Notwithstanding the fact that my hon. Friend has described the powers as narrow, people will not be used to them. Let us say that in the first five or six months of last year, there were about 50 or 60 bike thefts in my constituency and that half of those bikes had a locator on them. Although they may have a “stolen” bike in their home, people are not used to the police just turning up, going into the shed and getting the bike, so we must explain why we are doing that. It is important to have a review after a couple of years to ensure that my constituents know that they will not be on the receiving end of a disproportionate intervention by the authorities. I have no reason to believe that the powers will be used indiscriminately or outside the spirit of our discussions today, but we live in a democracy and we want to live in a cohesive society, so it is important that we have checks and balances. A review after a couple of years, to ensure consistency, is important.
I agree with amendment 59, which would require the College of Policing to produce a code of practice in relation to the use of the powers. The College of Policing often talks about using
“evidence-based knowledge in everything we develop”.
That is crucial, so I am sure that it would welcome my hon. Friend’s proposal. It is important that the modus operandi of the police officer or constable be guided by authorised professional practice guidelines, which the College of Policing has, to ensure that their interventions are as appropriate as possible. That is all the more important in the light of the challenging circumstances in which some powers will be used. As I have indicated, the College of Policing is already well versed in the production of codes of practice, including—to name just a couple—those on the use of the police national computer and the law enforcement data service and on armed policing and the use of less lethal weapons.
I hope that the Minister will give careful consideration to the points that my hon. Friend the Member for Nottingham North and I have made about the amendments. As my hon. Friend says, if the Minister will not accept the amendments, we ask him for an assurance that the spirit of them, if not the letter, will be included in the Bill. I know that the Minister is always equitable in these matters, and I am sure he will give careful consideration to the well-thought-out and considered views expressed by my hon. Friend.
Chris Philp
Let me respond briefly on amendments 58 and 59. Amendment 58 asks for review. Members of the Committee will know that review and scrutiny of statutory powers happens on a regular basis. The Home Office collects and publishes more data on the use of police powers than it ever has before. There are plenty of opportunities for Members to scrutinise the use of powers both via written questions, oral questions, the Select Committee, and so on and so forth, but critically the normal post-legislative review of the Act will happen three to five years after Royal Assent, as is usual. The scrutiny of how this works in practice will happen through those mechanisms, particularly through the post-legislative review that always happens three to five years after Royal Assent. A range of scrutiny mechanisms exist beyond that. The police are not under-scrutinised.
On amendment 59, I am pleased to confirm to the Committee, particularly the shadow Minister, that we intend to update PACE code B, which covers police powers of entry, search and seizure, to give a clear statutory guide—even stronger than the College of Policing’s authorised professional practice—on how best these powers should be used. Under section 66 of PACE, there is a requirement for us to do that. We are of course happy to do it, but we do not actually have any choice; it is a statutory requirement under section 66. That will include the new powers covered in clause 19 of the Bill. We will work with the college to ensure that any supplementary guidance it issues on these new powers reflects the wording of updated code B, but updating code B is compulsory; we have to do it. It is statutory, and I can confirm that we will comply with our statutory obligations. I hope that addresses the issues raised by amendments 58 and 59.
Alex Norris
I am grateful for colleagues’ contributions. My hon. Friend the Member for Bootle raised a couple of points. We must always hold in our head how things will operate in practice. What is in the Bill is in the Bill but often what happens in that moment—perhaps a moment of challenge or conflict at 11.30 on a Friday night—can feel very different from what is in the Bill. We ought to hold practical operations in our head, which is what we have been seeking to do.
The Minister addressed my hon. Friend’s point about stepping back and scrutiny to some degree, which was very welcome. I feel a certain degree of risk saying in an election year—obviously, I aspire to swap places with the Minister by, say, this time next year—that this may come back with a degree of interest. In this place in general, we are getting better at pre-legislative scrutiny, but I do not think that has been the norm. Notwithstanding what the Minister said about post-legislative review, I do not think that we do that very well, certainly not in Parliament. In fact, it is largely something we do not do.
We are lawmakers, and the temptation to make law and fill the parliamentary time will always be there, but very rarely do we go back and ask of something we tried three to five years ago, “Did it work? And if it didn’t, why? Did we need to do more law? Was it right to have done this by regulation rather than primary legislation?” It could be that people like me, who by nature are perhaps more interventionist than other colleagues in the room, might think, “Perhaps that was the wrong time to intervene.” It is about all those things. I do think we do that process very well, because we basically do not do it at all.
I have a degree of confidence. I am grateful for what the Minister said about post-legislative review, but I suspect that will be more of a departmental and less of a public exercise. There is something about being willing to own our errors in our proceedings that is good for public confidence—when we are willing to do it. On that basis, I am happy to withdraw my amendment.
Similarly on amendment 59, what the Minister has offered in lieu on PACE code B is better than my proposal, so that is a very good deal indeed. On that basis, I am happy and willing not to press my amendment.
Perhaps the Minister, being a diligent student of Parliament, is saving his powder for the stand part debate, which is probably right given the gusto with which I entered the stand part debate during the debate on amendment 61. I really hope to hear in the stand part debate clarity from the Government that this is seen as a tightly-defined variation of the search warrant regime under a very tightly-defined set of circumstances. We have not yet heard that. We are about to debate the clause, and although I dare say we have covered most of it, so it may only be a short debate, we really need to hear that message.
I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Question proposed, That the clause stand part of the Bill.
Chris Philp
We have touched on many of these issues already, so I will not speak at great length on clause 19 stand part. Suffice to say, our constituents expect the police always to follow up leads where they exist, particularly to retrieve stolen goods, whether mobile phones, e-bikes, cars or whatever it may be. As members of the public and as parliamentarians, we expect the police to always follow those leads. Just a few months ago, the police made a national commitment to do precisely that. An important part of that is the ability to retrieve stolen goods where their location is known or reasonably suspected. With technology now, many items—mobile phones, cars, and so on—have tracking devices, and the public are rightly frustrated if the police do not always follow them up.
This power enables the police to respond quickly to retrieve stolen goods where they have reasonable grounds to believe they know the location. Quite often, those stolen goods move very quickly indeed. For example, the thief may take them off to sell them, and therefore there is often not enough time to go through the process of getting a warrant. The police may want to act in a manner of minutes or hours. In investigatory principles, there is the concept of the “golden hour”, talked about by Chief Constable Andy Marsh, now chief executive of the College of Policing. That first hour is really important. Even the best magistrates court in the world will not be able to respond in an hour to authorise a warrant, but a phone call to an inspector can be done within that golden hour. That is why we are making these changes.
This is only one part of the police commitment to always follow all reasonable lines of inquiry. For completeness, I will mention the use of facial recognition technology. Where there is a photograph of somebody committing a crime on CCTV, Ring doorbell, dash cam, or someone’s phone, we expect the police to always run that through the facial recognition database, but that is a separate element of their commitment.
It is important to ensure these stolen items are recovered. It is more than irritating to our constituents when the police do not always follow them up. This legislation will give them the power to act quickly and decisively where needed, and I think it is balanced and proportionate. Historically, we have required warrants—unless the police are in pursuit of a particular individual, as we debated previously—but we think this strikes the right balance.
On the commitment the shadow Minister asked for around the scope of this provision, the circumstances in which this power can be used are clearly set out on the face of the Bill. I draw the attention of the Committee to clause 19(2); subsection (2) of proposed new section 26A of the Theft Act 1968, sets out very clearly when this power can be used. The conditions are that there are “reasonable grounds to believe” that, first,
“the specified items are stolen”,
secondly, that
“the specified items are on the specified premises”,
and thirdly, that
“it is not reasonably practicable to obtain a warrant…without frustrating or seriously prejudicing its purpose”
—that is, a concern that the goods may be moved on before a warrant can be obtained.
The scope of this power is very clearly defined on the face of the Bill, and I think strikes the right balance. The evidential test the police have to meet is that they have reasonable grounds to believe that those three things are met. The wording uses the formulation “and”, so it is not just that any one of them have to be met; all three have to cumulatively be met before the provisions of this clause are engaged. There is a very clear need for this provision, as it will help police to recover stolen goods. The public will welcome it, and it is very clearly defined in clause 19(2).
Alex Norris
Just briefly, what the Minister has said is in the Bill is welcome. I still think that a stronger signal on tightness may yet need to be furnished. The rubber will meet the road at subsection (2)(b) of proposed new section 26A—that the specified items are on the specified premises. If that was seen to be done on an intelligence basis or possibly a word-of-mouth basis, that might discomfort colleagues. The compelling case for this generally is the new and novel technology element. Nevertheless, we support the principle.
I will not labour the point any further, not least because the colleagues listed under that amendment are an admirable group, who I know will pursue the Minister on it. Never mess with people from Derbyshire, I suspect you might say, Mrs Latham. There may yet need to be a little more comfort given on this, but we do not object to the principle. The provision is important, and the public demand for it is there. We think it can be used effectively, so I will not encumber us any further.
Question put and agreed to.
Clause 19 accordingly ordered to stand part of the Bill.
Clause 20
Suspension of internet protocol addresses and internet domain names
Question proposed, That the clause stand part of the Bill.
Chris Philp
I will do my best to conclude prior to 11.25, when the Committee might consider adjourning.
Clause 20 and schedule 3 create a new power for UK law enforcement and other investigative agencies to suspend IP addresses and domain names that are being used in serious crime. Under the power, law enforcement will be able to apply for a court order requiring the organisation responsible for providing the IP address or domain name to prevent access. Sadly, we have all too often seen that criminal actors use domain names and/or IP addresses to carry out crime including fraud and malware dissemination, targeting the vulnerable. When IP addresses and domain names are being used to conduct criminal activities, law enforcement agencies need to be able to block access, preventing the crime occurring.
In the UK, the police and other law enforcement agencies currently use public and private partnerships, and industry will, in the majority of cases, voluntarily suspend domain and IP addresses used for criminal purposes. This has led to the UK being generally one of the safest jurisdictions in the world. However, voluntary suspension is not an option in all cases. In particular, the majority of cyber-crime emanates from outside the UK, where the same voluntary arrangements are not available. Quite often, internet infrastructure providers based overseas will only take action when a court order is handed down. This measure will provide for such a court order to be obtained. Overseas infrastructure providers are much more likely to comply with a court order than a simple request made by the police without a court order.
We reviewed the Computer Misuse Act 1990 in 2021. As part of that, we invited views from stakeholders. Responses indicated that although much of the 1990 Act remains effective, more could be done in cases where the UK wants to take action against offences committed from overseas. The main function of these provisions is to ensure that UK law enforcement and certain investigative agencies can act to suspend IP addresses and domain names where they are being used for criminal activity with a link to the UK. Schedule 3 enables UK law enforcement agencies listed in paragraph 12 of the schedule to apply for a court order, which they can serve on entities based outside the UK.
Carolyn Harris (Swansea East) (Lab)
Will this apply to illegal gambling sites and crypto casinos? Will the Gambling Commission have the authority to have these addresses pulled down?
Chris Philp
If illegal activity were taking place, which would include illegal gambling, then the provisions of the clause would apply. As to whether the Gambling Commission can make the application or whether it would have to be the police, to answer that question we will have to refer to schedule 3 on page 91 and look at the list of entities. The hon. Member will see that paragraph 12(2)(e) does include
“a member of staff of the Gambling Commission of at least the grade of executive director.”
Indeed, paragraph 12(1)(a)(v) also expressly references the Gambling Commission, so I hope that answers the question about the Gambling Commission’s powers. I obviously prepared that in advance, anticipating her question—as Members of the Committee could surely see!
That is very helpful and will strengthen our hand with overseas entities that might not respond to a polite request but are willing to act when there is a court order. I hope that is something that we can all get behind. It will help protect our constituents from online crime, particularly fraud, but other forms of illegal activity, including illegal gambling. I pay tribute to the hon. Member for Swansea East for her work combating gambling harm, which I saw at first hand during my time as Minister for technology and gambling a couple of years ago.
Alex Norris
Given the time left in this sitting, I thought there was a degree of optimism when the Minister stood up on a matter related to some degree to illegal gambling and thought it would be quick; I will try to bring my remarks in under the wire, but I may fail, when I assume I will be cut off in my prime.
Much of our discussions so far have had a digital and online dimension: the sale of knives and bladed articles, the posting of intimate images, the sale of stolen goods, and the digital online element of fraud. This is a very live, shape-shifting part of the debate. It was feature of the Online Safety Act 2023 discussions and is an important part of this Bill. Our basic principle is that we must give our police and broader enforcement agencies the best tools possible for them to stand half a chance of keeping up. This clause and schedule 3 fit with that approach and, as such, we support them.
For all the creative and direct uses that criminals can exploit modern technology with, there remains a basic staple: a website, a domain name and an IP address. That can be used in a variety of ways: selling illicit goods, selling stolen goods, pirating live events, pirating software or content, scamming or illegal gambling. It is right that enforcement agencies can close such sites down. Although this is a modern venture, I suspect it is today’s version of the 1975 classic Whac-A-Mole, as we chase scammers, fraudsters and thieves around the internet. I dare say that is frustrating but it is important for enforcement agencies to do.
The provisions in the schedule allow for the suspension of IP addresses and domain names for up to 12 months, following an application to a judge. In doing so, four criteria must be met. Three are relatively simple: condition 1 is that the address or domain name is being used for serious crime; condition 3 is that it is necessary and proportionate to shut the site down to prevent crime; and condition 4 is that the address or domain name would not be shut down by another route. The industry picture can be good, as the Minister says, but I do not think it is always good. That is the nature of the type of crime. We talked previously about pirating a premier league game—that would go pretty quickly. If the site is hosting an intimate image that was unlawfully obtained, that tends to take an awful lot longer, or indeed does not happen at all; that point has been debated.
Conditions 1, 3 and 4 seem clear to me, but I want to press the Minister on condition 2. That is met under four scenarios, although I believe the use of the word “or” means any one of the four scenarios, including,
“(a) that a UK person is using the IP address for purposes of serious crime”,
which is very similar, if not the same, as condition 1. The other scenarios are: (b)—that a UK person is a victim of the serious crime that the site or domain name is used for; (c)—that the IP address is being used for unlicensed gambling, which goes to the point made by my hon. Friend the Member for Swansea East; or (d) —the IP address is allocated to a device located in the UK. I think only one of those four tests needs to be met in order for condition 2 to be met. Given that (a) is essentially the same as condition 1, but with the proviso that the person is UK based, how does that operate in practice? Is that not a degree of duplication? The Minister can mull that one over while having his lunch.
I will move on to the heading
“Inclusion of non-disclosure requirements in suspension orders”.
As in the Bill, as part of a suspension order, a judge can require that the individual deprived of their domain name or IP address does not tell anyone that that has happened to them.
Leasehold and Freehold Reform Bill (Second sitting)
Tuesday 16th January 2024
(2 years, 7 months ago)
Public Bill CommitteesRead Full debate Leasehold and Freehold Reform Act 2024 View all Leasehold and Freehold Reform Act 2024 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 16 January 2024 - (16 Jan 2024)
The Chair
Q
Professor Hopkins: I am Professor Nick Hopkins. I am the law commissioner for property, family and trust law. I have led the Law Commission’s work on enfranchisement and commonhold since our work began in 2017. Since 2020, I have also led our work on the right to manage.
The Chair
Will Members please indicate whether they would like to ask a question of the witness? We will start with Matthew Pennycook.
Matthew Pennycook (Greenwich and Woolwich) (Lab)
Q
Professor Hopkins, thank you for coming to give evidence to us. I have two questions, perhaps three if we have time. My first relates to those clauses that implement options or recommendations made by Law Commission reports. Parts 1 and 2 of the Bill implement not all but a subset of those recommendations. I expect that the Law Commission will have had a dialogue with Government about what the clauses look like, but ultimately what goes into the Bill is a political choice for the Government. With a view to strengthening the Bill, I will be grateful if we can get a sense from you whether any of the clauses that draw on those options and recommendations is in any way problematic? Do they contain flaws? Are there omissions that mean they will not work in the way that the Law Commission intended them to?
My second question is related to the Law Commission’s reports as a whole. My understanding is that they were meant to work as a complete package. In drawing on only a subset of recommendations, is there a risk that some of the underlying rationales for the options and recommendations that you made will be blunted or limited by the fact that others have not been included?
Professor Hopkins: To answer your first question, I am confident that the clauses of the Bill that implement the Law Commission recommendations achieve their desired intent. I know from my team that there will be a number of technical amendments. I do not think that that is necessarily unusual, given the complexity of the legislation, and it reflects the continuous process of examining iterations of clauses to ensure that robust scrutiny is applied.
I should explain the Law Commission’s involvement in the clauses. We have worked in much the same way that we would in producing any Bill: Law Commission staff have written instructions to parliamentary counsel, scrutinised drafts and iterations of the clauses, and commented back to parliamentary counsel. We have provided our usual role in the development of draft clauses.
As for the robustness of the clauses, as you said, our reports—in particular on enfranchisement—gave recommendations that would have wiped away the Leasehold Reform Act 1967 and the Leasehold Reform, Housing and Urban Development Act 1993, to provide an entirely new and unified scheme for houses and flats. In the process of instructing counsel, the Government have made decisions on what to implement. We have had to think about how to carry over that policy in the context of legislation that performs keyhole surgery on existing legislation, rather than starting with a blank sheet. With that constraint in mind, however, I am confident that the clauses achieve their desired purpose.
Matthew Pennycook
Q
Professor Hopkins: There will be some technical amendments to come that refine the operation of the clauses.
Matthew Pennycook
Q
Professor Hopkins: On the package as a whole, the Bill implements key recommendations that would be most impactful to leaseholders, in providing them with much greater security and control over their homes and in putting the financial value of the home in the leaseholder’s hands rather than in the landlord’s hands. It will also enable leaseholders to take control of the management of their block through the right to manage, enabling more leaseholders to do that than can do so at the moment. In particular, it extends the non-commercial threshold from 25% to 50%, which is a doubling, and it also enables more leaseholders to own their block through meeting that threshold.
What is there in the Bill will have a considerable impact for leaseholders exercising enfranchisement rights, whether individually or collectively, and for leaseholders who are exercising the right to manage. There are other things in our schemes that are not there, and other benefits that will not be obtained. For example, sweeping away the ’67 and ’93 Acts, and providing a unified scheme, would bring with it the ability to remove some procedural traps that can arise. So there are other things in our scheme as a whole that are not in the Bill, but what is there will have considerable impact and a very positive impact for leaseholders.
Matthew Pennycook
Q
Professor Hopkins: During Second Reading, the Secretary of State said that he thinks commonhold is preferable to leasehold, and I concur with that. We concluded that commonhold is a preferable tenure to leasehold. It gives the benefits of freehold ownership to owners of flats—the benefits that owners of houses already enjoy.
Commonhold does of course have a history. It was introduced in the Commonhold and Leasehold Reform Act 2002 and has not taken off. Our recommendations as a whole were designed to provide a legal scheme that would enable commonhold to work more flexibly and in all contexts—to work for complex, mixed-use developments. With commonhold having failed once, there is a risk of partial implementation, meaning that commonhold has a second false start, which would probably be fatal to it. I think that the legal regime for commonhold needs to be looked at as a whole, to ensure that it works properly for the unit owners, developers and lenders who lend mortgages over commonhold. We need the legal regime that works. We need to remove any other blocks on commonhold.
Mike Amesbury (Weaver Vale) (Lab)
Q
Professor Hopkins: It is our job at the Law Commission to make recommendations for Government reform and of course we would like to see those recommendations implemented, but ultimately what goes in the Bill is a matter for the Government to decide, not the Law Commission. There is a lot in this Bill that is very positive for leaseholders, albeit the commonhold recommendations are not there.
Mike Amesbury
Q
Professor Hopkins: Since we published our reports in 2020, we have been supporting the Government as they work through the reports and develop their legislative plans, but I cannot speak for what decisions they have made and what has led them to make those decisions on what is and is not in the Bill.
Ms Marie Rimmer (St Helens South and Whiston) (Lab)
Q
Professor Hopkins: Yes, they certainly will, and I will draw attention to a number of provisions. First, those that deal with the price that leaseholders will pay will ensure that it is cheaper. For the first time, how that price is calculated is mandated, and it is designed to identify the value of the asset that the leaseholder is receiving. At the moment, the focus is on compensating the freeholder for the asset they are losing. The price will consist of two elements. There will be a sum of money representing the terms and buying out the ground rent, but that will be capped so that onerous ground rents are not taken into account in calculating that sum, and a price representing the reversion, which would be the value today of either a freehold or a 990-year lease that will come into effect at the end of the current lease. In calculating those elements of the price, the deferment and capitalisation rates will be prescribed, so that will remove the current disputes.
The price is mandated and the price is cheaper, and there are other things in the Bill that will help, such as the ability of leaseholders to require the landlord to take leasebacks of property when they are exercising a collective enfranchisement so that, for example, they do not have to pay for the expense of commercial units that they do not want responsibility for. There is a lot in there. There is reducing price and also reducing the ability for disputes to arise.
I will also refer to the provisions on costs that will generally ensure that parties pay their own costs in relation to a claim. Leaseholders will not be paying the costs of freeholders.
Rachel Maclean (Redditch) (Con)
Q
Professor Hopkins: Across enfranchisement, right to manage, and commonhold, we made around 350 recommendations.
Rachel Maclean
Q
Professor Hopkins: I think we made around 120.
Rachel Maclean
Q
Professor Hopkins: We began it as a package of work that was being conducted in parallel. We began in 2017 as part of the 13th programme that we published in December of that year. We published three consultation papers on enfranchisement, right to manage, and commonhold. We ran public consultations from September 2018 to January 2019. We received around 1,800 responses across those papers, and around 1,600 responses to leasehold surveys that we undertook for enfranchisement and right to manage. Then, in 2020, on the basis of all the evidence we had, we published four reports: a report setting out options relating to valuation to reduce the price payable, and then a report on each of enfranchisement, the right to manage, and commonhold in July of that year.
Rachel Maclean
Q
Professor Hopkins: We have to separate the two issues. Our work on commonhold was designed to provide the legal fixes needed so that commonhold can work. In our report we concluded that commonhold is the preferred alternative to leasehold. The question of whether commonhold becomes a default or whether it is mandated was not a matter on which we were asked to provide advice to the Government. You need the legal fixes to be in place, though, and then the decision must be made about what is done in order to ensure that commonhold is given a fair chance.
Rachel Maclean
Q
Professor Hopkins: The risk at the moment is that the legal regime that governs commonhold is too rigid. It does not apply effectively in larger, mixed-use developments, because they were not envisaged at the time. The risk is that you mandate a legal regime that does not work. You need a legal regime that works, which could then be mandated if that is what the Government chose to do.
Barry Gardiner (Brent North) (Lab)
Q
Professor Hopkins: I do not think I would like to comment on whether specific amendments or recommendations could be introduced. They would have to be seen in the light of what they would do to the scheme that is in the Bill and how the provisions interrelate. That basic uplift from 25% to 50% is significant and will enable many more leaseholders to exercise their rights. There are perhaps things around the edges, but what is there is beneficial.
Barry Gardiner
Q
Professor Hopkins: Yes, although you have to look at what impact that would have in terms of what is in the Bill as it stands.
Barry Gardiner
Q
Professor Hopkins: It is certainly the case that it is easier to do things with new builds than it is for existing leasehold blocks. Our report includes recommendations on the conversion of existing blocks, which is undeniably more complex than building a commonhold block from the start.
We concluded in our report that commonhold was the preferred tenure because it gives the advantages of freehold; leasehold is really performing a job it was never designed to do. When I gave evidence to the Select Committee on the Ministry of Housing, Communities and Local Government, as it then was, I said that if commonhold works, you do not need leasehold. But whether you then mandate commonhold is not just a legal question; there is a political question there.
Barry Gardiner
Q
Professor Hopkins: Again, all these things are Law Commission recommendations, and I am always going to say that the Law Commission would like to see our recommendations implemented—
Barry Gardiner
I am delighted; that is what I wanted you to say.
Professor Hopkins: But I cannot say whether they are the right things or the most impactful things to add to the Bill. What is there is great and is going to be hugely beneficial. There are lots of other things in our recommendations that would benefit leaseholders—
Barry Gardiner
Q
Professor Hopkins: No, that is absolutely not my view. Whatever happens with commonhold, leasehold is going to be with us for a long time. There are people who own 999-year leases. The system has to work. When we published our reports, we published a summary of what they were seeking to do. We identified them as having two distinct aims. One is to make leasehold work, and work better, for those who now own the leasehold and who will own it in future. Secondly, it is to pave the way for commonhold to be available so that everyone can enjoy the benefit of freehold ownership in future. But we always saw those as two entirely legitimate aims that legislation would need to pursue.
Barry Gardiner
Q
Professor Hopkins: Yes. Conversion is always going to be more difficult than building from the start. We have recommendations that would enable conversion and enable more people to convert than can at the moment, where unanimity is required, but leasehold is going to be with us for a very long time.
Barry Gardiner
Well, it has been with us for a very long time, hasn’t it?
Professor Hopkins: Yes. So the system has to work, and that is what the Bill achieves in relation to leasehold.
Richard Fuller (North East Bedfordshire) (Con)
Q
Professor Hopkins: The Bill ensures that those rates will be prescribed by the Secretary of State. At the moment, on every enfranchisement claim—whether it is the lease extension or the purchase of the freehold—the rate used to capitalise a ground rent and to determine the price paid for the reversion has to be agreed for the individual transaction. That is a significant source of dispute, and it is a dispute where there is a real inequality of arms.
The leaseholder is only interested in what they have to pay for their home and the landlords have an eye not only to that particular property, but also to what it would mean for their portfolio of investments—so they agree a particular rate on one flat in a block, for example. The Bill ensures that those rates are fixed by the Secretary of State and mandated, so there is then no argument about what rate applies in an individual case. It takes away that whole dispute and ensures that the same rates are applied in all claims.
Richard Fuller
Q
Professor Hopkins: The politician will be fixing the rate through advice that they receive.
Richard Fuller
Q
Professor Hopkins: In our report on valuation, we set out a number of options for reform to reduce the price payable. In relation to the fixing of rates, we identified two separate options: they could be fixed at market rate; and they could be fixed at below market rate to reduce the price leaseholders pay to a greater extent. We put the decision on how to fix the rates as a matter for the Government to consider, and now the power is given to the Secretary of State.
Richard Fuller
Q
Professor Hopkins: The impact assessment is not a Law Commission impact assessment. We have provided technical input to the Government in preparing that assessment. I am not sure that I can give a definitive reason why so much more was in one pot than the other. It is probably because the Bill removes marriage value from the premium, which adds a significant sum to premiums now for leaseholders who have 80 years or less, so I think a lot of that sum is the saving.
Richard Fuller
Q
Professor Hopkins: The terms of reference that we agreed with Government for the project in relation to premium were that we would provide options to reduce the price payable while providing sufficient compensation to landlords, recognising their legitimate property interests.
The Chair
Mindful of the fact that we will be drawing this to a close at half-past, I call Matthew Pennycook.
Matthew Pennycook
May I press you a bit further on valuation? This is a phenomenally complex area to understand, and the standard valuation method in schedule 2 is extremely technical. The Law Commission set out options—it did not make recommendations—but the Government have chosen to allow the Secretary of State to prescribe the applicable deferment rate.
In all your work, did you wrestle at all with the fact that there may be some leaseholders who do not benefit from a fixed rate, in the sense they could have negotiated higher and more favourable rates in certain circumstances? Is that potentially a risk? Related to that, will it be the case that the Government need to set multiple rates to account for regional variations? Is a single fixed rate going to be an issue?
Professor Hopkins: In answer to both questions, I cannot sit here and say that every leaseholder will pay less. I can identify the fact that leaseholders with 80 years or less on their lease will pay less, because they will not pay marriage value, and that leaseholders with onerous rents will pay less, because of the cap on those taken into account.
Overall across the system, having the prescribed rates will be a considerable saving for leaseholders on the whole, because that takes out the legal and valuation costs in negotiating a rate and a price. It takes out that entire source of dispute, which will be beneficial—
The Chair
Order. I apologise for interrupting you. I am afraid that brings us to the end of the time allotted for the Committee to ask you questions. I thank our witness very much on behalf of the Committee.
Examination of Witness
Matt Brewis gave evidence.
The Chair
We will now hear from Matt Brewis, director of insurance at the Financial Conduct Authority. We have until 3 pm for this next session. Will the witness please introduce himself for the record?
Matt Brewis: Hi. I am Matthew Brewis. I am director of insurance at the FCA, so I am responsible for regulation of all brokers and insurers that operate in the UK.
Matthew Pennycook
Thank you for coming to give us evidence, Mr Brewis. The FCA published a report in September 2022 on insurance for multi-occupancy buildings. In a general sense, on the basis of the recommendations and potential remedies you outlined, to what degree do clauses 31 and 32 faithfully enact those recommendations? Furthermore, it would be useful to know whether the FCA might have any ongoing role in the arrangements that those clauses will introduce. Finally, in that report, the FCA made a recommendation about a pooled risk insurance scheme. Could that be introduced into the Bill as an additional means of providing leaseholders with protection?
Matt Brewis: I will set out what the FCA is responsible for and what it is not, because that is the context for this and probably the questions to follow. Insurers write a policy and brokers sell it to a freeholder or property management agent who is the customer. They pass on charges to the leaseholder, who is partly a beneficiary of the product, but the primary beneficiary is the freeholder. The FCA is responsible for the insurer and the broker, the creation and selling of the product. That is where its role ends.
Traditionally, the customer has been the freeholder, who has been the beneficiary, but our review found that there was no benefit in freeholders shopping around to get the best price, because they simply pass on the cost to the leaseholder, often with significant add-on charges and other functions. We found that the risk price that insurers charged between 2016 and 2021 pretty much doubled. The brokerage charge by brokers increased by more than three times, or 260%-ish. The service charges added on increased by about 160%, so they more than doubled.
In our report, we recommended a number of pieces, including that leaseholders should be partially party to the contract, in that they should be provided with a copy of the documentation—previously, they have not been—and that insurers and brokers, when creating and selling products, should consider the needs of leaseholders, the people who are paying, in a way that insurers and brokers have previously not been required to.
We also made a number of recommendations about the parts that were not relevant to FCA regulation but were part of the chain and to do with freeholders and property management agents. That is where the clauses that you mention, 31 and 32, come into effect—where there is a restriction on the commission that can be charged by the brokers or by the property management agents to the leaseholders. I think that how much impact these clauses will have will depend on how broadly or tightly the secondary legislation around these points is drafted. Of course, I and my colleagues will work closely with the Department as that gets put together.
In terms of your second question, “Should a pooling scheme be included as part of the legislation?”, we believe, based on how parts of the market currently work, that pooling does work. By putting together buildings under one roof, as it were, for an insurance contract, you spread the risk; that reduces the cost of insurance. We see that as how it operates at the moment. We recommended that the Association of British Insurers work with the market in order to put together a pooling arrangement, which they have been working on—
Matthew Pennycook
Q
Matt Brewis: For a very long time. Unfortunately, I do not have the power to force anybody to write business that they do not want to. But the ABI has been working closely with a number of firms, and progress is being made. I believe that pooling remains the best option to reduce the cost to leaseholders. In terms of how that could be achieved, I think it is appropriate that the market try to do that. It is always possible for the Government to step behind that, albeit that would be at a significant cost—
Matthew Pennycook
Q
Matt Brewis: It does not require primary legislation for the market to do it itself, as it is seeking to do at the moment, working with us, working with the brokers and working with colleagues at DLUHC.
Rachel Maclean
Q
Matt Brewis: If I understand your question correctly, you are saying, “Is there pressure on freeholders to charge more to make increased returns to pension funds?” I cannot answer that question, I am afraid; it was not part of our review to date. Sorry, I cannot tell you—
Rachel Maclean
Q
Matt Brewis: I understand. What we have found in the past is that actually, for the insurance part, it is not necessarily a panacea for leaseholders to take over the freehold, because, as I was just explaining, when you have a pooled number of properties, that can reduce the cost. We have found, for leaseholders who have tried to insure their building on their own, that it has proved more costly when they have done so. That is more to do with market dynamics and trying to insure one building as opposed to a portfolio of buildings. It does not necessarily follow that it is cheaper for leaseholders who have taken over the freehold to—
Rachel Maclean
Q
Matt Brewis: I do not believe that the size of the insurance part of the market is significant enough to destabilise any firms. I have not heard that claim before, but I do not think that this part of the market, in the types of firms that we are talking about, is of a size that would cause structural issues.
Mike Amesbury
Q
“Insurance firms must now act in leaseholders’ best interests and ensure that their policies provide fair value.”
Now I will give you a live case, which happens to be in a neighbouring constituency to mine. It is called The Decks. They have a remediation day and Taylor Wimpey has accepted responsibility, yet insurance premiums are going up again—poor value and high cost, as I think was cited in the review. New year was going to be a new broom to intervene and shape the market, yet you have got insurance companies like this, and many more up and down the country, laughing at people in this room—key stakeholders such as yourselves. What are you going to do? What powers have you got to intervene? Also, we have discussed insurance. Are clauses 31 to 33 in part 3 sufficient to deal with the issue?
Matt Brewis: Our new rules around ensuring that these products are fair value came into force on 31 December last year. The cost of insurance of multiple-occupancy buildings has increased, and our report of 2022 found that this was not an area where insurers were making significant profits, or super-profits, of any form because of a number of different parts—around fire safety risks, but more to do with some of the structural issues around the quality of the buildings and how they had been constructed. Escape of water was something that was causing significant losses in these buildings.
We found some of the biggest issues around the brokerage charges, which were increasing, and the payaways—payments that insurance brokers were making to property managing agents for services that they were apparently providing for them. So our new rules require them to be very clear what value they are providing and how they are doing that as brokers, as managing agents, and for that to be made clear to the leaseholders. We are undertaking reviews of those with a number of firms. This will provide leaseholders with more information so that they can challenge their freeholders, so that they can challenge the insurers and the brokers at a tribunal if necessary.
Where this Bill goes one step further is that although, as I have explained, we are not responsible for the managing agents or the freeholders, by effectively banning those payments of any commissions, as the Bill does in the clauses that you mention, it will go significantly further than I can with the powers that the FCA has to restrict the payments to other parties and therefore to reduce the cost to leaseholders. In my view, this is in line with the recommendations that we made in that report and results in a better product—a cheaper product—for leaseholders.
Andy Carter (Warrington South) (Con)
Q
Matt Brewis: In terms of the provision of information, yes. And it goes alongside the rules that we have introduced that require brokers and insurers to pass information to the freeholder to pass on to the leaseholder. This further tightens up that. It allows for leaseholders to take their freeholders to tribunal to reclaim costs, as necessary, that have been incurred. So this does go further, and I welcome that.
Andy Carter
Q
Matt Brewis: Yes.
Andy Carter
Is that suitably addressed in this legislation?
Matt Brewis: We have talked with the Department for Levelling Up, Housing and Communities about how to do that. The tribunal is a mechanism, but from talking to leaseholders, we recognise that taking a firm to court is a big step for anyone. There are a number of routes that strengthen that in this Bill, and we welcome that, albeit—
Andy Carter
Q
Matt Brewis: There are other mechanisms—an alternative dispute resolution mechanism—that we have seen used in some parts of financial services. The Financial Ombudsman scheme is one, where it is not a legal test; it is more of a fairness test about how you are treated as a consumer. But the tribunal is another mechanism—the insurance part is a very narrow part of a much wider piece, and I am not equipped to talk more broadly about the leasehold ownership structure.
Barry Gardiner
Q
Matt Brewis: I cannot talk about individual cases. However—
Barry Gardiner
Q
Matt Brewis: Yes.
Barry Gardiner
Q
Matt Brewis: The value assessments I talked about require firms to approve what value they are providing, for there to be transparency to a leaseholder around—
Barry Gardiner
Q
Matt Brewis: Under our new rules, which came into force at the start of this year, that needs to be provided.
Barry Gardiner
Q
Matt Brewis: The new Financial Conduct Authority rules around this do provide that, in a way that was not the case previously.
Barry Gardiner
Q
Matt Brewis: I believe that would be duplication of a clause that is already in the new rules from the regulator, which require a broker to provide that information.
Barry Gardiner
Q
Matt Brewis: In the event that the freeholder is not forthcoming with the contract, it is incumbent on the insurer to provide a copy of the contract to the leaseholder directly. It is in our rules that the leaseholder has the option of going directly to the insurer now, in order to get a copy of that contract, in a way that was not previously possible.
Barry Gardiner
Q
Matt Brewis: Yes, and they will be in breach of the FCA rules if they do not provide it.
Barry Gardiner
Q
Matt Brewis: Which insurer it is?
Barry Gardiner
Q
Matt Brewis: If you follow that chain of events, when they do not know who the broker is and they do not know who the insurer is, and the landlord refuses to provide the documentation—
Barry Gardiner
Q
Matt Brewis: One would hope—expect—that it is a very low-likelihood situation, but that would be the case.
Barry Gardiner
Q
Matt Brewis: For some buildings that have material issues around fire safety or other issues, it can be very difficult to place insurance. It is about time and cost. There is value in the services that brokers provide, and sometimes some of that work is outsourced to property-managing agents. Assuming that is done appropriately—itemised and billed—I have no issue with the payment of commission or brokerage, where it is for services that have been rendered effectively. Where it is a blanket case, in the way that you described—
Barry Gardiner
Q
“not attributable to a permitted insurance payment”,
but not that they have to be costs that are reasonable. There is a difference between a permitted insurance payment and a reasonable permitted insurance payment, is there not?
Matt Brewis: My understanding is that the secondary legislation that will follow will set out what those are.
Barry Gardiner
Q
Matt Brewis: One would still need to define reasonable.
Barry Gardiner
I think the law has done a pretty good job of that over the years.
Matthew Pennycook
Q
Matt Brewis: It is quite a significant list. The question effectively is: what are the reasonable costs of writing an insurance policy, and then the appropriate checks to be carried out to ensure that that policy is enforceable? From my perspective, that is focused on providing the information to the insurer or the broker that allows them to appropriately price the insurance—to understand the risk factors of that building, to determine the likelihood of escape of water, the quality of its fire defences and other things, all of which in sum add up to whatever the risk price is. There are different methods for determining what is an appropriate brokerage fee. We have seen some firms come out to suggest that it should be a maximum of, say, 10% of the cost. Others take a time-and-costs-incurred approach, based on how much work they have done. Being clear about things that are directly relevant to the pricing of the insurance is the best starting point for what should be allowed to be charged.
Matthew Pennycook
Q
Matt Brewis: Yes.
The Chair
Thank you. If there are no further questions from Members, I thank the witness. We will now move on to the next panel.
Examination of Witnesses
Harry Scoffin, Karolina Zoltaniecka, Cathy Priestley and Halima Ali gave evidence.
The Chair
We are now going to hear from our seventh panel, which is Harry Scoffin, founder of Free Leaseholders; Karolina Zoltaniecka, founding director of Commonhold Now; and Cathy Priestley and Halima Ali, co-ordinators of the Home Owners Rights Network. We have until 3.40 pm for this session. You are all welcome. Would you please introduce yourselves for the record?
Harry Scoffin: Hi there. I am Harry Scoffin, founder of Free Leaseholders. I am also deputy chair of One West India Quay residents’ association—a block on the Isle of Dogs, east London.
Karolina Zoltaniecka: Hello. I am Karolina, founder and director of Commonhold Now. I am a right-to-manage director, leaseholder and commonhold owner in Australia under what is called strata. I have been a director over there for 30 years, and I am also a forensic analyst who does audits on service charges.
Halima Ali: Hi. I am Halima Ali. I am a joint campaign co-ordinator for the Home Owners Rights Network. We campaign for regulation and, ultimately, for adoption and for management on private estates.
Cathy Priestley: Hi. I work with Halima. We have worked together since 2016—a little longer than the National Leasehold Campaign has existed, in fact. We both reached the same stage in our journey of horrors at about that time. We were put together by Paula Higgins at the HomeOwners Alliance. We decided that there would be other people out there who had discovered the same situation and who felt entrapped and angry about where they were—they were tied into paying estate charges, and most were unaware at the point of purchase that that was the liability they were taking on. So we set up a website, social media and so on, and we are 11,000. We have continued our journey of exploration and learned a lot during the last eight years, and I hope we can help you.
The Chair
We are very grateful that you are here, Cathy. Thank you very much. I call Matthew Pennycook to start us off.
Matthew Pennycook
Q
Harry and Karolina, we heard earlier from Professor Hopkins from the Law Commission, which had 121 recommendations on commonhold. It is clearly not feasible to add all those to the limited Bill we have in front of us at Committee stage. Professor Hopkins says there is a risk of partial commonhold legislation that might create unintended consequences. Are there any of those recommendations that we can reasonably add in that might make things easier in the future and pave the way for commonhold? That is my question to both of you.
Cathy and Halima, clause 59 in part 4 of the Bill seeks to amend the Law of Property Act 1925. Would you agree that section 121 of that Act needs to be done away with? Are we attempting to, if you like, ameliorate an historic law that should really just be freehold forfeiture and should be done away with? On part 4 generally, we have sought to introduce by amendment an RTM regime for private estates. Are there any other tweaks to part 4 that we could reasonably look to make?
Harry Scoffin: In terms of the commonhold point, obviously, attitudinally, I have accepted that it will be seen as out of scope of the Bill. But we also have to remind ourselves that England and Wales are the only two jurisdictions in the world that persist with this fundamentally unfair system. The Law Commission—we heard from Nick Hopkins earlier—gave a big endorsement of commonhold in 2020. They flew officials out to Australia and Singapore, where I grew up and where we lived under strata title, a form of commonhold where residents are in control. But there is no point crying over spilt milk.
There is a good alternative, interim measure before second-generation commonhold eventually comes through. Bear in mind that I have been campaigning now for six years—that is six years of my life that I have wasted trying to abolish leasehold. The fact is that the time to have brought in commonhold was now. We did not even necessarily have a guarantee that this Bill would be here. After the Queen’s Speech in 2022, it was dropped at the last minute because of pressure from No. 10. So I am not going to hold my breath for commonhold.
However, one thing we can do, which is a pragmatic halfway-house compromise, is to say that all new leasehold flats come with a share of the freehold. That still persists with the leasehold system, but residents have control from day one. They are like Alan Sugar on “The Apprentice”: if they are being ripped off, they say, “You’re fired,” and they get a better company in—that is capitalism, that is choice and that is the right way forward for now if we are not doing commonhold, which is obviously too meaty.
Secondly, all new leases must be 990 years. At the moment, shared ownership leases under the new model lease through Homes England and the Greater London Authority must be 990 years. I think it is obscene that, after this Bill comes in, people can buy a brand-new flat from one of these developers and be hit with a 99 or 125-year lease. They need to be able to get a 990-year lease from the beginning, given that Parliament has already got rid of ground rents—two years ago, it got rid of ground rents—and our argument is that the value in the freehold is now valueless.
Ground rents have gone, so why do you not just require developers to hand over a freehold with a resident management company? I understand that Matthew Pennycook is halfway there with an amendment to bring in resident management companies; we just need the freehold. If we do not have the freehold, we will allow the expensive middleman, the rip-off freeholder, to have some form of control going forward. I know of developments with an RMC, where you might think, “Bob’s your uncle, they’ve got control,” yet they are still being ripped off on things like insurance, even though they appoint the managing agent.
From that point of view, let us not let perfect be the enemy of the good, but leasehold must stop and, with leasehold, we must get rid of its toxic forms so that everyone has a share of the freehold from day one. As we heard from Nick Hopkins, it would be much easier for those guys to convert to commonhold later, but we should give people the ability to have the freehold to begin with.
It is not just me who says that; in 2006, an academic who is on the Commonhold Council—this is in my written submission—expressed the view that, if people have super-long leases of 990 years and zero ground rent, it is asking nothing of developers to hand over the freehold, because the freehold is valueless. They might as well give the freehold, as opposed to expecting leaseholders to go through the rigmarole, stress and cost of buying it later. Also—we might get on to this later—getting 50% of a large block is impossible, so doing that is absolutely the right thing.
Another point is that the market for leasehold flats has collapsed, so the gap between the average price of a house and that of a flat is at its widest in England in 30 years. The fact is that buyers have woken up to the toxicity of leasehold, particularly after Grenfell and the cladding situation. They have worked out that this is a hideously one-sided deal. It is like the sub-postmasters, this idea that, every way you turn, people say, “You signed the contract. You’re responsible for the shortfalls. That’s the law, that’s the contract,” but it is so hideously one-sided.
If you can do only one thing to the Bill, even though it will not directly help existing leaseholders, it should be to say that all new flats must be share of freehold with a resident management company. Give us control of our homes, our lives and our money, please. It is 22 years since the last Act. Let’s do this.
Matthew Pennycook
Q
Karolina Zoltaniecka: The Bill is very welcome. It does remove a few of the barriers to commonhold, but I feel that a few more things could be done, through amendments, to take steps towards commonhold and to make it easier to convert once we enfranchise and buy the freehold. We could lower the agreement rate from 100% to 75%. They have that in Australia already; you only need that amount to have a special resolution. There is already a trial for 20 blocks in the country. We cannot say it is not working, because it is working.
There is a lot of miscommunication around commonhold in the industry. There could be an education and awareness campaign. The Bill could also be amended to introduce a sunset clause for existing flats. There could be some sort of agreement between the commercial and the leasehold residential blocks to pave the way for how this will be defined when we get to commonhold and people can convert. That would prepare people and get them ready, in practical terms, for how to run and maintain their blocks. There could be long-term maintenance plans and we could give people real, practical skills in how to do that.
Commonhold is so much easier. Having a strata, I know that. You do not have complex laws. You talk to each other and work problems and disputes out. You have meetings. Laws are prescribed, so it is easy for people to know what to do each step of the way. I do believe that there are things that could be done with commonhold in the Bill to pave the way and say that we have a future with commonhold and it will happen en masse.
Matthew Pennycook
Q
Halima Ali: Overall, I want to say that the model of maintenance that has been implemented is a scam, and all this Bill is really doing is legitimising the scam. Homeowners are being fleeced. This needs to be brought under control. In terms of the Law of Property Act, this is a positive step, but I would argue as a homeowner that a management company should not have its foot on my neck. This is my property. It is my hard-earned future for my family and kids, and no management company should have any rights over it. I feel that the model should be abolished altogether. There are two different tiers—fixed rent charges and variable rent charges—that are being allowed to continue in the private estate model. This needs to be abolished altogether.
Cathy Priestley: I do not really have anything to add except to say, would all the measures in the Bill really be necessary if the fundamental, underlying problem of private estate management was addressed? The estates we are talking about are not gated; they are not private. They contain public facilities, public open space, play parks and community centres. They might have private sewage systems and pumping stations. They almost always have sustainable urban drainage systems, because that is the way that flooding is mitigated these days. In the past, all these areas would have been adopted by the local authorities, but they are not being. If they were, there would not be any need for regulating managing agents or for the abolition of section 121.
Matthew Pennycook
Q
Cathy Priestley: It would be helpful for those who are on truly private estates and who do have private management, but we do not see any reason why homebuyers on estates should suddenly become estate managers for their local community.
Halima Ali: It is exactly as Cathy said: normal homebuyers are not qualified to manage estates. If we are given the right to manage, if we are looking at a development of over 100 homes, it is really hard to get in touch with 100 people who will agree and be on the same page. It is not workable. The Government are insisting on regulating, but realistically the Bill is not doing anything for us. Literally all it is doing is maintaining a scam.
The Chair
I am mindful of the fact that we will have to bring this session to a conclusion at 3.40 pm and five more Members have indicated that they would like to speak, so you can time yourselves accordingly. I will start with Andy Carter.
Andy Carter
Q
Halima Ali: I am the perfect example. I have living on a fleecehold estate for 13 years.
Andy Carter
Q
Halima Ali: There is no management happening at all.
Andy Carter
Q
Halima Ali: The management company should respond in a timely manner, do the work and communicate with the residents. The situation is horrendous. On our estate alone, we are paying £30,000 to maintain a field that is half the size of a football pitch. That makes no logical sense.
Andy Carter
Q
Halima Ali: They are cutting it, but at a substandard level. On top of that, the grounds that they are maintaining have not even been built to a standard for local councils to adopt.
Andy Carter
Q
Halima Ali: I have had meetings with the head of planning. I have raised so many complaints.
Andy Carter
Q
Halima Ali: They just do not want to know, literally, because they are not regulated and it is not their concern. They just will not do anything.
Andy Carter
Q
Halima Ali: It has to be central Government. They need to regulate that councils need to start adopting all new build estates going forward and in the situation that we are stuck in.
Barry Gardiner
Q
I have one estate in my constituency where they were charging residents for the management of land that they did not even own. It took us months to get the documentation to prove that they did not own that land. The fence that they had mended had actually been mended by the council. Other things like that are going on, but if that restriction were put in place in the first place, they would not be able to do it, would they?
Cathy Priestley: Our understanding is that the land belongs to the developer. It is not public until it is made public through section 106 agreements with the council.
Barry Gardiner
Q
Cathy Priestley: Well, yes, you would not want more and more privatisation, would you? I do not think any policy is in place that is pushing for privatisation of the management of public open spaces, is there?
Barry Gardiner
Q
Harry Scoffin: There are a number of quick wins. One is to get rid of forfeiture, because that allows these freeholder overlords to extort money from ordinary people. It is not like mortgage foreclosure, where if you cannot keep up with the mortgage payments you get the difference back less the debt; with forfeiture, in theory, a freeholder could take back a £500,000 flat on a £5,000 bill. Now, what the freeholder lobby will say when they come on later is, “There are only about 80 to 90 cases a year.” That is potentially 80 to 90 homeless families a year. More important, in a way, is that it is the threat of forfeiture that gets leaseholders to go, “Oh my God, I’m going to pay that bill.”
My mum is on £33,000 a year, for a three-bed with no swimming pool, no gym and no garden. The freeholder is one of Britain’s richest men, sheltering in a tax haven in Monaco—a billionaire. Everyone who is not a leaseholder says, “Why would you pay that? That’s more than someone’s salary.” She says, “If I don’t pay it, I’ll lose the property.” So get rid of forfeiture.
Barry Gardiner
Q
Harry Scoffin: Yes. They draw it out. There is a process now in the courts, where you can go, “Oh, I forgot to pay it” or “Here’s the money.” The point is that it does not give leaseholders the confidence to challenge unreasonable bills. They have the sword of Damocles hanging over their heads—they are being treated almost like criminals. The Law Commission recommended in 1985, in 1994 and more recently in 2006 getting rid of this iniquitous element, arguably the most feudal element of leasehold. It has not been done. The Government recently asked the Law Commission to update its 2006 report, so we know work has been done, but it is not in this Bill.
I think you spoke earlier today about this section 24 business. That is a really important issue that many Members may not be aware of. Since the Building Safety Act came in, there has been a very interesting regime about the accountable person, trying to make developers and freeholders take responsibility for their buildings. This was heard in tribunal in December—I was there—and I understand that Michael Gove has taken a personal interest in this, but there is again no guarantee that we can get the fix.
The problem is that, at the moment, any building over 18 metres cannot have a court-appointed manager, because the court-appointed manager cannot be the accountable person. It is like an aeroplane being flown with two pilots flying in completely different directions. The freeholder, who has been stripped of his management rights—because, basically, he has defrauded leaseholders or been absentee, is not doing remediation works in a timely manner, or is not giving information—will now be the accountable person. But the manager cannot manage the building, because you will have two managers for one property.
The tribunal for Canary Riverside—I add a disclaimer that this is my sister estate; we have the same freeholder, so I was there at the tribunal—said that, as much as we would like to help the leaseholders at Canary Riverside, Parliament has made it very clear that, while a non-freehold owning right to manage company or a non-freehold owning resident management company can be the accountable person, a court-appointed manager specially vetted by the tribunal is no longer allowed to be one.
What is happening at Canary Riverside is that the freeholder—the same one that we have—is looking at getting back a building that he was removed from controlling in 2016. There was even a letter from the Secretary of State to the leaseholders, which they cleverly submitted to the tribunal, saying that he was the man who passed this Act and he genuinely, honourably, had no idea that that was the implication. That is another thing, because many blocks are not going to be able to buy the freehold or be able to get right to manage. They are in a monopolistic position with these freeholders. If there is no ability to buy the freehold, you are trapped.
In our building, we cannot sell the flats. We cannot even give them away at auction. It needs to be allowed that a manager appointed under the Landlord and Tenant Act 1987 can be the principal accountable person where a tribunal deems it appropriate.
There is one other major point. At the moment, many people may stand to benefit from getting the right to manage or buying the freehold, with the 25% rule going up to 50%. I know that because I have campaigned for it for the last six years. Nick Hopkins at the Law Commission used to have a joke that he would probably have to take out a restraining order against me, because I really pushed on this issue. The problem is that there are so many people who would benefit from that, but if they have that plant room or that underground car park, they still will never be free. They will never be able to get the freehold or right to manage. That is something that the Law Commission already recommended. We can get that into the Bill.
Another point to note is that if you cannot participate, for whatever reason, in buying the freehold—you do not have the money to join your neighbours—in perpetuity, you will never be able to buy that share of the freehold ever again. If you cannot get the money together, you are out. That needs to be sorted. The right to participate was very popular with the Law Commission consultees. That absolutely needs to happen.
There is one last thing. Nickie Aiken MP and other MPs, such as Stephen Timms, have been pushing on this point. At the moment, to buy the freehold or get right to manage, you have to get 50%. In our building, which is 20 years old, we are very lucky that we have managed to get 82% of the leaseholders. Do you know how much work that has involved? It is cornering people in lifts, paying the £3 to the Land Registry, doing some weird investigations. It is Herculean. You have to go back to 1931 in this country to find a political party that has won a general election with 50% of the vote, so why is it fair for residents who are being ripped off to be told, “You need to get 50%”? That should come down, because most big blocks, particularly the newer ones, will never hit 50%, and given that the Government are talking about a long-term housing plan and about building up in the cities, we have to make flat living work. We have the second lowest proportion of flats of any country in Europe, after Ireland—
Barry Gardiner
Q
Harry Scoffin: Some leaseholder advocates say, “We do not touch the 50%,” and I do not understand them for it, but the fact is that they just say, “Give leaseholders more information.” I have to be honest: even once you have got in touch with guys from Singapore, Hong Kong, the middle east and all the rest of it, when you try to explain what leasehold is, it goes over their head; when you say “right to manage”, it goes over their head. They say, “Well, I’ve bought the flat. I don’t need to get involved.” And then you say, “It’s £2,000 or £3,000. We all need to do it—each—to club together.” These guys are mean—some of them—and they are not going to get involved. So the fact is that at least on right to manage, where you are not compulsorily acquiring the freehold interest, it should at least come down to 35%, in line with the suggestion from Philip Rainey KC, whom you will be hearing from on Thursday. The London housing and planning committee also said that 50% is very, very difficult in large developments, particularly in London. So that does need to be thought about at least—it coming down on right to manage.
Barry Gardiner
Ms Ali wants to come in.
Halima Ali: I just want to make this specific point. It is clear that rules and regulations regarding leasehold and RTM are not working. It is very—what is the word, Cathy?
Barry Gardiner
Q
Halima Ali: It is very unfair and inadequate, and it makes no logical sense for freeholders on a private estate to be given the same rules and regulations when it is not working for leaseholders.
Rachel Maclean
Q
Harry Scoffin: There are not specific provisions to improve the position on forfeiture. I would love it to be abolished, but if we have to have some form of mechanism that is still going to be called “forfeiture”, at least say that if it happens, the equity is returned to the departing leaseholder when the flat is sold and it is just the debt that the freeholder gets back. The idea that he gets a windfall is obscene. That has to go. At the moment, forfeiture can kick in at £350, so what some law firms are doing is, for a breach of lease, a 350-quid charge, so forfeiture already kicks in there. So bring that up. Some people have suggested £5,000. I would go even higher—£5,000 is the figure for personal bankruptcy proceedings—and bring it up to £10,000.
There will be these freeloading freeholders that will come before you today or on Thursday and say, “Well, if these leaseholders are not paying, the whole building is going to fall to rack and ruin. It’ll be like this country in the 1970s where the bins weren’t getting collected and bodies were piling up. You’ve got to keep the lights on in a block of flats.” What you say to them is, “Sue for a money judgment.”
Rachel Maclean
Do not worry: I know what to say to them. That is fine.
Harry Scoffin: Yes, you know. Okay, good. The point is that we do not need forfeiture, but if you cannot abolish it, at least get rid of the windfall.
Rachel Maclean
Q
Harry Scoffin: It is for mixed-use buildings that would otherwise benefit from the 25% non-residential premises limit going up to 50%. Let us say that you have an underground car park, a plant room or maybe, more recently, a heat network. Basically, because you are now linked, almost like Siamese twins, with a hotel, for example, or some shops, under the current 2002 Act for right to manage and even the 1993 Act for buying your freehold, you are out. So even though the Law Commission and the Government mean well, saying, “We’re going to liberate mixed-use leaseholders,” for many of those mixed-use leaseholders, where they are completely linked with the commercial, it is game over; you will never be able to qualify. That definitely needs to be revisited because the Government will not get any political benefit from moving, rightly, from 25% up to 50% and even to mandatory leasebacks for when you buy the commercial.
The quick argument—the Law Commission understood it—is that at the moment, the plant room will normally be managed, yes, by the hotel, but the freeholder for the flats will appoint a managing agent who will also have access to the plant room. We are not changing that position. The only difference is that the managing agent that the freeholder appointed, who has access to the plant room, would now be working directly for people like my mum. So it is not disrupting—we are not going to become hoteliers. We are not going to become shop owners. If we rely on a service and are paying for it—53%, mind—we should have access to it, but the key thing is that we need the right to manage. Without right to manage, or without buying the freehold, you are, literally, perpetually in this abusive relationship with a freeholder who has your cheque book and is spending it how he likes, whether that is reasonable or not. That is a fact.
On the point about section 24, that needs to be revisited so that the manager, where a tribunal deems it appropriate, can be the accountable person. In our building, we have mobilised—ironically, it is over 50% of the leaseholders. We now face going back to them—with their cash, by the way—and saying, “We can’t now get one because of this unintended consequence of the Building Safety Act”. That is a quick bit of drafting— I have spoken to lawyers about it. It would be very easy for you guys and that would help, particularly on cladding developments, where the cladding is not getting done because the freeholders are sitting on their hands. You need an officer of the court who is going to turn around the development and be accountable.
Karolina Zoltaniecka: Can I say something about the right to manage? At the moment, the process is so complex. There are three notices that need to be served. I believe there needs to be only one, to say to the freeholder, “We are taking over the right to manage and this is the date we are going to do it on”, and that is it. There are solicitors who specialise in analysing notices to pick holes in them to prolong the process, so that leaseholders give up, and costs just go up and up. And I completely agree with the forfeiture point from Harry. It is unnecessary and a breach of lease, and especially, arrears can be taken to the county court to recover if the arrears are real.
Mike Amesbury
Q
Harry Scoffin: No, it is a tenancy scam. You do not own anything. You own the right to sell on a bit of space in a flat you occupy. You do not own, even though you may have paid a freehold price and you thought you owned it—you do not.
Mike Amesbury
Q
Harry Scoffin: Completely, because—
Mike Amesbury
In England and Wales?
Harry Scoffin: Yes, because people are coining it in and they want to keep it that way. I understand that a political decision was made by No. 10 not to have commonhold in the Bill and not to say even “a share of freehold”. Let us do that. Let us work with the Government to get share of freehold in. That is maybe an English fudge, but at least it gets us halfway to the ideal of commonhold, whenever it comes. I am not going to hold my breath for commonhold, sadly, because we have wasted the last seven years talking about it.
Mike Amesbury
Keep going.
Karolina Zoltaniecka: I would not give up on it; it is well worth waiting for.
Harry Scoffin: We need share of freehold in the meantime, at least.
Richard Fuller
Q
Halima Ali: I do not agree that it is. All it is doing is creating a two-tier system where a set of homeowners, like myself, living on a private estate are dealing with this situation, whereas other homeowners are not. I do not see how regulating it is helping, because overall, the management company still get to set the fee.
Richard Fuller
Q
Halima Ali: Oh right, sorry—
Richard Fuller
I was not being very clear, I am sorry—it is my job to be clear, not yours. I think what you were saying is that this is trying to fix the problem, but the root of the problem is that councils are permitting this to go ahead.
Halima Ali: Yes, absolutely.
Richard Fuller
Q
Cathy Priestley: Yes. There are other detrimental effects on estates, other than those on the homebuyers, because non-adopted areas are not built up to adoption standard, so there is a quality issue. There is also a community cohesion issue, if you have one lot of people paying for everybody else’s open space.
Richard Fuller
Q
Halima Ali: That is correct. I will make a specific point; I am sure this is the situation nationwide as well. When I purchased my property, the council tax for band C was around £1,000. Currently, it is at £2,000. If you look at that and the average family income, there is a big disparity. How are we able to afford all this? Ultimately, we are paying council tax twice. It is unfair on us. It is unfair on vulnerable people who generally do not understand all these arbitrary rules and regulations and who are coming to us for support.
Cathy Priestley: Most of the people in our group were unaware of what they were getting into. They are unaware of the unlimited liability, because this cannot be capped. It is what it is, and it costs what it costs.
Richard Fuller
Q
Cathy Priestley: I do not know what councils would think about that. About 50% of the estate charges are just administrative fees. Councils could do it much cheaper. I do not think it would be acceptable to councils, but it would be great for us, yes.
Richard Fuller
It would make them adopt them quicker though, wouldn’t it?
Cathy Priestley: It certainly would, yes.
Ms Rimmer
We need to be careful on this. Councils are constantly picking up bills from other people, and these costs are the costs of poor developers. There are different ways of dealing with different aspects of this. One is safety development. To take a leaf out of the Health and Safety at Work etc. Act 1974, you design, you develop, you construct—for use, maintenance and everything. Why not do the same for future housing developments, so that we do not have estates built without roads or pavements or these nice park features that would be lovely for children to play out on?
Nobody’s going to maintain them and they end up like a rubbish tip. People tip there, because nobody cleans it up. And what happens? More people tip there. No developer should be allowed to develop things that cannot be put right. They should pick up the costs on development, so people know what they have got. Then you have the old properties—I call them asset-rich and purse-poor. The properties are worth a fortune. They are beautiful big old houses—you would give your right arm for one of them—but when it comes to maintaining all this and their paths, the older people cannot do it. To bring that up to standard is a cost. It is not a cost for the council to pick up.
The Chair
Order. I am afraid that brings us to the end of the allotted time to ask this panel questions. Apologies, Marie. On behalf of the Committee. I thank all our witnesses for coming in.
Examination of Witnesses
Mr Andrew Bulmer and Angus Fanshawe gave evidence.
The Chair
We will now hear from Andrew Bulmer, CEO of The Property Institute, and Angus Fanshawe, specialist in leasehold enfranchisement. We have until 4.15 pm for this session. Will the witnesses please introduce yourselves for this session, starting with you, Andrew?
Mr Andrew Bulmer: I am Andrew Bulmer, chief exec of The Property Institute. There was supposed to be a third chair here today, in that an organisation called ARMA—the Association of Residential Managing Agents—was invited to attend as well. For the benefit of the Committee, if I may clarify, The Property Institute is the merged organisation made up of the former Institute of Residential Property Management, which was 6,000 individuals with qualifications to manage buildings, and ARMA, which used to be a trade body for the managing agent firms, with approximately 350 managing agents. Between them, they manage about 1.5 million leaseholds.
Angus Fanshawe: Good afternoon. I am a valuer specialising in leasehold enfranchisement, specialising in helping people to extend leases on their flats and to buy their freeholds. I am a member of the Royal Institution of Chartered Surveyors, or RICS, and of the Association of Leasehold Enfranchisement Practitioners, or ALEP. I am based in central London, and all my work is in central London. I probably act about 50:50 for leaseholders and for freeholders. My first case was in 1994, so this year is 30 years since I did my first extension case—in Belgravia, I think it was. Acting for both leaseholders and freeholders, I hope that I can bring a balanced view to the Committee today.
Mr Andrew Bulmer: Apologies, Chair, I should declare that I am on the Commonhold Council.
Matthew Pennycook
Q
Angus, we have exchanged correspondence on valuation, and I know that you take the view that the deferment rate should not be fixed by the Secretary of State. I wanted to explore that a bit further, in the sense that the 2007 Cadogan v. Sportelli judgment, which has broadly set deferment rates, was made in the context of 0.5% interest rates. I have heard it put to me by people in other parts of the country that it may work in London, but it is very out of kilter with what works in different regions. If the Government are minded to remain of the view that the Secretary of State should fix the deferment rates, how best should the Secretary of State do that? What would need to be taken into account? Is there a need to set multiple rates for different parts of the country to deal with the variations? I want to explore the prescribed rates a bit more and how they can function most effectively if schedule 2 is to remain.
Mr Andrew Bulmer: Thank you for the question. On the regulation of managing agents, I should also declare that I was on Lord Best’s working group. There were three components to Lord Best’s recommendations: first, there should be a regulator; secondly, the regulator should have a code of practice through which to hold the industry to account; and, thirdly, there should be mandatory competency standards. That applies to sales and lettings as well as to block, or leasehold block management. He made a distinction with block: because of the large sums of money and the high risks involved, block should be qualified to a higher standard—indeed, minimum level 4.
There is a compelling reason why regulation is required. The way to think of it is the apocryphal tale of “The Ambulance Down in the Valley”, a famous poem. There is a large cliff, and people fall off it. Should there be a fence at the top of the cliff or an ambulance down in the valley? Redress and the first-tier tribunal, as well as the ombudsman, are the ambulance down in the valley, but it would be better to prevent harm occurring in the first place. Minimum competency standards and a regulated sector are the fence at the top of the cliff.
Lord Best made his recommendations four or five years ago now and I wholeheartedly support them—we support them. If we take Lord Best’s basket of reasons, put it on the table in front of us and acknowledge that, we will then have to consider where the industry has moved. Since that time, we have had the Building Safety Act, which was supposed to introduce a building safety manager. That was abandoned and the building safety manager is now in effect the property manager. The property manager now has to learn half of a new profession. The responsibilities and the technical knowledge that go with that are considerable.
For leaseholders who are RMC directors, the Building Safety Act also makes the RMC the principal accountable person, and to whom do they turn? The first port of call is the building manager. The Building Safety Act has the unfortunate consequence of inevitably driving leaseholders, who may be very intelligent individuals—such as the lead violinist of the London Philharmonic Orchestra, a brilliant individual but not an expert in building safety management—to their building manager. That means the Act is now driving lay consumers into the hands of an unregulated sector. That is another basket of reasons, in addition to Lord Best’s basket, on why the sector should be regulated.
Then we come to this Bill, which we warmly welcome and very much support. We can go into the details of it, but let us be very clear that we think it is a Bill that is going in the right direction. One of the Bill’s effects is going to be empowering leaseholders to look after their own affairs, and that is a good thing. But, again, we have the leaseholder, who is not daft—they could be a brilliant surgeon, or a lead violinist—but are none the less not property experts, so, again, the move towards self-determination and self-control means that they are being driven into the hands of an agency sector that is entirely unregulated. If Lord Best’s basket of reasons were not enough, if we add to it the Building Safety Act, then we add to it the inexorable drive towards leaseholder control of their own homes and their own affairs, it is surely now time that the sector was regulated.
If there is no appetite to regulate in this Bill, with its limited time going through Parliament, at the very least we should introduce minimum competency standards. It has been done already, swiftly and elegantly, following the death of poor Awaab Ishak, where mandatory qualifications were brought in in the social sector.
Many buildings are mixed use. A building manager will be walking down a corridor, qualified to manage the units on the left-hand side but not the units—or homes, I should say—on the right-hand side. That is inequitable and it makes no sense. Further, it also assumes that those in the private sector are not vulnerable. Vulnerable people live in the private sector too. The argument for, at the very least, having a code of practice and mandatory qualifications for building managers is, in my view, all-compelling.
Angus Fanshawe: On fixing rates and the deferment rate, before the Cadogan v. Sportelli case, which you mentioned, the deferment rate was always a contentious point. In my years of practising, that case has probably been the most important; really, it removed the deferment rate as something that was in dispute. Since that case, I cannot recall that I have ever had a disagreement on a deferment rate or a problem with agreeing the deferment rate.
Cadogan v. Sportelli set the rate at 4.75% for houses and 5% for flats. There are a couple of exceptions—well, maybe one or two more than that, but there are two significant exceptions where you can depart from 4.75% or 5%. My concern is that if we fix the rate, we will remove the opportunity, as is the case now, for leaseholders to agree a higher rate than 4.75% or 5%.
As I say, there are two cases where there are significant exceptions. The first is that if you have an intermediate leasehold—so, you have a head leaseholder who has a reversionary period—then commonly you would agree that at something higher than 5%, normally 5.5%, to the benefit of the leaseholder. Also, with some buildings there is an element of obsolescence—so, will the building actually be there at the expiry of the lease in, say, 80 years’ time? With a building built in the 1960s or 1970s, which perhaps has a life expectancy of 50 or 60 years, is there certainty that it will be there at the end of the term? In those circumstances, you can agree—I do not think with too much controversy—a slightly higher rate than 5%, again to the benefit of the leaseholder. If you are going to fix the rates, that will bring an unfairness, either to the leaseholder or the freeholder, depending on what rate you are going to fix.
It also ties in with capitalisation rates, if you are going to fix the capitalisation of the ground rent. There was a case on capitalisation rates—Nicholson v. Goff in 2007—that set out very clearly how the capitalisation rate should be assessed: so, the length of the lease term, security of the recovery, the size of the ground rent and the rent review provisions, if any.
Every ground rent is different; every circumstance is different. Again, if you are going to fix the capitalisation rate in the same way that you are going to fix the deferment rate, that could certainly bring about unfairness. It could be unfair to freeholds, it could be unfair to leaseholders, but the problem with fixing the rate is that it does bring unfairness.
Matthew Pennycook
Q
Angus Fanshawe: Yes, you are right. The case was about a flat in Cadogan Gardens—so, London SW3, prime central London. However, it was very clear. It set out how the deferment rate should be assessed. If the rate is to be assessed, I think the Cadogan v. Sportelli case sets out very clearly how it should be assessed. That would be the starting point: if the Government decide to do that, that is the starting point.
Ms Rimmer
Q
Mr Andrew Bulmer: Sorry—yes. I am afraid that I do not have a voice that projects, but I will do my best.
We warmly welcome regulation of managed estates; it is an anomaly that the management of those estates is unregulated. I was in the room earlier and I heard some eloquent discourse around the fact that some of these estates exist at all as managed areas and that those common areas are not adopted. I have personal experience of managing estates where there are two grass strips, a couple of gullies and a little piece of road, for which you need to set up a limited company, find directors, get them insured, do a health and safety risk assessment and a whole load of other stuff—a whole load of on-costs—for what amounts to, as I say, two strips of grass and a couple of gullies. Clearly, for that kind of small estate, that is utterly disproportionate and I strongly recommend that those areas are adopted by the council. There has to be a way through it, through planning legislation, section 106 agreements, commuted sums and so forth. I would strongly make that point.
On the regulation of those estates that either exist and cannot be adopted or alternatively perhaps are part of a much more complicated scheme and it is therefore inevitable that they will be managed areas, then, yes, absolutely bring them in. I would recommend that you align the regulations and the processes for reporting and service charge accounts, or charge accounts, as closely as you possibly can to the reformed leasehold regime so that there is consistency.
Barry Gardiner
Q
Mr Andrew Bulmer: Would it be easier? I am not entirely sure. A substantive point was well made earlier. At the very minimum, there was a call for the equity that is left in a forfeited property to be returned to the leaseholder.
Barry Gardiner
Q
Mr Andrew Bulmer: As I understand it, that is absolutely correct. Yes, the freeholder takes a lot.
Just to be clear, it might just be worth saying that we represent only managing agents. We do not have freeholders as members and we do not represent freeholders. That is sometimes misunderstood and, while I am clarifying, probably 50% or thereabouts of the estates that my members manage are RMC controlled. We also have members in Scotland who are freehold entirely, so we are very comfortable with freehold, commonhold and resident control.
Barry Gardiner
Q
Mr Andrew Bulmer: We do a mental health survey of our members. We have done it now for, I think, three years. I am sad to report that the answers of property managers to the question of “Is your life worthwhile?” are in the bottom 17% of the UK population, which is certainly a cause for concern. We ask for the sources of stress, and they include the cost of living and things external to their work, but it is roughly equally balanced between freeholders and leaseholders.
Barry Gardiner
Q
Mr Andrew Bulmer: I think it rightly places property managers roughly in the middle of all this. Shall we say that?
Barry Gardiner
Q
Mr Andrew Bulmer: I would go further than that and say that we have been calling for a standardised chart of accounts for quite some time and that standardised chart of accounts would be able to separate out and highlight the various funds. It is important that each individual leaseholders’ funds can be readily identifiable in terms of their own account.
Barry Gardiner
Q
Mr Andrew Bulmer: Yes. The Property Institute standard, the old ARMA standard for member firms, requires separate accounts for each development and for those to be trust accounts—it is leaseholders’ money held on trust.
Barry Gardiner
Q
Mr Andrew Bulmer: First of all, it still does have that code of conduct. We are in the middle of rebranding from ARMA to TPI. Just to be clear, the legal entity is The Property Institute, but we are still running on the ARMA and IRPM brands for the next few weeks, when the branding will finally change. I am not quite sure what the phrase, “What went wrong?”—
Barry Gardiner
Q
Mr Andrew Bulmer: There is a plethora of codes. I am good with this: when I was residential director at RICS, I project managed the delivery of the third edition of the RICS code. There is a fourth edition of the code, which I think sits with the Department for Levelling Up, Housing and Communities at the moment. Separately from that, Baroness Hayter’s overarching code of practice, inspired by RoPA, is in draft form and goes across all agents. There is then the ARMA standard. There is a plethora of codes. It is the RICS code that the Secretary of State adopted, so again I would love to answer your question, but I do not quite understand it yet. How can I help you?
Barry Gardiner
Q
Mr Andrew Bulmer: We are not a regulator. For firms to join us, they volunteer to do so. It is to their credit that they do so, but there is a limit to what we are able to enforce. We can embrace standards, and our job is to raise standards by pulling—
Barry Gardiner
Q
Mr Andrew Bulmer: And we have done so. We can raise standards by pulling firms and members along. We can have adventurous conversations, we can set standards and, in extremis, we can remove agents from the institute. We have done that for both individuals and firms. But, ultimately, we are not a regulator, and if you are truly to drive standards you need both pull and push. The role of the regulator would be to push.
Barry Gardiner
I think you have given a very eloquent explanation of why, try as you might, we need to ensure that within the primary legislation we have the adequate safeguards, because they cannot be done by voluntary effort outside in a complete and effective way. Thank you.
The Chair
Are there any further questions from Members? No? Okay, in which case I thank the witnesses for attending today. We will move on to the next panel.
Examination of Witnesses
Kate Faulkner OBE and Beth Rudolf gave evidence.
The Chair
Q
Beth Rudolf: I am Beth Rudolf. As you say, I am the director of delivery at the Conveyancing Association. I started my working life as an estate agent, became a licensed conveyancer and now work with the Conveyancing Association to improve the home-moving process for the consumer.
Kate Faulkner: Hi, my name is Kate Faulkner. I am chair of the Home Buying and Selling Group. If you are not familiar with it, it is a massive volunteer group. Our steering group has more than 30 different organisations, because that is how complicated it is to buy and sell a home in this country, be it leasehold or not. We have participants who are practitioners, as well as all the trade bodies, regulators and redress schemes. Our aim to improve the home buying and selling process, to prevent the one third of fall-throughs when a sale has been agreed after the offer stage and to reduce the length of time, which impacts on people’s uncertainty of life when they are buying a home. I have worked in all property sectors, from part-exchange to helping people who need to move into a retirement home and working with agents. Most of my work involves trying to communicate to consumers from an industry or Government perspective.
Matthew Pennycook
Q
Kate Faulkner: There are various issues. I heard one of the best descriptions of this recently, which was that, if I ask you to bake a cake with 20 ingredients but I only give you five of them, it is a bit difficult to do. Once you have made the offer and the legal companies have had a look at it and at the agreements, in a couple of months’ time you might get up to 10 of those ingredients. Eventually, four or five months later, you might have all 20 and you can then buy and sell that property. That is the biggest problem we have.
One of the massive opportunities with the Bill is to mandate the information required for people to understand what they are purchasing with a leasehold property. A key thing that we do not have in the property sector that other areas have—I have worked in the health, beauty, food and drink sectors—is an awful lot of natural education on how to buy things. We have nothing; there is no natural education of the public in our sector, apart from in the media, where any property story is particularly negative.
The work we are doing now has been fantastic. It has improved consumers’ education so that they really understand what they are buying into and that leasehold is very different from freehold, but they have now got the impression that leasehold is a bad thing. When leasehold works, it is not a bad thing.
From my perspective, and certainly from all the work we do with our participants on the Home Buying and Selling Group, it is essential that information be provided up front. Fantastic work has been done by the group that worked with trading standards, who now require up-front information, but it is not mandated. Although agents are supposed to understand all the property rules and regulations, from the discussion you had earlier, apparently nobody thinks that they should be qualified, and there is no regulation, so one problem is that agents have no idea about the trading standards up-front information that is coming through. A lot of good work is being done; the issue is that it is not working on the ground.
On leasehold specifically, people have to get hold of leasehold packs. There is a cost associated with them, and the time it takes can be excruciating. Anything that can be done to cap those costs would be welcome, but we need to make sure that quality is still required. The danger of the cost being too low is that we do not get quality leasehold packs, and they are essential due to the complexity of leasehold. The time it takes is also essential. Mandating up-front information specifically for leasehold would help us to reduce fall-throughs and reduce the time it takes, but most importantly, it would mean that people could get on with their lives more quickly than they currently can.
Beth Rudolf: I am the co-ordinator of the leasehold property enquiry form and the freehold management enquiry form, which are supported by TPI, RICS, the Law Society, the Conveyancing Association and right across the sector. The intention of the forms was to create a standard template for the information required. It is noticeable that, of the questions raised, only five are time-sensitive, such as failings to pay ground rent or the current budget—the kinds of things that change over time. Most of the information is standardised across the whole of that estate; nothing is going to change. Certainly, when we were looking at the regulation of property agents with Lord Best, it was clear that some of the bigger managing agents already have templated tenant portals where people can go to get that information. That needs to be put across the whole of the leasehold sector, the rent charges and the managed freehold estates, because we are seeing charges of up to £800 for the information.
We are also seeing the duplication of those charges. We will go to the landlord and they will say, “We only answer the ground rent ones, but we still want £400 to answer those. You will need to go to the managing agent to get the information about the service charges.” The managing agent says, “Right, well, we charge £400 for that, but you will need to go to the Tenants Association to get information about disputes and consents,” and so it goes on.
The timescale to getting the information having paid for it is about 57 days. For the consumer, it is an absolute nightmare. As Kate says, guidance from National Trading Standards came out on 30 November 2023 which sets out the material information—the information that would be relevant to the average consumer. It is not all the information. What we need mandated is what information and what data should be reviewed to identify what the relevant material information is, because without that how do we know if somebody has the information from the leasehold property inquiries or from the seller’s or the estate agent’s guesswork? Certainly, without the regulation of property agents, there is nothing to say, if they do just make it up, that anybody can take anything against them. We absolutely need that to be incorporated. It was promised and there was an announcement, I think, in 2018 that the leasehold property inquiry information should be made available at a cost of £200, with a refreshment fee for those time-sensitive elements of £50, and that that information should be made available within 10 working days. We have still not seen that and there is nothing in the Bill that identifies that.
Rachel Maclean
Q
Kate Faulkner: I do not think we have ever asked that question, so it is very difficult to answer. Also, the issue with property is that people change a lot. As a result, you could have a block that works brilliantly because we have a wonderful violinist or—my grandma used to own a little place at The Poplars in West Bridgford in Nottingham and, through complications, the family still owns a garage where my grandma used to live. The two guys who run that estate—the guy who does the accounts and the guy who does the overall management—are absolutely fantastic. They are a pleasure to deal with, and it is an extraordinarily well-run block. Now, if either of those were to move on, who knows whether there is anybody to replace them?
If we take another situation—I must say that this was quite a shock for me and I was a bit green in those days—I owned a flat and I thought it was safe to buy because it was owned by a housing association. Thirty per cent of those flats were owned privately. We were treated abominably by that housing association, and I would go as far as to say that they really did not like private leaseholders. I understood; they were social homes originally and they did not want us to own them. I felt we were treated as if we were an ATM machine. The original agreement that we signed up for with the housing association was a good one, but we found that they were changing that agreement over time and changing it so fast with so much paperwork that by the time the roof needed to be replaced, all the reasons we had bought that property, which we thought was safe, had been taken away from us. I know what I am doing and I asked all the right questions, but we still ended up with a situation where we had no control whatsoever over what was happening.
You have two cases there. In one, you have a wonderfully-run estate, but that could change overnight if different people take over, and in the other, you have a situation where I thought I would be safe with the housing association, only to find all the rules were changed.
To give you some idea, I think it is the complexity of this that is so scary. However good anybody is, the missing qualifications are just horrendous. That just has to be sorted. The best way I could describe it to you is that when I moved, I had a bag. Do you remember those big Asda bags? Not the ones that they do now, because they seem to have got smaller, like everything else. I had a big Asda bag, and after owning this flat with the housing association for 10 years, I had three lever-arch files full of paperwork.
When we brought the complaint against the housing association about how they had dealt with the roof renovations, it took a year to take that to a complaint situation. When I suggested that I take it to a first-tier tribunal, I was told—this is one of the good things—that if I drove my other leaseholders into taking them to a first-tier tribunal, it would cost more than £30,000. I was asked whether I wanted that responsibility on my shoulders. Taking that cost off is one of the good things, but my worry is that however good we do, until you give the leaseholders parity with the legals—the surveying and the accounting expertise of the freeholder or agent or whoever it might be—we will still never dig ourselves out of the situation we have. That parity service has to be free, or every leaseholder puts in a hundred quid a year or something to provide them with some sort of service.
Rachel Maclean
Q
Kate Faulkner: Absolutely. That is in one of my notes. If we make sure all houses are freehold, but we keep flats as leasehold, is that a problem? Well, actually, we can make leasehold work. We spend so much time looking at how to solve the bad bit, but what we do not do in this industry—which I have always done in others—is learn how it goes right, and how we can pull everybody up to that standard. We spend so much time looking at what happens when it goes wrong.
Rachel Maclean
Q
Beth, it is often presented that your industry and your members are perhaps part of some of the problems we see, because conveyancing is not done to high standards. We have heard so many times that people do not know what they are buying. Surely, that should be the role of conveyancers? Is it your view that there are some poor people practising in your industry? How much of this leasehold problem would have been avoided if we had had decent conveyancing right from the beginning?
Beth Rudolf: We have to go back to the understanding that, as Kate said, if you only have a few of the ingredients up front, then you are going to give misinformation. For example, let us think that without any information going to the buyer, they have decided to buy that property. Now, their intended use and enjoyment of the property is then what the conveyancer needs to do the due diligence on, to ensure that the buyer gets the information and understands what it means to them.
The issue we have with the current conveyancing process is that because of the dematerialisation of deeds, there is no need to keep deeds packets in fireproof safes any more. Consequently, they are just returned to the property purchaser, who loses them without realising their use, or they keep them really safe and then take them with them to the next property. All of that information goes missing, which means that every time the property is sold, the information and archive of the data has to be reconstructed. If I, as a conveyancer, was selling a property back in 1990, I would just get out the deeds packet and send through the contract pack on the day that a buyer was found. Within that, I could put old local searches, planning and documentation, warranties and guarantees, and insurances.
Now, when I get instructed, I have to start from scratch. I have to go to the lease administrator and planning authority and get all the information. That takes time. The trouble is that, as a buyer’s conveyancer, I am trying to report to the client on the information as it comes in. I hopefully get in the material information that the estate agent gets when they put the property on the market, but then I have to do the transaction form that the Law Society requires, which duplicates what has already been provided, but is slightly different, so you do not get the right information there.
On top of that, I get the search results in, but I probably do not order those until I get the mortgage instructions in. But the mortgage instructions are based on a valuation done by a valuer who did not know what information was available on the lease, so I then have to go back to the valuer and say, “No, you’ve got the wrong information.” By the time I have reported to my client on each thing, I have had to change my story each and every time. So conveyancing transactions take about 20 weeks before you can even exchange contracts, because each time you are trying to recreate the information about the property.
What we need is for the property data to be digitised and stored in property log books at the end of the transaction so that it can then be used when the seller wishes to instruct an estate agent to sell their property. To advertise it, they can then pull down the property pack, get the relevant material and information out of it, and ensure that when the buyer puts their offer in, they know what they are buying, and that the valuer for their mortgage company knows the details about the valuation. Where that happens—in Norway, Denmark and Australia—we see binding offers with cooling-off periods, and the only stress is trying to work out what you are going to move and what stuff you are going to give to charity.
Kate Faulkner: You have to bear in mind that when people are moving, they are also having a baby, getting divorced or getting married—or somebody has died, or they are in debt. Maybe they are trying to get in for a school time. As much as I wear a consumer hat, they are not in the most rational mode.
One of the difficulties that the conveyancer, the agent or anybody else has is actually getting people to sit down and understand the paperwork and what they are doing. We have a huge problem: consumers do not really understand, and do not always take the time to, either, because they just need to get into the property. We have a real education issue. One of the things I would do is work with companies to help them to educate consumers. I have to say that, in all my jobs, getting them to understand from a property perspective is the toughest thing.
That is why we have to bring everything up front. If we wait until they have made an offer and had it accepted, we have lost them—they are interested in what colour the walls are and what the sofa is, and if anybody, such as a surveyor, gets in their way and says, “You shouldn’t buy this property”, they are almost cross with them. The mindset of a consumer during the buying and selling process with property is very different from any other consumer mindset I have ever worked with.
[Chloe Smith in the Chair]
The Chair
By way of explanation, for the next 10 minutes I am Caroline Dinenage.
Kate Faulkner: Many congratulations!
The Chair
Otherwise, my name is Chloe Smith. I am temporarily chairing the session to allow for a very short break.
Andy Carter
Q
Beth Rudolf: What you have in there is the energy performance certificate; the title to the property, including a plan and any documents referred to in the title, such as a lease or a conveyance containing covenants; the searches—the local authority search, the drainage and water search and environmental data, which will tell you whether the property is impacted by coastal erosion or flooding; and the BASPI, or the buying and selling property information, which is completed by the seller and provides information about their understanding and ownership of the property.
You verify the identity of the seller digitally to ensure that they are the person registered as the proprietor to avoid seller impersonation fraud, through which people have lost £1.3 million. Those are the things that you need available. For a shared amenity property with a leasehold or managed freehold estate rent charge, you also need that shared amenity information—the LPE1, or the leasehold property enquiries form, and the FME1, or the freehold management enquiries form.
[Dame Caroline Dinenage in the Chair]
Andy Carter
Q
Beth Rudolf: It is about building safety. Is remediation required? What will be the impact on you? How much will you have to contribute? Are you a qualifying leaseholder? How the hell do we know?
Andy Carter
Q
Beth Rudolf: For any house, yes, absolutely. It needs to whack up the material information under the Consumer Protection from Unfair Trading Regulations 2008, which impact estate agents by saying, “These are the prescribed documents.” The home report in Scotland shows that that is pretty much what they have done. They have 60% fewer fall-throughs than we have and their transaction time is much faster. If we can go that way, it will absolutely deliver. When estate agents and conveyancers have worked together to deliver this already, it has knocked transaction times from 22 weeks to 10 weeks and fall-through rates have plummeted.
Kate Faulkner: Obviously, I work right across the property industry, from self-build to the leasehold side, and a lot of the work that has been done, including the rent reform and the work that has been done here, focuses on what happens after. For me, there is a problem with property from a consumer perspective, because there is a shortage of properties and owning a property is such a complex thing. You cannot compare it to buying a toaster—it often is, but please let us get rid of that.
For property to work for consumers who are moving, buying property or selling after deaths, divorce and so on, you have to make sure we have no bad freeholders, no bad landlords and no bad or poorly qualified agents. The good thing about the leasehold Bill is that you are doing some of those things. The Renters (Reform) Bill is not doing those things; most of it is after the event, but that is too late because consumers have to put a roof over their head and get their kids into school, so they will compromise on their rights. They will compromise when they are told, “You need to understand this information from your conveyancer, which means you should pull out of this deal.” We therefore have to put the protection in first. We must regulate agents and make sure the bad elements cannot be there. There is such a massive scale, ranging from the brilliant people I work with right through to the criminal, and we have to move everybody up.
Beth Rudolf: Just to catch you there, because we are short on time, the regulation of qualifications is a key point.
Andy Carter
Q
Beth Rudolf: No. It is wonderful that you are opening up the jurisdiction of the tribunal, but it still does not cover administration charges—I have talked about how ridiculously expensive they are—and their duplication. The point is that, as Kate says, the consumer is not educated, and nor is the estate agent. The material information guidance has come out, but none of the estate agents knows about it. When conveyancers ask them whether they can help them prepare the summary of the material information, the estate agents say, “Well, why? What are you talking about?” They have no idea.
The point is, as Andrew says, that we want to put a fence at the top of the cliff, not an ambulance at the bottom. The tribunal is the ambulance at the bottom; regulation of property agents is the fence at the top. That will ensure all people are educated, including the consumer, the estate agent and the property manager, and we also need to include the landlords and the developers in that. They need to be regulated too, because otherwise it is all going to slip through the net. The enterprise reform regulations do not incorporate anything where you are not instructed to work on behalf of somebody else, so your landlord is not going to be regulated, and they already do not have to be part of a redress scheme. Bringing these things in will help with education, so that they know what they are supposed to do and they will not make these mistakes that cause people to have a nightmare in their own homes.
Andy Carter
Q
Beth Rudolf: No, I have so much to tell you about this. In Worcester, the county authority has a £35 million overspend on adult social care. Because of that, it is not putting any money into the adoption of public open spaces. It is not putting any money into supporting those. It will absolutely look for developers that will take on those open spaces, create these estate rent charges and make a bit of wonga by collecting all that money.
Andy Carter
Q
Beth Rudolf: It is council resources, as much as anything. Then, on top of that, developers see it as being a financial asset, because they continue to have an economic interest in that land by gathering the referral fees, the commissions on the insurance and things like that.
Andy Carter
Q
Beth Rudolf: All I can tell you is that currently the council that I am aware of will not adopt anything. The dowry that it used to receive for adopting is no longer enough to cover the cost of bringing it up to an adoptable standard and, as was mentioned before, if the developers leave before bringing it up to an adoptable standard, you are completely stuffed: there is no resourcing and no money available to fund this.
Andy Carter
Q
Beth Rudolf: Bring in commonhold. Enable commonhold on managed estates, because then people will at least have their control. With commonhold, you immediately get people saying, “You don’t have professional property managers running it.” Well, require that, when the commonhold association takes over, it has in place a professional, regulated property manager with a limited contract, so that the association can tender for a replacement if it turns out that that estate manager is not good. That means that you are starting to drive it on the basis of customer satisfaction: if you do not do it fairly, well and reasonably, the commonhold association is going to replace it. We did a survey of the commonholders—
Andy Carter
I am conscious of the time. Others may want to—
Beth Rudolf: I know, but I was going to say that the commonholders did not complain about being commonholders. Some of them had been leaseholders, and they said that they would prefer to be commonholders.
Kate Faulkner: One of the things from the developers’ side—and I was not clear about this—has to do with where this leaves people with shared ownership, because you cannot have two-tiered systems. The housing associations and shared ownership should be as protected with these rules and regulations, because, unfortunately, not all housing associations do a good job.
Beth Rudolf: One more thing: the ground rent capping referenced in the Bill requires the lease to be a qualifying lease, so it will not impact leases under 150 years. But the majority of the mis-sold leases with onerous terms and escalating ground rents were well under 150 years. They will not be touched by this, so that needs to change.
The Chair
Thank you very much. I do not think there are any further questions, so I thank you both very much for attending today.
Examination of Witness
Professor Tim Leunig gave evidence.
The Chair
We will now hear from Professor Tim Leunig, who is the director of Public First. We have until 5.15 for this session. Can the witness please introduce himself for the record?
Professor Leunig: I can. I am indeed Professor Tim Leunig. I was an employee of the Department that is currently known as the Department for Levelling Up, Housing and Communities, where I served as economic adviser on housing supply to three Secretaries of State—Clark, Javid and Gove respectively—and any number of Housing Ministers, to be honest, one of whom is here. I served almost all of them between Brandon Lewis and Rachel Maclean.
I am now the director of economics at Public First consulting and am chief economist at the think-tank Onward. I am employed by University College London Consultants to train Treasury civil servants. I run a Substack and I am a visiting professor at the London School of Economics school of public policy.
Rachel Maclean
Q
Professor Leunig: I think that is a question that people often ask medics: “Why do I have this?” Who cares? The question is, “Am I going to get any better?” I have not got the faintest idea about the origin of leasehold, but I contend to you that that does not matter; all that matters is whether this is an effective system and, if it is not, what we could do either to improve or replace the current system. Those two questions I can answer, but I am afraid that I get an E grade for my answer to the question that you actually asked.
Rachel Maclean
Q
We have a Bill in front of us. What is your view on the Bill? Does it address the problems that we have all heard and are familiar with?
Professor Leunig: It is a step forward; there is no doubt about that. I do not suppose that any person has appeared in front of you today and said, “Oh, this is a terrible step.” I do not suppose anyone has argued that we should keep leasehold for houses or that we should have 99-year leases or 49-year leases or anything like that.
Rachel Maclean
No.
Professor Leunig: In that sense, it is obviously a step forward. I have not been here all day, but I am guessing that you have had a consensus on that throughout your evidence sessions. I am part of that consensus. I think that it is very good that leaseholders have increased rights to information and that we are eliminating ground rent for longer leases, although I agree with the person who was sitting here before me—whose name, I think, was Beth Rudolf—that 150 years is a rather long thing before you get rid of ground rent. The case for ground rent seems to me to be extraordinarily weak. I think that it would be better to move to commonhold.
First of all, I should say that I am not a lawyer. Indeed, once, when I made a remark about the law in a meeting with one of your predecessors as Housing Minister, said Minister remarked that, as an analyst, I should know better than anyone else that the first four letters of analyst stand for, “am not a lawyer”, which, I have to say, was wittier than most Housing Ministers.
I am not a lawyer. I am an economist, but I can say that leasehold is a peculiarly economically inefficient construct, because it usually constrains a person, for whom the largest single thing they will ever invest in is a leasehold—their house—from doing all sorts of things. It constrains improvements, for example. It also holds them open to the risk of forfeiture, and the risk of forfeiture is particularly bizarre: for a very small amount of service fee, you can lose the entire value of your flat or, occasionally, your house. That is disproportionate to any sense of economic, moral or any other kind of fair play, and it acts as a disincentive to people.
In that sense, leasehold is a fundamentally economically inefficient construct, as well as having dubious morality. For sure, if you do not pay your service charge, there needs to be some way of enforcing, whether it is commonhold or leasehold, but that is why we have things like the small claims court. Ultimately, we have bailiffs if you do not pay a bill. You do not lose your entire property because you failed to pay your telly licence or something like that, and nor should you for a service charge. In that sense, I think that leasehold should be killed off.
I also think that leasehold is, on occasion, an absolute magnet for sharks and other wretched creatures who disgrace our society and the good name of capitalism. I think it was Edward du Cann who made a remark—before I was born and before at least some of you were born—about the “unacceptable face of capitalism” when companies behave very badly. We see that happening in leasehold with the companies who had doubling ground rents until a property was worthless and the companies who pursue forfeiture over tiny bills. Bluntly, if I am allowed unparliamentary language—I think I am but you are not—there are bastards out there, and your job is to construct the law to constrain those people who have bastard tendencies. Leasehold does not do that; commonhold does. That is why I think that commonhold is a much safer construct for people who are currently leaseholders. It should be the norm and the requirement for all future building, whether that is flats or houses, and we should be looking to move leaseholds to commonholds over time.
Rachel Maclean
Q
Professor Leunig: The final point is factually incorrect, because of course the nurses pension scheme is unfunded, so there are no assets behind—
Rachel Maclean
That is probably a bad example.
Professor Leunig: It is, but people always put forward nurses and policemen when they want an “Oh, woe is us” story. Well, the NHS pension scheme is unfunded; it is underwritten by us as taxpayers and is thus completely and utterly secure.
Although I accept that there are some people who have these in their pension funds, any good pension fund is diversified. No sensible pension fund has more than a trivial amount of its money invested in this class. Of course, if you have a self-invested pension plan and you decided to put it all in this, that is a risk that you took when you decided to invest all your money in it.
Changing to commonhold will make not a jot of difference to the number of houses that are built over the next year, or the number of flats. The number of houses and flats built is determined entirely by whether the builder believes that they can make a profit. This is a for-profit sector, and that is right and proper, as is the manufacture of pens, mobile phones, bits of paper, quasi-plastic cups and everything else. It depends on whether the buyers have enough confidence to buy, on whether they think their job is secure and on whether they can get a mortgage at a rate that seems acceptable and is competitive with renting. That is what matters. It also matters whether the builder thinks the market will be radically better in the following year, in which case they will quite understandably delay building for a bit.
Frankly, the difference between the value you will get for a leasehold and what you will get for a commonhold is at best slight; in so far as it exists, it is based on confusing and bamboozling buyers. Sometimes the builders of a leasehold flat say, “Ah, but we can sell them for less, because we make some money by selling off the right to the ground rent.” If that is true, the buyer is not better off, because they have got it for less, but they have to pay ground rent. The buyer would be perfectly able to pay a little more, because their monthly or annual outgoings would be exactly the same.
The only way in which the builder is able to do better is if the buyer does not realise that they have to pay ground rent and is unable to do a net present value calculation in their head, which I grant you is more than likely—I challenge any of you to tell me on the spot what the net present value of £250 a year discounted by 3.5% a year is, over any number of years you like that is greater than five. Does anybody want to do that off the top of their head? No? I even typed into Google last night, “What is the net present value of £250 discounted at 3.5% over 10 years?” Google did not give me a number as an answer. It is not the sort of thing that we have to hand.
Yes, some people might be bamboozled into this, but a good economy never says, “Great: we can build some more houses by tricking people into being poorer later.” That is not the way to have a well-functioning market—and a well-functioning market is the best guarantee that we will get the houses we need built where we need them and when we need them.
Richard Fuller
That’s all right, Dame Caroline. Let’s stick with net present values, shall we, Professor?
Professor Leunig: Go for it—I’ll get out the calculator.
Richard Fuller
Q
Professor Leunig: Indeed, yes. It’s a very long one, by the look of it.
Richard Fuller
Q
Professor Leunig: Yes.
Richard Fuller
Q
Professor Leunig: Oh, yes, absolutely. That is not necessarily reprehensible, because sometimes you just cannot have a clue.
I am often asked to forecast the future. I say, “Why did economists get the last four years wrong? Because we didn’t predict that Vladimir Putin would invade Ukraine.” Making predictions about the future as a social scientist is, by and large, a mug’s game. All you can do is stand up from first principles and say, “When do market economies work well? They work well when contracts are simple and plain and everybody understands them.” That is much truer of commonhold than of leasehold, which is why I support commonhold rather than leasehold.
Richard Fuller
Q
Professor Leunig: Does it have a range?
Richard Fuller
Q
Professor Leunig: I have not seen the impact assessment.
Richard Fuller
Q
Professor Leunig: I would want to read it before giving a definitive answer, but the information that you have given me tells me that this Bill is above all a redistributive Bill. However, both of those are static estimates. The main change in property rights is usually dynamic; for example, what does it do to the incentives for people to improve their own homes? I would be surprised if that were captured in those benefits. If it is captured, I would be interested in seeing over how many years it is captured, and so on and so forth. Of course, a lot of this Bill, as I understand it—assuming that it is like every other Bill—leaves all the important stuff to secondary legislation and regulations. I imagine that those figures, in particular the figure of £2.8 billion under “transfers”, are heavily dependent on exactly how the secondary legislation is written.
Richard Fuller
Q
Professor Leunig: Yes.
Richard Fuller
Q
Professor Leunig: The biggest winners and losers will be in the south-east and in London, because that is where the marriage values are greatest because that is where property prices are highest. If you own a flat in Peterlee, one of the lowest value housing markets in Britain, the marriage value will be trivial at the moment, so changing the rules on marriage values will have a very small effect.
Richard Fuller
Q
Professor Leunig: That will be the biggest—
Richard Fuller
Q
Professor Leunig: No. Not every leaseholder in London is rich, by any means. If you are buying a flat for £300,000 in London, that will make you rich by the standards of someone in Peterlee, but I do not think a young couple buying a flat for £300,000 would meet The Daily Telegraph’s definition of “the rich”.
Richard Fuller
Q
Professor Leunig: Yes.
Richard Fuller
Q
Professor Leunig: Redistribution is ultimately a political issue; it is about who you think should have the money. Government engages in redistribution all the time. Sometimes it does so explicitly through the tax system— I am looking forward any day to my tax cheque coming back from HMRC for the money I overpaid last year—and in other ways it does so implicitly.
For example, as somebody who has been employed in universities for most of my academic career, my income was constrained by the fact that Government limits university fees. I teach at the London School of Economics. The fee that we charge for a master’s suggests that we could charge much higher than £9,250 to undergraduates, but the Government do not let us. That is a legitimate decision by the Government. It makes me directly poorer. That is a transfer away from someone like me—broadly speaking, on the richer end of the spectrum—to people who are currently not very well off but who later on will be rich.
That is just the right of a Government to define property rights in such a way that some people are winners and some are losers. The right to borrow Jeffrey Archer’s books from the library, for which he gets virtually no compensation, is exactly the sort of political decision that you are entitled to make by dint of having a democratic mandate. Apart from agreeing with you that there is redistribution, I do not think that there is a great deal that any of us at this straight table can say to those of you around the horseshoe. It is your right, privilege and responsibility to make that decision.
Richard Fuller
That is very helpful. I will stop there, but I want to come back on discount rates later if I have time.
Professor Leunig: Excellent.
Barry Gardiner
Thank you. I make it 296.91, actually, but please correct me if Google thinks I am wrong.
Professor Leunig: May I ask whether you used a calculator to work that out?
Barry Gardiner
Of course.
Professor Leunig: Phew! I was once involved in setting a question for Carol Vorderman on “Who Do You Think You Are?”. They wanted her to work out something like that, and I said, “You’ve got to give her a calculator.” They said, “No, she’s Carol Vorderman.” No one can work out 1.02794 in their head, not even Carol Vorderman. They finally agreed to put a calculator to hand, which she used, I believe.
Barry Gardiner
So she didn’t do it in her head.
Professor Leunig: Even Carol Vorderman cannot do that in her head. If you had said that you had done it in your head, I would have put you above Carol Vorderman.
Barry Gardiner
Q
Back to the Bill. There is an argument put forward for ground rent—the Government’s proposal is to take it down to a peppercorn or indeed abolish it entirely—that these are inalienable property rights, so there must be compensation and there must be proportionality. Could you elaborate for the Committee on whether the same argument was used when we compensated slave owners for the loss of their property, and whether you think that there is an analogy there?
Professor Leunig: Property rights are never sacred in the sense of being inviolable, because a property right is over and above the right to be compensated for the loss of property, so a properly inviolable property right would ban the emancipation of slaves, ban compulsory purchase and so forth.
But the Government often take actions that, de facto, end someone’s business. One of the saddest things I did in Government when I was economic adviser to the Chancellor was meeting a group of people affected by Brexit. One of them was a seed potato exporter. Under EU law, seed potatoes cannot be imported into the EU, so on the day that we left, this person’s business was completely kaput. He asked for compensation, but it was not granted. We can argue the rights and wrongs of that, and we can argue the rights and wrongs of Brexit, but it seems to me that the fundamental sovereign right of Parliament is to make decisions that some people like and some people do not like. If people are really unhappy, they can judicially review it. A lot of rich people own ground rents, and they may well be judicially reviewed. Sometimes almost anything is reviewed, certainly in the world of property.
I am not a lawyer, but it seems to me that there is a plausible case for Parliament to stand up and say, “We believe there are social advantages to doing this, and we have therefore done it.” That is the standard defence in law, and we did this at the end of covid. I was involved in the compulsory arbitration for a commercial rent scheme; indeed, it was one of the things I came up with as an idea in my time as a civil servant. At the end of covid, just about every restaurant had a huge accumulated rent debt. The standard commercial clause says that on any day you are behind with your rent, the landlord can go in, occupy the property and seize everything that is in it. We put that into abeyance for covid, without compensation, because we had a public policy reason for wanting restaurants shut.
Barry Gardiner
Q
Professor Leunig: There we are.
Barry Gardiner
Q
Professor Leunig: Correct, and that was what we decided at the end of covid, when restaurants, particularly those that served fine wine, came to us to say, “As soon as we restock our cellar, the landlord will turn up, reoccupy the property, seize all the wine and sell it for the back debt.” They said, “We are literally not willing to bring wine on to the premises.” It was clear that that was an inefficient outcome that risked undermining the high street, risked undermining the future of hospitality and risked undermining a sector that is the biggest employer of young people. We therefore created a compulsory arbitration scheme to prevent that from happening. Nobody judicially reviewed that, even though there were some unhappy landlords, because they understood that we had a public policy purpose for doing so. The weight of evidence that you have heard today suggests that there is a public policy purpose here but, as I say, I am no lawyer.
Barry Gardiner
Q
Professor Leunig: Let us be clear: land for housing is of higher value and agricultural land is of slightly higher value, but industrial land is often not.
Barry Gardiner
Q
Professor Leunig: Gobsmackingly. The field with three horses next to Heathrow airport that I go past if I ever go to Heathrow is a tragedy. It is a really dreadful little bit of land. It is used for nothing other than three horses, but its value is constrained, because it is zoned for agriculture. I think the answer is: very little. Most of the large developers are not in this in order to make a fast buck out of ground rent and so on. Indeed, from memory, I think I can put on record that Taylor Wimpey behaved very honourably, having inadvertently had doubling rents in the north-west—
Barry Gardiner
Q
Professor Leunig: Hang on; I will exercise my right to finish the sentence. It actually bought them back from the people to whom it had sold them, and it had not sold them at a particularly high price. It was just a local convention in the north-west that houses were sold on leasehold. The national companies hired solicitors, who did the normal thing in their area. Just as there is in government, there is often a lot more cock-up than conspiracy in the private sector. I am much more worried about the people who buy the leases later on with a view to finding the loopholes and exploiting them, just as people buy up medicines that are not quite out of patent to force the prices up. That is why I think it is good to set up a legal system that prevents the sharks from sharking, or whatever the verb is, but I would not want to tar all developers with that brush. In terms of property prices, I should say that I think it is overwhelmingly the planning system—we can see that if you look at somewhere like Manchester, which has lots of flats where land prices are not that high. Land prices are high in London and the south-east because we do not release enough land for housing.
Barry Gardiner
I will exercise my right to interrupt.
Professor Leunig: Absolutely.
Barry Gardiner
Q
Professor Leunig: It could do for sure, yes. If you can extract more money for the product that you are able to sell, you are willing to pay more for the constituent parts. However, I would not want anybody here to think that if we move from leasehold to commonhold, houses will suddenly become affordable in the south-east. That would not be a credible economic prediction.
Barry Gardiner
Thank you.
Professor Leunig: For that, you need to build more houses.
The Minister for Housing, Planning and Building Safety (Lee Rowley)
Q
Professor Leunig: First of all, I repeat what I said earlier, namely that it seems to me that a lot of it is up to the secondary legislation. In particular, I think that issues of compensation are entirely in secondary legislation and regulation. As I say, I am not a lawyer; I find it very hard to read a Bill. It is not my skillset at all. I would not like to have your job.
I think that the biggest effect is the dynamic effect of creating a much cleaner and clearer property market. We have a rather ossified property market in Britain; it has become more ossified over time. There are all sort of reasons for that, including the fact that far more people are now under stamp duty, as well as the effect of financial regulations that mean someone needs a relatively large deposit to get on the housing market. There is a bunch of other costs that we really could simplify and get rid of. Take searches, for example. You can buy a house that is two years old and you have to do a completely clean set of searches. Why? When did we last find a mine in central London? We know this stuff pretty well.
I think this is part of clearing up the housing market and if we do so it can have quite big dynamic effects—for example, facilitating the better movement of people in response to opportunity. Such opportunities may be economic. I do not want to sound too Norman Tebbit and say, “Get on your bike.” However, there can be opportunities to go and live next to an aged parent who has suddenly fallen ill, in order to provide better care for them, or opportunities to move nearer to better schooling. Whatever the opportunity is, a more flexible housing market allows people to move to a house that is better suited to their needs.
All those things are good dynamic effects that in the medium term are strongly pro-growth and I see this Bill being part of it, but it is a small step forward. A move to commonhold would be a better step forward to a nice, clean system, where everybody knows exactly what they are buying and nobody is left wondering, “What sort of freeholder is this? Are they an exploitative one? Are they a reasonable one?” Many freeholders are perfectly reasonable.
Lee Rowley
Q
Professor Leunig: I see no risks in anything that you plan to do; I really do not think that there are any meaningful risks in moving to 999-year leases over 99-year leases. I certainly do not see any risk in ending leasehold for houses.
However, you might have people coming back with very specific cases of supported housing, for example—you always want to check with specialist groups about things like that—but I see no meaningful risks in this Bill as far as it goes. If you had gone much further, there would have been no meaningful risks either. The fact that commonhold and similar things work in places like Australia shows that it is a perfectly possible and viable system.
The time when you want to be really worried is when you are the first person in the world doing something. Of course, that does not mean you are wrong—right? When we privatised the first utilities, or when we privatised British Telecom, that was not a wrong decision, but there were definitely grounds for caution. However, when you are doing something that is already done in many countries—of all the things you lot have to worry about, I would not worry about that one. Sleep well tonight.
Lee Rowley
Q
Professor Leunig: The only prioritisation meeting I had was with the current Secretary of State for Levelling Up on the LURB—the Levelling Up and Regeneration Bill —because the first draft of the Bill had twice as many clauses as could get through Parliament. We had a meeting for about two hours with the Secretary of State and each part was read out, including what its intention was and how many clauses it required. That is the cost-benefit analysis.
If I say to you, for example, “The lady before said 150 is too big”, I would agree with her; I imagine that is a very sensible change to make. By contrast, I am sure that other people have said, “Go for commonhold for everything in future”. That strikes me as requiring a lot more clauses than the number that would be required to change the 150 figure to 99, or 75, or something.
What I urge you to do is to ask the lawyers—the people drafting the legislation—how many clauses would each change that has been proposed cost. Then you think, “Okay, we can probably manage another 24 clauses”, or whatever it is, “or we can change 24 clauses. Which ones do best in that cost-benefit analysis?” I do not think that it would be sensible for me to give you an answer without knowing that legislative cost.
Andy Carter
Q
Professor Leunig: Yes.
Andy Carter
He should?
Professor Leunig: Yes, and it is increasingly important as more and more of us live in flats. Unless we are going to make London look like Houston and stretch all the way from the white cliffs of Dover to Oxford, more people are going to have to live in flats in London. They are going to have to live in terraced houses and flats; that is just a simple, basic sense of physics and geography.
So yes, flats are going to be more important over time. I can see no reason why new flats should not be built on commonhold for anything where planning permission has not already been granted. That gives builders amply long enough. At that point, they cannot turn around and say, “Oh, but our economics were predicated on this.” You have not put in for planning permission. Do it on commonhold. Get on with it. Adjust to the new world order.
The Chair
I think we had a couple of follow-up questions, first from Rachel and then Richard.
Rachel Maclean
I am sorry, Dame Caroline. When you told me that there was not time, the question went out of my head. I apologise.
The Chair
In that case, we will go to Richard and it might pop back in again.
Professor Leunig: Oh no, he is going to test me on net present value.
Richard Fuller
Q
Professor Leunig: The default rate chooses 3.5% because that is the rate in the Green Book. Again, it is fundamentally a political decision, because you put the rate one way and the value goes up. You put the rate the other way and the value goes down. It is just a political decision. I really do not think that there is a right or wrong answer to that.
The only thing to say is that I would be very cautious in using the current Bank of England base rate because it is so volatile. The idea that if we had made the calculation two years ago we would have used a discount rate of 0.25%, but today we would use 5.25%, is absurd. You need one number that you stick with through thick and thin, and the default rate, I think, is the Green Book discount rate of 3.5%. I am happy to believe that if we were in the Department and I was employed, you could sway my belief that 3.5% is the right answer, but that is where I would start.
Richard Fuller
Q
Professor Leunig: Because this is a one-off decision. For example, we saw Paul Johnson mention this week that the cost of student loans has gone up dramatically because of the rise in interest rates. We do not suddenly cut the number of people who can go to university and then increase it when interest rates are low, because we accept that most people de facto get one shot at university when they are 18 or 19. Over the 25 years of your mortgage, you will re-mortgage a number of times so it averages out, whereas this is a one-shot thing. We do not really want people acting strategically on which day to do it. That is why we would prefer to have a single number over time.
It is not a stand-up case; I grant you. You have a case. It is the classic thing of marking to market, right? When you retire, if you have a defined contribution pension scheme, you are to some extent at the whim of the market on the day you retire and in the five years before, as you move out of equities and into bonds. If you are a defined benefit pension holder, de facto we use the scape rate, which is a long-run average. I argue, in effect, for something similar to the scape rate for something like this.
Richard Fuller
Q
Professor Leunig: As I say, my main advice would be to make a political decision and pick an interest rate, rather than to make a political decision without realising you have made a political decision and go for Bank rate, or Bank rate plus two or minus one, and to have complete randomness over the following years.
The Chair
If there are no further questions from Members, I thank the witness very much. We will move on now to the final panel.
Professor Leunig: May I say well done? You have had a very long day.
Examination of Witness
Dr Douglas Maxwell gave evidence.
The Chair
Apologies, Douglas, I have one eye on the screen, where the Minister is now on his feet in the Chamber—we do not want to keep you waiting while we do lots of voting. Douglas Maxwell of Henderson Chambers, will you introduce yourself quickly for the record, please?
Dr Maxwell: Good afternoon. My name is Douglas Maxwell. I am a barrister in private practice at Henderson Chambers in London.
Matthew Pennycook
Q
On the existing ground rents, to what extent do you think that any of those courses of action in the five options will be compatible with the provisions of A1P1? On compensation, how credible do you find the figure in the Government’s impact assessment? They cite the figure of £27.3 billion as the estimated change in asset value from calculating the loss of ground rent income on the relevant leases. Do you find that a credible figure, or is it subject to a heavy amount of caveats, assumptions and so on?
Dr Maxwell: To deal with your first question, I think it is important to start by looking at how the European Court of Human Rights, the Strasbourg Court, considers applications under article 1 of the first protocol. The Court has said consistently that where a deprivation of property occurs—article 7 interprets that effectively as when your entire right to property is extinguished and all economic value is lost—there is what is called a presumption of compensation. I am not entirely sure, because we do not have the proposals set out in statute—we simply have the consultation document—
Matthew Pennycook
Q
Dr Maxwell: In most instances, it would appear that that would fall within control of use: the freeholder’s right to property is not entirely extinguished, because they retain the ability to use, sell or whatever that property, and they retain the ability to make money through other means such as enfranchisement fees or lease extension fees. I discussed this yesterday with Professor Bright at the APPG, which I know some of you were present at, but there might be instances where it falls within the category of a deprivation, or certainly gets close to that category, where the entirety of the income is derived from ground rent and the removal of that would effectively remove the value.
Absent sight of those sorts of leases and the relevant facts, we are dealing only in hypotheticals here, so that brings us to another question, which is to look at the macro picture of the options as a whole and the micro application of that to certain facts. It might be that on the macro approach, looking at the totality, we are dealing with a control of use, which means that there is no presumption of compensation, but it could be that if we looked at the micro analysis, certain individual circumstances do fall into that. Again, absent the relevant facts, it is only possible to speculate. It is a very broad market and there are lots of different leases.
Matthew Pennycook
Q
Dr Maxwell: I am not an economist. I have skimmed the impact assessment figures and noted the figures that seemed to be quite substantial. I noted for option 1— correct me if I am wrong, but I do not have a copy in front of me—I think it said that in the first 10 years, the loss of ground rent might be £5 billion, and then a loss of value of about £27 billion. I am not an economist, so I cannot really comment on whether that figure is remotely correct or reflective at all.
Matthew Pennycook
Q
Dr Maxwell: If any of the options are implemented, it will result in a significant loss in value of freeholds. As a result, there is a prospect of challenges being brought. I cannot comment on where those challenges will come from, but it would be slightly naive to say that any of those options are completely safe from challenge. However, the prospect of a challenge being brought is very different from the finding of a violation; seeking to bring or threatening judicial review is very different from the actual court finding that a violation has occurred. Obviously, the risk register—if you want to call it that—of the finding of a breach is effectively reduced if you go down the relevant options to the final one of freezing ground rent, and there are other questions about the proposals as set out in there.
This was discussed last night with the APPG, but it is important to recognise that there is Strasbourg case authority concerning cases from Norway that went to Strasbourg on the capping of ground rent. Obviously, ground rent in Norway is not exactly the same as it is in England and Wales, but there are some similarities. There was an initial case called Lindheim where the Strasbourg Court said that a cap of 0.2% in Norway breached the right to property of article 1 of the first protocol. That was because, effectively, the value was completely lost.
The Norwegian Government engaged in a process like this—a very considered discussion and consideration within the political sphere of the best way forward—and they effectively set a cap, which was the equivalent of about £600 a decare—I had to look that up—which is 0.2 acres. They set a cap, which again was challenged in a case called The Karibu Foundation, and that was when the ground rent related to about 0.6% of the land’s value. In that case, the European Court of Human Rights said, “No, there is not a violation here, because the Norwegian Parliament have clearly considered this and they have what the Strasbourg Court calls a ‘broad margin of appreciation’. These sorts of questions are for Parliament”—they are for you. The EHCR said that it had been adequately considered, they have retained the property, and that is reflected. Therefore, there cannot be seen to be what the Strasbourg Court usually refers to as an “individual and excessive burden” on this foundation, and it said that a breach had not occurred.
The principle is that a cap or a limit on ground rent is not necessarily a violation, but you have to apply it to the certain facts and see whether it falls within causing an “individual and excessive burden.” But we are absent from facts and again dealing in hypotheticals here. We have to look at the macroanalysis.
Rachel Maclean
Q
Dr Maxwell: There is a book, but it is probably not on your Christmas list.
Rachel Maclean
You are presuming what is on my Christmas list! Anyway, are you able to express a view on whether this Bill and what we are proposing is a proportionate interference in property rights?
Dr Maxwell: That is an exceedingly broad question. There are 65 clauses in this Bill, and there is a consultation with five potential options. We do not have time to go through every single clause, but in terms of the risk register and potentially successful challenges being brought, I would focus on option 1 of the consultation, on reducing ground rent to a peppercorn.
There are various other people who have looked at this. For example, Giles Peaker, who is a very respected solicitor and has appeared before these Committees previously, has recently written that it would quite obviously, in his view, be a violation and it is important not to give people false hope. There is an undeniable risk of a violation being found in the relevant options. I suspect, but I do not know, that the prospect of a challenge being brought is very high, but again that depends on the relevant facts. It would be my understanding that it cannot be brought in a macro sense against the Bill as a whole, and it would depend on the relevant facts.
For example, the Supreme Court found a breach of the right to property in a case called Mott, which concerned limits on an individual’s right to fish on the Severn estuary. The Environment Agency’s policy of fishing as a whole—limiting fishing for the benefits to the environment—was considered okay. But for Mr Mott, it resulted in a complete loss of his income—fishing represented 95% of Mr Mott’s entire income—and it therefore did cause a breach to Mr Mott in particular. That is why I am slightly apprehensive about giving broad conclusions about consultations and clauses when we do not have the ability to analyse the impact on an individual or entity.
Rachel Maclean
Q
Dr Maxwell: Yes, so in the case I referred to earlier—The Karibu Foundation v. Norway—one of the factors that the Strasbourg Court gave a lot of weight to was that the Norwegian Parliament had sat down with the Council of Europe, because it was following a breach in the Lindheim case, and considered all the relevant options. It was properly aired and debated and they got in experts from various fields. That is clearly a consideration. It shows that the democratic institutions—Parliament—have properly considered it, rather than it being, say, a last-minute amendment without justification.
The Chair
I am quite keen to wrap this up before the Minister concludes speaking in the Chamber, because otherwise we will have to keep the witness for at least an hour during votes, and I do not really want to inconvenience him that much. Can we have very quick questions and swift answers if possible, please?
Barry Gardiner
Q
Dr Maxwell: In relation to your first point on the Norwegian case, yes, as I said, it was different. It is about agricultural land value. The value was equivalent to several thousand euros. As for what happened with the adoption of, say, strata title in Australia and so on, that is not within my knowledge. What I know or have studied in detail is—
Barry Gardiner
Q
Dr Maxwell: The very short answer to that is that we are dealing with article 1 of the first protocol to the European convention on human rights. Countries such as Australia, and particularly places such as Hong Kong now, are not signatories to the convention, nor do they have a domestic law-giving effect to it. That is why we are dealing with article 1 of the first protocol, and that is why we are dealing with case law from other jurisdictions that is, perhaps, not directly analogous.
As for the sorts of cases, or whether any cases were brought in those jurisdictions when that system was adopted, that is not something I am aware of or can comment on, unfortunately.
Andy Carter
Q
Dr Maxwell: I am not a solicitor; I am a barrister. I am not able to really comment on the main implications of the Bill for solicitors, unfortunately. That is a nice, succinct response.
The Chair
Thank you—I do apologise for that. Thank you very much on behalf of the Committee. That brings us to the end of this afternoon’s sitting. The Committee will meet again on Thursday to hear further oral evidence on the Bill.
Ordered, That further consideration be now adjourned. —(Mr Mohindra.)
Finance Bill (First sitting)
Tuesday 16th January 2024
(2 years, 7 months ago)
Public Bill CommitteesRead Full debate Finance Act 2024 View all Finance Act 2024 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 16 January 2024 - (16 Jan 2024)
The Chair
Good morning, colleagues. We are now sitting in public and sittings are being broadcast. I have the usual preliminaries for those who are used to such Committees. Hansard colleagues would be grateful if Members could email their speaking notes to them. Please switch your phones or electronic devices to silent. Tea and coffee are not allowed during sittings.
The selection list for today’s sitting is available in the room. It shows how the clauses, schedules and selected new clauses have been grouped for debate. Matters grouped together are generally the same or similar issues. A Member may speak more than once in a single debate.
I will first call the Minister to move the programme motion standing in his name. It was discussed at yesterday’s meeting of the Programming Sub-Committee.
Ordered,
That—
1. the Committee shall (in addition to its first meeting at 9.25 am on Tuesday 16 January meet—
(a) at 2.00 pm on Tuesday 16 January;
(b) at 11:30 am and 2.00 pm on Thursday 18 January;
(c) at 9.25 am and 2.00 pm on Tuesday 30 January;
2. the proceedings shall be taken in the following order: Clause 3; Schedule 2; Clause 4; Schedule 3; Clause 5; Schedule 4; Clause 6; Schedule 5; Clause 7; Schedule 6; Clause 8; Schedule 7; Clause 9; Schedule 8; Clauses 10 to 14; Schedule 9; Clauses 15 and 16; Schedule 10; Clauses 17 to 20; Schedule 11; Clauses 22 to 24; Clause 26; Clauses 28 to 30; Clauses 35 to 38; any new Clauses or new Schedules relating to the subject matter of those Clauses or those Schedules; remaining proceedings on the Bill;
3. the proceedings shall (so far as not previously concluded) be brought to a conclusion at 5.00 pm on Tuesday 30 January.—(Nigel Huddleston.)
Resolved,
That, subject to the discretion of the Chair, any written evidence received by the Committee shall be reported to the House for publication.—(Nigel Huddleston.)
The Chair
Copies of written evidence that the Committee receives will be made available in the Committee Room and will be circulated to Members by email.
We now proceed to line-by-line consideration of the Bill. I know that the Ministers will speak, but other Members who wish to speak should please bob so that you draw my attention. Variety is the spice of life and we do not want to hear just the Ministers and shadow Ministers. You are all welcome to speak and I look forward to hearing you.
Clause 3
Films, television programmes and video games produced by companies
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
Schedule 2.
Clause 4 stand part.
Schedule 3.
Clause 5 stand part.
Schedule 4.
Clause 6 stand part.
Schedule 5.
Clause 7 stand part.
Schedule 6.
The Financial Secretary to the Treasury (Nigel Huddleston)
It is a pleasure to serve under your chairmanship, Mr Paisley. I thank all members of the Committee in advance for their attention and participation, and I thank all officials, Clerks and the many stakeholders who have engaged with our discussions to date.
We are first considering the cultural support measures in the Bill. Clause 3 and schedule 2 replace the tax reliefs for film, high-end television, children’s TV, animation and video games with refundable expenditure credits. The audiovisual expenditure credit will replace the four film and TV reliefs. Film and high-end TV productions will receive a credit of 34%. Children’s TV and animated TV and film will receive a credit of 39%. The video games expenditure credit will replace the video games tax relief and will have a rate of 34%. Clauses 4 to 7 and schedules 3 to 6 make changes to ensure that the creative sector tax reliefs remain appropriately targeted and administrated efficiently.
I will turn briefly to the detail, starting with clause 3 and schedule 2, which reform tax reliefs to become expenditure credits. That will ensure that they continue to work as intended following the implementation of the OECD pillar two rules in the UK and elsewhere. A company claiming expenditure credits will not see its effective tax rate lowered as a result. That means that companies will not be at risk of needing to pay a top-up tax after claiming the expenditure credits. The expenditure credits will also go further to support businesses in the creative sector by providing greater benefit than the existing reliefs and greater clarity about the amount of credit that companies can expect to receive.
The expenditure credits will change how tax relief is calculated from a super-deduction to a calculation made directly from qualifying expenditure. The expenditure will increase the amount of relief received by film and high-end TV productions and video games by 0.5%. Children’s TV and animated film and TV production will receive a 5.5% increase in relief.
Under the video games expenditure credit, qualifying expenditure will change from cost incurred in the UK—or the European economic area—to expenditure on goods and services that are used or consumed in the UK. There will be no cap on subcontracting. The Government are making that change to refocus video games tax relief on activity that takes place within the UK. That is appropriate now that the UK has left the EU. Those measures are expected to impact about 3,000 businesses claiming the creative tax reliefs, and we expect to see a positive response and high levels of uptake due to the greater benefit provided by the expenditure credits. Reforming the reliefs to expenditure credits is expected to cost about £60 million a year by 2028-29.
Turning to clauses 4 to 7 and schedules 3 to 6, the theatre, orchestra and museums and galleries tax reliefs have been pivotal in the development of new productions and exhibitions. They have collectively supported almost 25,000 productions since they were introduced. The two-year extension of the 45% and 50% rates of relief, announced at spring Budget 2023, will go even further to boost investment in our world-leading cultural sectors. Clauses 4 to 7 make administrative improvements to these reliefs to provide greater clarity about eligible productions and ensure that the reliefs remain safeguarded from abuse.
Now that we have left the EU, we have the opportunity to refocus our tax reliefs on activity that occurs in the UK and to give organisations more choice over where they source goods and services. That is why clauses 4 to 6 remove EEA costs and instead require expenditure to be used or consumed in the UK. This new approach considers where the goods and services are used, rather than where they are from.
Goods and services from the EEA will qualify, provided that they are used and consumed in the UK, but this will go further, because, for example, payments to a US conductor for rehearsals in the UK would also now qualify for relief, so this goes beyond the EEA. That rule is already in place in the film and TV reliefs, and it is also being implemented for video games tax relief.
The changes made by clauses 4 to 6 change qualifying expenditure for the orchestra, theatre, and museums and galleries exhibition tax reliefs to become costs incurred on goods and services used or consumed in the UK. The clauses require companies to disclose transactions between connected parties when making claims for relief, and to charge connected parties for goods and services at the same price as they would charge unrelated companies. This rule will also apply to the audiovisual expenditure credit and the video games expenditure credit.
Clause 7 requires companies to share additional information when claiming relief, and gives His Majesty’s Revenue and Customs additional powers to recover overpayments of relief.
Clauses 4 to 6 are expected to impact approximately 1,200 companies, including orchestras, theatres, museums and galleries, and clause 7 is expected to impact about 3,000 businesses claiming the creative tax reliefs.
James Murray (Ealing North) (Lab/Co-op)
It is a pleasure to serve on this Committee with you as Chair, Mr Paisley, and I am pleased to be able to respond on behalf of the Opposition on these clauses and schedules.
As we have heard from the Minister, clause 3 introduces a new tax relief regime for the British film, TV and video games sectors. Existing film, TV and video games reliefs will be reformed into a new expenditure credit modelled on research and development tax credits, and specifically the research and development expenditure credit regime. As the sector will have noted from the Government’s policy paper on the measure, under the current schemes, relief is given by way of an additional deduction from profits, or surrendering a loss for a tax credit. Under the new audiovisual expenditure credit and video games expenditure credit regimes, companies will instead receive an above-the-line tax credit based on qualifying expenditure, which will, in turn, be taxable.
We in the Opposition strongly support the UK’s creative sector—one of the areas of the global economy in which Britain is world leading. As such, we will not oppose any measures that provides certainty and greater opportunities for growth in those critical sectors. However, I will seek a few clarifications from the Minister on the details of the legislation.
First, I would be grateful to the Minister if he could provide an explanation for why the Department opted for a 34% credit rate for TV, films and video games—a 0.5% increase from the previous relief, as he set out—while animation and children’s TV production has a greater increase, up to 39%.
Secondly, while the creative sectors have broadly expressed support for a simplified regime based on the research and development expenditure credit, we know that R&D tax credit schemes have been subject to a lot of chopping and changing, year after year, by this Government, as we discussed at earlier stages of the Bill. I would be grateful if the Minister could give assurances to the creative sector that they can expect stability and certainty when it comes to these new expenditure credits, to encourage long-term investment and competitiveness.
Thirdly, I would like to ask about the role of HMRC. We know that the new schemes, although they apply the same qualifying criteria rules as predecessor schemes, will need to be properly explained though new guidance. Could the Minister explain what HMRC is doing to ensure that guidance remains timely and up to date for those wanting to claim, and what HMRC will do to support those wanting to apply for the credits to understand how they operate?
In clause 4, the Government have sought to clarify rules around cultural reliefs following a two-year extension to the higher rates granted for theatre tax relief, orchestra tax relief, and museums and galleries exhibition tax relief in October 2021 to help the sector recover from the pandemic. The clause relates specifically to theatrical productions. It seeks first to clarify the exclusion of capital expenditure for the relief; secondly, to clarify the exclusion of costs incidental to production from the relief; thirdly, to exclude productions from the relief where the main focus is not observing the performance; and fourthly to clarify the “playing of roles” condition.
The Opposition wholeheartedly support the UK’s world-class theatres and actors, and the creative sector more broadly, and we welcome any measures to support their work. However, I would like to raise concerns noted by the Society of London Theatre and UK Theatre in relation to guidance and consistency of claims for theatre tax relief. They have expressed concerns that the wording in proposed new section 1179AB of the Corporation Tax Act 2009, as introduced by schedule 2, that
“‘UK expenditure’ means expenditure on goods or services that are used or consumed in the United Kingdom”
could curb UK productions that originate in the UK but are exported abroad.
We know that the Government do not always have the best record when it comes to supporting members of the creative community to tour and export their productions overseas, and so I would like to ask the Minister what guidance will be issued to make sure UK creative exports are protected and not inadvertently hit by technicalities in the wording of the tax relief rules.
Secondly, SOLT and UK Theatre have expressed their unease at the Government’s definitions of a theatrical production, and the narrow view taken of an audience. Schedule 3 states that
“it is reasonable to expect that the main purpose of the audience members will be to observe the performance (rather than, for example, to undertake tasks facilitated or accompanied by the performance)”.
Could the Minister confirm whether pantomimes are excluded from making claims under this definition? I am sure that members of the public would not miss the irony of a Government clamping down on pantomimes for families across the country while indulging in their own pantomime in Downing Street and Parliament in recent years.
James Murray
I look forward not only to moving on from the current drama in our wider politics, but also to the Minister’s response on the specific point about pantomime productions and claims for tax reliefs.
Finally, having led for the Opposition on five Finance Bills, I know all too well that there can be complexity and indeed unintended consequences when new changes are made to tax relief regimes. Will the Minister therefore again explain what he and HMRC are doing to make sure the appropriate guidance is issued, and support offered, alongside the changes to the rules, to support claimants in navigating them?
On clause 5 on orchestras, the Government have sought to clarify rules around cultural reliefs, again following a two-year extension to the higher rate for orchestra tax relief that we mentioned earlier, which was issued in October 2021 to help the sector recover from the pandemic. Clause 5 seeks to clarify the exclusion of capital expenditure; clarify the exclusion of costs incidental to production; and amend the time limit for concert series elections to either the date of the first concert in the series or the date of the claim.
Although seeking to provide clarity in the operation of creative reliefs is welcome, I am concerned that there is still a lack of clarity on how the rules should be interpreted, and I again ask the Minister to use this opportunity to put some clarification on record. The lack of clarity was brought to my attention by my hon. Friend the Member for Worsley and Eccles South (Barbara Keeley), who is a great champion for the UK’s world-class orchestras. On Second Reading, she made the point that:
“International touring is vital to the survival of many orchestras and makes up a fifth of earned income”
and that
“it boosts cultural exports and enhances the UK’s place on the world stage.”—[Official Report, 13 December 2023; Vol. 742, c. 931.]
She also referred to changes in eligibility for orchestra tax relief that required 10% of expenditure to be on goods or services that are used or consumed in the UK.
I understand the reasoning behind that, as the Minister set it out, but I also understand from my hon. Friend the Member for Worsley and Eccles South that the Association of British Orchestras believes that that means there is a lack of clarity about what orchestras will be able to claim. I am sure the Minister will agree that clarity is crucial for a successful tax system and I would therefore be grateful if the Minister could provide clarity today about how changing eligibility criteria will affect the claims that touring orchestras make.
In clause 6, the Government have again sought to clarify rules, following the higher rate that was granted for museums and galleries exhibition tax relief in October 2021. Galleries and museums are a critical part of our creative sector and of the enjoyment and fulfilment of so many people across the country. The clause seeks to provide clarity on two areas in relation to the relief: namely, the exclusion of costs incidental to production and the requirement for there to be physical admission to exhibitions for the relief to apply. The Opposition will not oppose either of those changes, but I ask the Minister what he is doing to work with key industry bodies, including the Museums Association, to ensure that the appropriate guidance is in place for museums and galleries, large and small, to be able to navigate these changes without confusion.
Clause 7 introduces new administrative measures for companies claiming creative tax reliefs. Claimants will now be required to complete and submit a new online information form. This will include the various new expenditure credits that we discussed in the previous clauses. We understand that these changes seek to streamline the process of making a claim, reduce the administrative burden on HMRC and make it easier to tackle abuse.
Of course, the Opposition support the principle of all those aims. However, as the clause involves the mandatory use of a new online information form from 1 April 2024, I ask the Minister to confirm whether he is confident that the digital systems at HMRC are ready for that to operate from that date. I believe that that is a pertinent question, given the shocking record of the Government in overseeing the implementation of the Making Tax Digital strategy since it was adopted almost a decade ago. Last summer, HMRC admitted that its ageing legacy IT systems meant that HMRC had
“underestimated the scale and complexity”
of delivering Making Tax Digital.
According to the National Audit Office, Ministers set unrealistic ambitions and timescales for implementing MTD. From the very start, HMRC rated MTD as a high-risk programme, and dates were rushed without realistic appraisal. The Financial Secretary to the Treasury is the fifth incumbent of the role since September 2021, and there is no doubt that the churn of Ministers has contributed to the lack of direction in policymaking for digital strategy on tax affairs. I would therefore be grateful if the Minister could outline what steps he has taken to give him confidence in HMRC’s ability to make sure the new online forms for the creative reliefs are operational on time and on budget. That is important for the effective administration of creative reliefs. More widely, it is important that HMRC is equipped with the tools it needs to provide a high-quality online service that individual taxpayers and businesses should expect the Government to deliver.
Dan Carden (Liverpool, Walton) (Lab)
It is a pleasure to speak with you in the Chair, Mr Paisley; I am delighted to serve on the Committee.
I just wanted to raise an issue that has come to my attention in relation to the Liverpool Philharmonic Hall. The Liverpool Philharmonic Hall is the home of our orchestra in Liverpool. It has a unique model whereby the orchestra owns the hall, and the hall is also rented out for external events. That is unique compared with any other set-up in the country. I understand that, in clause 5, the Government are proposing changes to the detail of how creative tax reliefs are claimed. They are proposing that external events with connected companies —as might happen in the case of the Liverpool Philharmonic—will not be eligible for those tax reliefs. That is the model that the Liverpool Philharmonic has relied on and that has made it such a great success. I wish to use this opportunity to ask the Minister to look again and to seek assurances that the minor changes proposed in clause 5 will not affect the Liverpool Philharmonic Orchestra negatively.
Debbie Abrahams (Oldham East and Saddleworth) (Lab)
It is a pleasure to serve under your chairmanship, Mr Paisley. I have a couple of quick questions for the Minister. First, on clause 3 and the assessment that the Government have undertaken of its economic impact on the sector, particularly in relation to the current TV ads slump, how much will it offset that and what timescales are the Government considering? On clause 4 and theatre production companies, is there a size limit for the companies that the measures will relate to?
Nigel Huddleston
Thank you. I do not think anybody in this room or any Members doubt the importance of the creative industries sector. It is an absolute success story for the UK, a huge export earner and something that we can all be proud of. During the pandemic, the sector was among the hardest hit, so we provided more than £1 billion in culture recovery fund money to make sure it was able to survive and do what it does best post pandemic, which it has done incredibly well. I will endeavour to answer the points raised by colleagues in that context.
One area of relative weakness when recovering from the pandemic while other sectors boomed was British children’s content, which declined. That is the rationale for the special difference and the incremental rates specifically for the children’s sector—they need a little more help to recover and boom. We have a great record of children’s TV content, and we want that to be the case again. I can assure the hon. Member for Ealing North that pantomimes will continue to qualify for theatre tax relief—[Hon. Members: “Hear, hear!]—as the main purpose of a pantomime audience is to observe the performance. He raised the point about observance versus participation, where there is some difference in eligibility. Of course, some level of audience participation is normally the case in pantomimes, but it is still predominantly observing, so they will be eligible and not disqualified for production.
On the further points raised by the hon. Gentleman and others about the guidance that will be provided, HMRC is currently working on that and further information will be provided in due course. I have also written to several entities, many of whom participated in the consultation. I should thank all those who participated in the 12-week consultation, which was extensive. We listened carefully and have made many changes. I think we have addressed the vast majority of the issues that were raised during the consultation. Further guidance is needed and will be provided. We are aware of the points that the hon. Gentleman raised.
On his comments about chopping and changing, tax legislation should never remain static because the nature of the economy and the world changes all the time. It is therefore always appropriate to change relevant tax legislation. Signalling and giving stability and assurance to the industry is important. I think that in these measures the support for the creative industries cannot be in any doubt. The creative industries have expressed extreme gratitude for the Government’s support, which has enabled the industries to be incredibly successful over many years. The reason that many film and TV productions are now located in the UK is precisely because of the tax breaks and incentives that have been provided over the last few years.
Several points were raised about orchestras. I explained on Second Reading the rationale behind why we are making changes in relation to EEA expenditure and the UK. There are World Trade Organisation requirements, but I do not think we should underestimate the importance of what is there. In many cases some expenditures that were not previously included will now be able to be included precisely because some of the remit was limited to EEA.
At present, all orchestral productions and touring theatre productions and museums and galleries exhibitions are eligible for a credit rate of 50%. The 50% rate of relief was introduced to support our cultural sectors through the aftermath of the pandemic. At the spring Budget, it was extended for two years in recognition of the temporary but ongoing difficult circumstances that those sectors in particular face. The rate will taper to 35% on 1 April 2025 and return to 25% on 1 April 2026, so support for the sectors is still considerable. As I said, further guidance will be provided, and I will take all the comments that have been made today on board.
Question put and agreed to.
Clause 3 accordingly ordered to stand part of the Bill.
Schedule 2 agreed to.
Clause 4 ordered to stand part of the Bill.
Schedule 3 agreed to.
Clause 5 ordered to stand part of the Bill.
Schedule 4 agreed to.
Clause 6 ordered to stand part of the Bill.
Schedule 5 agreed to.
Clause 7 ordered to stand part of the Bill.
Schedule 6 agreed to.
Clause 8
Miscellaneous amendments relating to REITs
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss that schedule 7 be the Seventh schedule to the Bill.
Nigel Huddleston
Clause 8 and schedule 7 make changes to enhance the tax rules for real estate investment trusts, or REITs; to alleviate certain constraints and administrative burdens; and to ensure that the rules keep pace with commercial practice.
The Government launched a review of UK investment funds, taxation and regulatory rules at Budget 2020 with the aim of making the UK a more attractive location to set up, manage and administer funds. We have already made great progress, introducing the qualifying asset holding company and long-term asset fund regimes, which will help support a wide range of more efficient investments better suited to investors’ needs and to provide jobs across the UK.
The changes we are introducing for REITs regimes today in the clause and schedule 7 build further on that work. REITs are a specific form of property investment company. The tax rules have the effect of allowing investors to be taxed on their share of a REIT’s income and gains in a way that is broadly the same as if they had invested directly in property. The regime has proven popular since its introduction in 2006, with approximately 140 REITs currently established in the UK.
The Government have already brought forward several reforms to the REIT rules under the Finance Act 2022 and the Finance (No. 2) Act 2023. Following further engagement with industry, this clause and schedule 7 bring forward a third and final tranche of targeted changes to complete the work of better meeting the needs of investors while ensuring that the right tax is paid.
The changes made by clause 8 and schedule 7 include updates to the conditions that ensure a REIT is always widely owned, and that the UK retains effective taxing rights over the rental income distributed by REITs to foreign investors. Those are in addition to a number of further technical and clarificatory changes. The Government are also taking the opportunity to make further changes to related tax rules, including a technical correction to the corporate interest restriction as it applies to REITs, and a consequential change in the related non-resident capital gains rules for collective investment vehicles.
James Murray
As the Minister explained, clause 8 makes a number of amendments to the real estate investment trust rules. The Government’s policy paper on the matter set out that, since 2006, the number of UK REITs has grown to approximately 130, with the real estate sector evolving to increase the number of large institutional investors in REITs. We understand that the objective of the Government’s changes is to modernise the regime and alleviate constraints and administrative burdens through various measures, which include allowing insurance companies to hold group REITs, changing the profit/finance cost ratio, amending rules relating to holding a single property, extending the exemption for gains on disposal of UK property-rich entities, and amending the definition of a holder of excessive rights.
The Opposition agree that it is important to keep pace with changes in the UK’s investor landscape. We welcome measures to make the regime more appealing for real estate investment, and we will not oppose the technical changes that seek to do so in this Finance Bill. We note, however, that the Government recognise the scope for more businesses to enter the UK REIT regime, which entails one-off costs to businesses and greater demands on HMRC’s capacity. At a time when HMRC is already under significant pressure, will the Minister explain what assessment he has made to ensure that businesses that want to enter the REIT regime will be supported by HMRC without other aspects of HMRC’s work suffering?
Nigel Huddleston
I thank the hon. Gentleman for his comments. He will be aware that, while HMRC is operationally independent, I have oversight as part of my ministerial role. We have regular conversations about resources and capabilities, and I am more than confident about its capabilities in this and indeed many other areas. We always keep resources under review.
These changes are reasonable, and I am grateful for the hon. Gentleman’s support; indeed, they have wide support from industries. They will improve the operation of the REITs rules, aligning them with current commercial practices and enhancing the regime’s competitiveness. I therefore commend clause 8 and schedule 7 to the Committee.
Question put and agreed to.
Clause 8 accordingly ordered to stand part of the Bill.
Schedule 7 agreed to.
Clause 9
Managers of ships
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss schedule 8 and clause 10 stand part.
The Exchequer Secretary to the Treasury (Gareth Davies)
It is a great pleasure to see you in the Chair, Mr Paisley.
Clause 9 and schedule 8 enable qualifying companies that manage ships to elect into the tonnage tax regime. Clause 10 increases the capital allowance limit on the provision of vessels to operators in the tonnage tax regime for ship lessors. Tonnage tax is a regime aimed at boosting the United Kingdom’s competitiveness in the international shipping industry. At autumn Budget 2021, the Government announced the first substantive reforms of tonnage tax since 2005. These included removing the EU/EEA flagging requirement, for example.
Following those reforms, the Government announced at this year’s spring Budget that we would permit third-party ship management under the tonnage tax regime, with the aim of attracting more shipping companies to the United Kingdom, and that we would also raise the capital allowance limit for lessors of ships into tonnage tax, broadly in line with inflation and the cost of ships. These changes follow a review into whether to include ship management and the appropriateness of the existing capital allowance limit.
Until now, only companies that owned or chartered their ships could participate in the regime. The existing tonnage tax rules will in general apply to ship managers as they do to operators, but with certain exceptions. Most notably, operators must fulfil a training requirement for ships’ officers, which will not apply to third-party managers. They will be able to claim tonnage tax profits only on ships for which the operator has fulfilled the training obligation. Clause 10 will raise the overall limit on capital allowances that a lessor can claim from £80 million to £200 million—the first rise since the limits were introduced in 2000. The increase recognises general price movements and changes in vessel design and costs, ensuring that the UK tonnage tax continues to be internationally competitive. I therefore commend clauses 9 and 10 and schedule 8 to the Committee.
James Murray
As we have heard, clause 9 sets out to make changes to the tonnage tax, by extending the scope of the tax to allow entry by third-party ship managers. As the Government’s policy paper sets out, as things stand, entry to the regime is available to operators of qualifying ships, with operators defined as those who own or lease vessels.
We understand that introducing the ability for ship managers who are not operators of ships to make a tonnage tax election will extend the scope of this beneficial tax regime, and it seeks to thereby increase the international competitiveness of the UK shipping industry. Extending the measure to permit ship managers to make a tonnage tax election is a largely administrative move and aims to bring the UK’s shipping regime in line with the international market. We will not oppose this measure today.
Gareth Davies
Let me take the opportunity to congratulate the hon. Gentleman on his fifth Finance Bill. He is looking good on it, and I hope this one goes as badly for him as the others. It is always a genuine pleasure to be opposite the hon. Gentleman and I am grateful to the Opposition for not opposing clauses 9 and 10.
Question put and agreed to.
Clause 9 accordingly ordered to stand part of the Bill.
Schedule 8 agreed to.
Clause 10 ordered to stand part of the Bill.
Clause 11
Extension of EIS relief and VCT relief to shares issued before 6 April 2035
Question proposed, That the clause stand part of the Bill.
Nigel Huddleston
Clause 11 extends the sunset clause for the enterprise investment scheme and the venture capital trust scheme to April 2035. The schemes will continue to support thousands of early-stage, innovative companies each year and ensure that they have access to the investment they need to develop and grow.
The enterprise investment scheme and venture capital trust scheme provide a range of generous tax reliefs to investors to encourage investment into higher risk, early-stage companies, which face the biggest challenges in accessing finance. This will encourage entrepreneurship in the future. The schemes are world-leading in terms of their generosity, with more than £3.4 billion of funds raised across the two schemes in the tax year 2021-22 alone. This extension will ensure that the schemes continue to support the growth of early-stage companies.
Tulip Siddiq (Hampstead and Kilburn) (Lab)
It is a pleasure to serve under you, Mr. Paisley. As the Minister has set out, clause 11 extends the availability of the enterprise investment and venture capital trust tax reliefs to shares issued by eligible companies and VCTs by 10 years to 2035. The Opposition welcome the Government’s long overdue decision to take action and extend the schemes, given that the original sunset clause of April 2025 was fast approaching.
Both the EIS and VCT schemes remain crucial funding lifelines for the UK’s start-up community and the uncertainty created by the previous sunset clause deadline has risked hampering investor confidence in backing our high-growth firms. We also know from the latest HMRC data that between 2021 and 2022, nearly 4,500 businesses accessed more than £2.3 billion of funds through the EIS scheme—the highest number since it was introduced. As the Minister will probably know, the ScaleUp Institute has described the relief as pivotal in driving the supply of early-stage risk capital to some of the UK’s most exciting companies.
It is worth noting that the 2025 sunset clause, at which point the schemes were due to be revived, was due to a request from the European Commission to ensure compliance with European Union state aid rules. Given the importance of ensuring that investors are able to plan years in advance when developing a forward pipeline of investments, the Government should have listened to business and tackled the investment uncertainty caused by this potential expiry date far sooner following our departure from the EU. Although people were concerned about the prospect of the schemes expiring, there are those in the VC community who saw the review triggered by the sunset clause as an opportunity to improve the operation of the EIS and VCT schemes, which remain extremely complex. It is crucial that, beyond simply pushing the sunset clause back 10 years, the Government take an active interest in improving these vital schemes, including by delivering the simplification measures that many are calling for to ensure that more companies and more investors can benefit from the tax reliefs available to them.
I can confirm that the Labour party supports clause 11, which is a necessary intervention to ensure that investors can continue to invest with confidence in UK start-ups, but does the Minister acknowledge that we have an urgent need for a Government who listen to business early on, and who create the stable investment climate that we need to deliver growth in our economy, and who do not leave that until the last minute?
Nigel Huddleston
I am afraid that I respectfully disagree with the hon. Lady. We see clearly from feedback from the industry that it very much welcomes the changes. Actually, it is quite transparent throughout the Bill that we are backing business right across the UK. Richard Stone, chief executive of the Association of Investment Companies, has said:
“It’s excellent news that the Chancellor has committed to extending VCTs’ sunset clause…The extension…will help provide certainty to investors and businesses and enable VCTs to continue supporting UK growth companies.”
The British Private Equity & Venture Capital Association has said:
“It is hugely positive that the Chancellor has EXTENDED THE EIS AND VCT SCHEMES until 2035.”
The changes were not subject to a formal consultation, but were part of engagement with industry that Treasury officials and Ministers conduct on an ongoing basis. We are listening to business all the time; we make appropriate changes all the time, and the measures in clause 11 prove exactly that point. The hon. Lady is trying to score political points, but in highlighting some of the scare tactics, she is proving exactly why business can be confident in this Government, and should be somewhat fearful of the Opposition.
The clause will ensure that the EIS and VCT schemes continue to support thousands of early-stage companies each year in raising the funding that they need to succeed. I therefore urge that the clause stand part of the Bill.
Question put and agreed to.
Clause 11 accordingly ordered to stand part of the Bill.
Clause 12
Relief for payments of compensation by government etc to companies
Question proposed, That the clause stand part of the Bill.
Nigel Huddleston
I should probably explain to anybody wondering about the musical chairs that we have two Ministers here, because the clauses are split across ministerial responsibilities. I explain that for Members and anybody watching—the millions who, I am sure, are watching on television across the world.
Clause 12 is on a very important and newsworthy point, but it also shows that the matter that it deals with has received considerable attention for some time: it makes changes to ensure that all claimants of compensation from a range of Post Office schemes related to the Horizon IT scandal are treated similarly. It will align the tax treatment to ensure that claimants who chose to set themselves up as companies obtain tax relief comparable to that available for claimants set up as individuals.
Following the Horizon IT scandal, a number of schemes were set up to provide compensation to the individuals affected, and although most sub-postmasters are individuals, some set themselves up as corporate entities. Individuals have been exempted from paying income tax, national insurance contributions and capital gains tax on compensation that they received under the schemes that have been announced, which are being legislated for separately, but the Government are determined that postmasters affected by the Horizon IT scandal will receive the compensation that they deserve, regardless of how they arrange their business structure. The clause therefore exempts from corporation tax compensation payments made under the Post Office historical shortfall scheme, the group litigation order schemes, the suspension remuneration review and the Post Office process review scheme. The legislation will align the taxation of onward payments of compensation with that of compensation to individual recipients.
The clause will impact the relatively small proportion of compensation recipients who are structured as corporate entities, but to those impacted it is extremely meaningful. The approach taken in the legislation is consistent with tax principles and precedents, as well as the tax treatment of separate Post Office compensation schemes set up in response to the Horizon IT scandal.
Tulip Siddiq
I would like to spend a long time debating the claim that business is fearful of the Opposition, but I do not feel that this is the right time.
Tulip Siddiq
Given the shocking details of the Post Office scandal, which has rightly been the subject of significant parliamentary debate in the last few days, it will come as no surprise that the Opposition strongly support the measures in clause 12, which is designed to bring parity to the taxation of compensation payments received by all sub-postmasters who were victims of that shameful episode. It is quite plainly unjust for sub-postmasters structured as a corporate entity to receive less in compensation than individual claimants, or for that compensation to disappear back to the Exchequer through tax on onward payments to the directors of those entities, who are the victims.
The clause also rightly addresses the inexplicable difference that there has been in tax treatment depending on the route that victims have taken to seek damages from the Post Office, be it through the group litigation order scheme, the Horizon shortfall scheme, the suspension remuneration scheme or the Post Office process review scheme. I thank the campaign groups, such as Tax Policy Associates, that have led the charge over the past year for their dogged efforts to highlight the outrageous proportion of sub-postmaster compensation that was set to disappear in tax. Given last week’s welcome announcement from the Prime Minister that all victims of the Post Office scandal will now be exonerated and compensated in full, it is even more critical that the tax exemptions in clause 12 are implemented at pace. More broadly, the Government must ensure that the complexities of taxing compensation are not allowed to stand in the way of delivering justice to victims of future scandals. We will not oppose the clause.
Drew Hendry (Inverness, Nairn, Badenoch and Strathspey) (SNP)
It is a pleasure to serve under your chairmanship, Mr Paisley. Justice, accountability and compensation for those affected and wronged are required at speed on all aspects of the Post Office-Fujitsu-Horizon scandal. That is why we will support clause 12: to ensure that the fullest possible reparations are made to those who suffered through false accusation, incarceration and worse. The scandal has gone on for far too long, and highlights the worst of Westminster’s indifference and delay, even when presented with overwhelming evidence of wrongdoing. That, along with all other aspects of the scandal, must be dealt with as quickly and thoroughly as possible.
Nigel Huddleston
I thank Opposition Members for their comments. There is very clear alignment on this point. Clause 12 means that postmasters affected by the Horizon IT scandal receive the compensation that they deserve, regardless of how they arrange their business affairs. I should also make it clear that there is additional support for impacted individuals; HMRC has also set up a dedicated extra support team and phone helpline to provide postmasters and sub-postmasters with additional support. I commend the clause to the Committee.
Question put and agreed to.
Clause 12 accordingly ordered to stand part of the Bill.
Clause 13
Enterprise management incentives: time limits
Question proposed, That the clause stand part of the Bill.
Nigel Huddleston
We are proceeding at pace. Clause 13 amends the enterprise management incentives, or EMI, provisions to improve the process for granting EMI options by extending the time that participating companies have to notify HMRC of a grant. EMI helps small and medium enterprises to compete with larger firms to attract and retain key talent by bolstering the attractiveness of the share-based remuneration that they can offer to their employees. In the 2021 Budget, the Government launched a call for evidence on the performance of EMI and whether it should be expanded. In the 2022 spring statement, the Government concluded that EMI remains effective and is appropriately targeted. However, the Government listened to those who said that the administrative requirements of the EMI scheme could be improved, particularly the process of granting options. The change we are making will help to address those concerns by making it even easier for companies to use EMI, as requested by industry.
Tulip Siddiq
As we have heard, clause 13 extends the time limit within which employer companies have to notify HMRC that they have been granted EMI options from 92 days after the grant was made to 6 July following the end of the tax year in which they were granted. This change is designed to simplify the process, and so increase small businesses’ ability to benefit from recruiting and retaining staff. It is one of a number of measures that were called for in submissions to a 2021 consultation on the EMI scheme, which cited the overly complex process for notifying HMRC and the need to extend the notification period. We will not oppose the clause.
Nigel Huddleston
I thank the hon. Lady again for her contribution and support. There are many relatively small and highly technical changes that we are making through the Bill, and this is one of them. On paper, it can look somewhat technical and confusing, but it is really meaningful, and I appreciate the fact that the hon. Lady and Opposition Members acknowledge that. The clause supports small and medium-sized businesses in recruiting and retaining key talent by simplifying the process to grant EMI options. For the reasons we have outlined, I urge that the clause stand part of the Bill.
Question put and agreed to.
Clause 13 accordingly ordered to stand part of the Bill.
Clause 14
Provision in connection with abolition of the lifetime allowance charge
Question proposed, That the clause stand part of the Bill.
Nigel Huddleston
Clause 14 and schedule 9 make changes to complete the abolition of the pensions lifetime allowance. By completing the work to remove the lifetime allowance charge, the Government will deliver the policy objective of incentivising highly skilled individuals to remain in the labour market or return to the workforce to build up their retirement savings, helping to grow the economy and to protect the quality of our vital public services. The Government have listened to stakeholders from across the public and private sectors, including senior NHS clinicians, air traffic controllers and senior police officers, who have said that pensions tax limits can and, indeed, do influence the timing of retirement and act as a barrier to remaining in or returning to the workforce.
The lifetime allowance limits the total amount of tax-relieved pension savings that an individual can have. It is set at £1,073,100, but individuals can contribute to their pensions over this limit. However, when members previously accessed pension benefits above the limit, they were subject to a tax charge called the lifetime allowance charge. At spring Budget 2023, the Chancellor announced that he would remove the lifetime allowance charge from 6 April 2023. The Office for Budget Responsibility estimates that around 15,000 individuals will remain in the labour market as a result, and many of them will be highly skilled individuals, including senior doctors in the NHS and many other public sector workers. The British Medical Association says that scrapping the lifetime allowance will be potentially transformative for the NHS.
The Chancellor also announced at spring Budget that the lifetime allowance would be removed from tax legislation entirely in a future Finance Bill. Clause 14 will deliver the necessary technical changes to entirely abolish the lifetime allowance from tax legislation. It clarifies the tax treatment of lump sums—that is where some pensions benefits are taken as a cash lump sum—paid from registered UK pension schemes. The new tax treatment ensures that lump sums do not, regardless of their size, become entirely tax-free. It will also clarify the tax treatment of transfers to overseas pension schemes and benefits paid from them. Finally, the clause sets out the arrangements for transitioning to the new pensions tax regime and reporting requirements under the new regime.
James Murray
As we have heard from the Minister, clause 14 intends to complete the abolition of the lifetime allowance, as announced by the Chancellor at last year’s spring Budget. When the Government announced their intention to abolish the LTA and the related charge, we in the Opposition made clear our concerns. Though we recognised the issue that the LTA presented to some professions, including doctors, we were concerned that the Government’s chosen approach would give some of the wealthiest in society a tax cut. We argued that this was not the right approach during a cost of living crisis, and at a time when taxes on working people are rising.
Clause 14, however, focuses not on the principle of the LTA charge but rather on the technical detail of how the Government are implementing abolition of the LTA. The Bill aims to make sure that legal effect is given to the change in time for 6 April this year, which we note is a very tight deadline for such a complex measure.
Let me first turn to how the Government propose to abolish the LTA. The Chartered Institute of Taxation has expressed concerns that the legislation in the Finance Bill on the abolition of the LTA is different from that which was published for consultation last summer. Indeed, the relevant part of the Bill comes in at nearly 100 pages —that is one-third of the Bill and two and a half times the size of the original legislation published last summer. With such a great degree of apparent change between the draft and final versions, there are of course likely to be many questions about details of the version before us, and about the Government’s intent. For example, the Chartered Institute of Taxation notes that the pension commencement excess lump sum aspect of the legislation that replaces the current lifetime allowance excess lump sum charge should be revised to meet the policy intent.
The Institute of Chartered Accountants in England and Wales notes not only the legislation’s length, but that it introduces new terminology and computations, increasing the risk of misunderstanding by taxpayers, advisers and agents. What representations has the Minister heard from industry groups about any approaches, terminology, or computations that are introduced for the first time in the final version of the legislation before us? What action has he taken on any representations he has received?
Given that the new rules take effect from 6 April, to many of those who are following this matter closely, it seems clear that it would have been wise to give more notice to pension schemes and individuals. The CIT notes that, for example, defined contribution pension schemes need to provide information to members about options for retirement at least four months ahead of nominal pension age. That means that scheme communications for those retiring in April this year would need to be clear and updated by December last year. Does the Minister believe that, because of the timing of this legislation, pension schemes may have communicated information to pension-holders that will turn out to be incorrect by April this year?
This legislation will gain Royal Assent presumably just two months or so before the new rules take effect. Clearly, pension funds will need new processes, systems, and member communications to be in place. What meetings has the Minister held with the pension industry about the requirements of this Bill, since its publication? Did any of the funds or groups he spoke to ask the Treasury to consider a different approach, or a different timetable for abolishing the LTA? Finally, on Government guidance and support, could the Minister confirm what he is doing to make sure that any guidance is fully and clearly updated in as much time as possible before 6 April?
Drew Hendry
The cost of living crisis is gripping families across the nations of the United Kingdom. They are struggling with rent, with mortgages, with food costs and with energy bills. When we come to clause 14, though the abolition of the lifetime allowance is necessary for certain professionals, including doctors, it benefits about as many bankers as healthcare workers. There were better ways for the Government to tackle this problem. What other options were looked at to avoid the undue rewarding of those who it was perhaps less necessary to include than healthcare workers?
Dan Carden
The Minister said that 15,000 will stay in the workforce as a result of these changes. However, the changes have been criticised for actually complicating the pension system. Will he be reviewing the numbers that stay in professions such as healthcare? If 15,000 stay in the workforce, how many others are simply benefiting in other sectors such as banking?
Nigel Huddleston
I thank hon. Members for their comments. We seem to have had a bit of a U-turn from some Opposition Members and some political parties. There was considerable support for these measures across multiple sectors. These measures will benefit swathes of the public sector. I have already given quotes and there are plenty more from swathes of the medical and health service industry. The Royal College of Surgeons, for example, found that 68% of consultant surgeons were considering early retirement because of the old pensions rules. I do not know what more evidence hon. Members need to be convinced that this is a proper and appropriate move.
Dan Carden
None of us disputes that this is a positive move for the public sector and for certain sectors of the economy, but perhaps the Minister could answer the question about those who perhaps are not so worthy.
Nigel Huddleston
The hon. Member is being rather selective. Swathes of the public sector will benefit: headteachers, police chiefs, clinicians, senior armed forces personnel, air traffic controllers, prison governors, senior government scientists, government-employed vets and so on. It is a point of principle that the tax system does not generally distinguish between occupations. To the point of the hon. Gentleman and others about timeliness, this is an issue that we needed to deal with immediately—not in three or five years’ time. There was an appropriate measure, and we took it.
It goes without saying that some people have benefited from similar schemes in the past. The Leader of the Opposition had a unique deal from his time as Director of Public Prosecutions, which allowed him to avoid tax on his savings. It is only appropriate that, in order to make sure that we retain people in the workforce and encourage people to come back to the workforce, we make these changes and make them in a timely manner. That is the broader point of the policy area, as opposed to the specifics of these changes. They have been subject to considerable consultation.
The hon. Member for Ealing North mentioned that there are about 100 pages of legislation. That is true, but let us be very clear: this is a clear and transparent simplification that has been welcomed by large swathes of the public sector. The vast majority of the 100 pages of legislation he talked about remove references and concepts associated with the lifetime allowance. When we make changes, we need to remove references, and that was the bulk of the work.
As I said, this has been the result of extensive consultation. The Government have been consistently clear since the spring Budget of 2023 that the abolition of the lifetime allowance will be effective from April 2024. We have set out the timelines very clearly. We continued to work closely with industry, and HMRC will support the implementation of these changes. As I said, we have listened to stakeholder feedback and confirmed that we would not proceed with the previously proposed changes, for example to pension commencement lump sums and small lump sums. Once the changes have been made, they represent a significant saving for pensions.
Unlike the lifetime allowance excess lump sum, which is charged at 55%, the pension commencement excess lump sum is charged at the member’s marginal rate. So the pension commencement excess lump sum is only paid in connection with the commencement of a pension. The pension commencement excess lump sum allows individuals entitled to receive more of their pension on commencement as a lump sum than is provided for by the standard pension commencement lump sum. As I said, overall, these changes are welcomed and are a simplification. I therefore commend the clause to the Committee.
Question put and agreed to.
Clause 14 accordingly ordered to stand part of the Bill.
Schedule 9 agreed to.
Clause 15
MPs’ pension scheme etc: rectification of discrimination
Question proposed, That the clause stand part of the Bill.
Nigel Huddleston
Clause 15 makes changes in relation to the occupational pensions of Members of Parliament, Members of the Welsh Senedd and Members of the Legislative Assembly in Northern Ireland. It will ensure that these groups receive tax treatment comparable to the wider public sector when their pension schemes remedy age-related unfairness in past pension changes.
In 2015, the Government reformed public service pensions and offered transitional protections to those closest to retirement. The Court of Appeal later concluded that the provision of protections for older members but not younger members was discriminatory on the basis of age. The Government therefore introduced legislation to remedy this in 2022. The pension schemes for Members of Parliament, Members of the Welsh Senedd and Members of the Legislative Assembly were similarly reformed between 2015 and 2016, but the court judgement did not apply to them because of the distinct legal underpinnings of the other pension schemes. To ensure fairness, these schemes are voluntarily providing remedies to eliminate any age-related unfairness in line with broader public service pensions.
The remedies provided by the schemes are not retrospective for tax purposes. Therefore, legislative changes are needed to prevent members from incurring adverse tax consequences. The clause will allow the Government to make technical changes in secondary legislation. This will put members of these schemes in the tax position that they would have been in if any age-related unfairness had not occurred.
James Murray
You beat me to it, Mr Paisley. I do not think this change will affect me personally, given when I was elected, but with an abundance of caution I declare an interest, as I am sure all Members would.
As the Minister explained, clause 15 provides technical updates to pension tax legislation related to elected representatives. It will provide a new power to make tax regulations in secondary legislation to, according to the Government’s explanatory notes,
“redress payments for age related unfairness caused by past changes to the pensions of members of Parliament, members of the Senedd and members of the Northern Ireland Assembly.”
The changes are also designed to be capable of having a retrospective effect to ensure that individuals are, as far as possible, put in the tax position they would have been in had the discrimination not occurred. The Opposition will not be opposing this measure.
Nigel Huddleston
I thank the hon. Gentleman for his comments. Indeed, I believe most of those affected here in Parliament were elected prior to 2015. There has been consultation with the Independent Parliamentary Standards Authority and others on these changes. It is a matter of fairness to make sure this is aligned with the broader public sector.
Question put and agreed to.
Clause 15 accordingly ordered to stand part of the Bill.
Clause 16
Provision relating to the cash basis
Question proposed, That the clause stand part of the Bill.
Nigel Huddleston
Clause 16 and schedule 10 make changes to improve the experience of many small businesses when completing income tax returns by extending the eligibility for the cash basis, which is a simplified way for 4.2 million smaller, growing traders to calculate their profits and pay their income tax. The Government recognise the usefulness of full accruals accounts for many businesses, but for many smaller businesses the cash basis acts as a valuable simplification. By measuring money received and paid out and removing complex tax and accounting rules, the cash basis makes it much easier for many businesses to understand how their taxable profits have been calculated, reducing error and the likelihood of an unexpected tax bill. It also ensures that a taxpayer is not taxed on money that they have not actually received yet, helping cash flow and supporting businesses to manage their tax payments.
There are currently only 1.2 million users of the cash basis from the 4.4 million self-employed businesses, which is only a 29% take-up. Many more businesses could stand to benefit from the cash basis, but are prevented from doing so because of existing restrictions on who can use the simplified regime.
The changes made by clause 16 and schedule 10 completely remove limits on the size of businesses able to use the basis, interest reductions, deductions and loss relief available under the cash basis and set the simpler regime as the default option for small businesses. This increases the number of businesses that are able to use the cash basis and removes barriers preventing businesses from using the regime, encouraging more businesses to benefit from its simplicity.
New businesses that choose not to use the simpler cash basis in order to be able to claim relief for any losses available under the accruals basis will now be able to claim loss relief through the cash basis too. That particularly benefits new self-employed businesses, especially those set up by someone with an employment or other source of income.
These changes are expected, using a conservative estimate, to save small businesses a total of about £13 million per year in administrative burdens. Alongside these changes, and directly responding to consultation feedback, HMRC will be prioritising a review of its guidance on the cash basis, aiming to improve the understanding and awareness of this simpler regime.
James Murray
As the Minister outlined, clause 16 makes the cash basis the default basis for calculating profits of trade for the tax year 2024-25 and beyond. As members of the Committee will know, the cash basis is a method that businesses can use to calculate trading profits for income tax purposes. As things stand, businesses have to elect to use the cash basis, making it an opt-in regime, and the Government have noted that this measure seeks to make the cash basis the default, while removing the current turnover restriction rules entirely, as well as the interest deduction limit of £500 and the unavailability of some types of loss relief.
The Minister will know that the Opposition is supportive of a simplified tax regime that gives certainty to businesses and taxpayers. However, there are a number of areas of the clause that we would like clarified.
First, with the cash basis being made the default, does the Minister have any concerns about some businesses being unsuited to the new system? The Chartered Institute of Taxation has expressed concerns that conducting accounts on a cash basis fulfils the need to report to HMRC, whereas businesses that report on an accrual basis serve several purposes, including for loans and profitability. Could the Minister explain what assessment he has made of the suitability of the cash basis for the full spectrum of businesses, including small businesses?
Connected to that point, could the Minister explain what consultation he has carried out with businesses and sector groups since the autumn statement about the measure ahead of its implementation in 2024-25?
That brings me on to my next point, on guidance. A major reporting change of this kind will require a thorough information campaign, and appropriate and accessible guidance for businesses. That is particularly important for small businesses. What measures is the Minister taking to make sure that guidance is as simple as possible, is accurate and minimises the risk of inadvertent error?
Finally, and related, is the potential increased scope for fraud. As with new tax changes that relax restrictions on access, a small number of actors could spot an opportunity to reduce their tax liabilities. Could the Minister explain what assessment he has conducted of the possibility of fraud, and what steps he is taking to address that?
I note from the Government’s policy paper that no additional staff have been allocated to support the policy change. In the apparent absence of any additional staffing to support the introduction of this new regime, what plan is in place to ensure there are adequate resources for its implementation?
Nigel Huddleston
I thank the hon. Member for his comments. We should be very clear that the Government are not forcing businesses to use cash accounts. A business can still choose the method of accounting that best suits its circumstances, but the Government encourage businesses to use the simpler cash basis where appropriate. However, we of course recognise that many businesses will still benefit greatly from the advice and information provided by an accountant drawing up full accruals accounts, so the Government have set the cash basis as the default to make it easier for businesses to use the simpler regime. All a business will have to do to opt out of that is tick a box on their tax return, so it is fairly simple and straightforward in terms of choice.
On guidance, feedback during the consultation suggested improvements to HMRC and gov.uk guidance that would help many small businesses understand the cash basis. We have listened and will be prioritising a review. We will update the guidance for the cash basis as part of the HMRC small business guidance review, which we announced at spring Budget 2023. That review will be completed by April 2025. The Government recognise the need to update that guidance, particularly for businesses that do not have the support of an accountant or tax advisers, and HMRC is also looking at providing further support through specific communications about the tax bases.
As I said, we understand—and HMRC understands—that many businesses have been using the cash basis anyway, without electing to do so, and these changes will formalise much of that behaviour and make it easier for taxpayers to use the cash basis without the administrative burden of making an election to do so.
Because of that tax simplification, particularly for small businesses, we believe that these measures—clearly simplifying the tax system—will help boost productivity, increase business confidence and reduce the amount of time and money businesses spend on tax administration. The clauses and schedules support our commitment of simplification by making it easier for small businesses to use the cash basis and by expanding the number of businesses that are able to use it. I therefore commend these measures to the Committee.
Question put and agreed to.
Clause 16 accordingly ordered to stand part of the Bill.
Schedule 10 agreed to.
Clause 17
PAYE regulations: special types of payer or payee
Question proposed, That the clause stand part of the Bill.
Nigel Huddleston
Clause 17 makes changes to address a potential overcollection of tax and national insurance contributions by HMRC to resolve an unfairness in the tax system. This will allow HMRC to set off taxes already paid by the worker and their intermediary against the pay-as-you-earn liability of another organisation in the supply chain, preventing double taxation and ensuring that the cost of the liability is shared more fairly between the parties involved.
The off-payroll working rules, commonly known as IR35, were first introduced in 2000. They set out that, where an individual is working like an employee, they should pay tax like an employee, regardless of whether they are working through their own intermediary. Under the current rules, where an organisation is found by HMRC to have incorrectly determined an off-payroll worker as self-employed when they should have been employed, it becomes liable for taxes and national insurance contributions that should have been deducted, at source, from the fee paid to the worker. Current legislation does not allow HMRC to rectify that by setting off taxes already paid by the worker and their intermediary against the PAYE liability of the organisation.
The changes made by clause 17 will give HMRC the power to set off taxes already paid by a worker and their intermediary against the subsequent PAYE liability of the organisation. That aims to address the potential overcollection of tax and national insurance contributions in cases of non-compliance with the off-payroll working rules. It also ensures that the cost of the liability is shared more fairly between the deemed employer and the worker.
James Murray
As we have heard from the Minister, clause 17, on PAYE regulations, aims to give HMRC the power to make regulations that will enable it to set off amounts of tax already paid by a worker and their intermediary, on income from engagements under IR35 rules, against a subsequent PAYE liability of their deemed employer. As the Government’s policy paper on this matter sets out, the core aim of the measure is to address overcollection of tax and national insurance contributions where there are cases of non-compliance with off-payroll working rules.
We in the Opposition will not be opposing this clause. However, we note that the provision comes into effect from 6 April, and will also apply to deemed direct payments made as far back as “on or after” April 2017. The Chartered Institute of Taxation had argued for this set-off to be legislated for since the off-payroll working rules were first introduced seven years ago. Could the Minister explain why it has taken the Government so long to act after the problem was first identified by a respected industry body?
Carol Monaghan (Glasgow North West) (SNP)
To follow on from that, many of us have had a number of people—constituents and otherwise—getting in touch to say that they have fallen foul of IR35. Are there plans to apply the measures retrospectively? If so, how far back are the Government planning to do that?
Nigel Huddleston
I thank hon. Members for their comments. As I say, the measures are separate from the broader debate on IR35, which we have all heard about as constituency MPs. The legislation is complex, and it is right that we work through these complex issues thoroughly to address them properly. HMRC has undertaken a significant amount of informal consultation with key stakeholders to explore a legislative solution to resolve this issue. At the end of the day, we are introducing legislation to address concerns about the double taxation that some people face, which is blatantly unfair.
The Government are grateful for the constructive feedback we have had, which has resulted in the measures being included in the Bill. It is a positive outcome that addresses concerns raised by businesses and hon. Members that HMRC would collect too much tax, and that there are errors in complying with the off-payroll working rules. We have discovered that, so it is right that we have taken action. I therefore urge that the clause stand part of the Bill.
Nigel Huddleston
My understanding is that the measures will not be retrospective, but I will write to the hon. Member for Glasgow North West or explain more in a later response if I am incorrect.
The Chair
Thank you, Minister.
Question put and agreed to.
Clause 17 accordingly ordered to stand part of the Bill.
Clause 18
Carer’s allowance supplement: correction of statutory reference
Question proposed, That the clause stand part of the Bill.
Nigel Huddleston
Clause 18 makes changes to ensure that the statutory reference under which the Scottish Government’s carer’s allowance supplement payments are made is corrected in income tax legislation, with retrospective effect. That will provide certainty to taxpayers.
When Parliament enacted section 12 of the Finance Act 2019, it intended to refer to the carer’s allowance supplement as taxable social security income, payable under section 81 of the Social Security (Scotland) Act 2018. Instead, the listing in the Finance Act for the carer’s allowance supplement refers to sections 24 and 28 of the Act. That is a technical drafting error in the legislation, which the amendment seeks to correct. The changes made by clause 18 retrospectively correct a drafting error in the legislation and do not affect the substance of the legislation. There will not be any impact on payments that have already been made or payments going forward. Nobody, therefore, will be financially impacted positively or negatively by these very specific changes.
James Murray
As the Minister set out, clause 18 makes a technical legislative correction to the reference to carer’s allowance supplement payments in table A in section 660 of the Income Tax (Earnings and Pensions) Act 2003. As that was a technical drafting error, which the clause will correct, we will not oppose the clause.
Debbie Abrahams
May I absolutely confirm that there will be no retrospective tax collection deductions of carer’s allowance? That is so important, given the issues around deductions.
Nigel Huddleston
The hon. Lady is right to highlight that—it is the very question that I asked. Nobody will be financially impacted by the change, which applies to a drafting error that has not been executed. It is a clarification purely and specifically on the legislation, as opposed to having any real-world impact on the finances. It is very important to get that point across, because we do not want anybody to be worried about this change. There is no change in circumstances or amounts. Clause 18 provides clarity on the correct statutory reference under which the Scottish Government’s carer’s allowance supplement payments are made.
Question put and agreed to.
Clause 18 accordingly ordered to stand part of the Bill.
Clause 19
Growth market exemption: qualifying UK multilateral trading facilities etc
Question proposed, That the clause stand part of the Bill.
Nigel Huddleston
Clause 19 widens access to the growth market exemption—a relief from stamp duty and stamp duty reserve tax—so that it better supports SMEs and growth businesses to raise capital. It does that by lowering transaction costs, which will support our economy by boosting growth in innovative sectors. The relief will now be available to smaller, innovative growth markets, instead of being restricted to markets operated by large stock exchanges.
The growth market exemption was introduced in 2014 with the aim of boosting investor participation in equity growth markets and improving the conditions for growing companies to raise equity financing. Initially, three UK markets and one Irish market were able to access the exemption. Since then, another 10 markets across the EU and European economic area have applied for and gained access to the exemption, meaning that UK SMEs have greater access to capital.
Previously, in order to be recognised by HMRC as a qualifying growth market, markets that are referred to as “multilateral trading facilities” had to be operated by a “recognised stock exchange” such as the London or Aquis stock exchanges. Once that condition was met, markets also had to meet one of two additional conditions: either the majority of companies on the market had to have a market capitalisation of less than £170 million, or the market’s rules of admission had to require companies to demonstrate at least 20% compounded annual revenue or employment growth over the three years preceding their admission.
However, the requirements have not been updated since the exemption’s introduction in 2014, despite considerable developments in how markets are regulated. Investment firms that are not of the same size and scale as the large stock exchanges can run multilateral trading facilities that are recognised as small and medium-sized enterprise growth markets by the Financial Conduct Authority but, as a result of the current stamp taxes on shares legislation, are barred from accessing the growth market exemption.
The changes made by clause 19 allow multilateral trading facilities that are regulated by the Financial Conduct Authority and run by these smaller investment firms to access the growth market exemption, provided that they meet one of the two additional requirements. That will ensure fairness in the current application of the exemption and increased competition in the market, leading to greater choice for SMEs that are seeking to access finance. That will, in turn, boost growth in UK SMEs.
Clause 19 also updates the market capitalisation condition by increasing the level up to which a majority of companies listed on the exchange can be capitalised from £170 million to £450 million. That change reflects the modern market and demonstrates the Government’s commitment to helping innovative SMEs to grow.
Tulip Siddiq
As the Minister said, clause 19 amends the qualifying criteria to increase access to the growth market exemption relief on any stamp duty or stamp duty reserve tax that is otherwise owed on trades made in UK incorporated companies. The Government have stated that these proposals will update the growth market exemption eligibility to reflect the modern market, ensuring that there is greater fairness in the application of the tax relief and giving greater choice for businesses considering where to list their shares for trading.
We in the Opposition are hugely supportive of efforts to boost our ailing capital markets and are committed to delivering a world-leading listings regime in the UK, building on recent regulatory reforms and ensuring that our scale-ups can access the equity finance they need. We are supportive of the objectives of the clause, but questions remain about what impact the changes will have in practice.
For example, it would be helpful to understand from the Minister how many additional growth markets will potentially be eligible for a stamp duty exemption due to the increase in the capitalisation threshold from £170 million to £450 million. By far and away the largest growth market the exemption applies to is the London stock exchange’s alternative investment market, which, according to the latest data, had an average market capitalisation of £126 million in the summer of 2022. Given that the largest and most established market to benefit from the exemption appears to be well under the original threshold, it remains unclear what difference the change will make. What are the Minister’s views on that?
We do not oppose clause 19, but it is a minor tweak that will not deliver the sea change in the availability of growth capital that British businesses urgently need. Does the Minister plan to do more to increase the availability of growth capital for our businesses?
Nigel Huddleston
I thank the hon. Lady for her comments and questions. Any market that meets the requirements will be able to apply to HMRC to take advantage of the exemptions. The UK’s financial service industry is dynamic and innovative, so it is important that future markets are not restricted by legislation that has not been updated in almost a decade. It is also a question of fairness: it is right that smaller, innovative markets are not barred from the exemptions, for the reasons that she and I outlined. At the moment, there is one market that is likely to benefit—Archax, a digital asset market—but the point of the changes is that other markets could benefit in future and, because of the dynamism in such markets, we need to plan ahead. We cannot anticipate what may come up, so we do not want to restrict options for future growth.
Clause 19 updates the scope of the growth market exemption, reflecting changes that have taken place since its introduction back in 2014. The clause allows the exemption to meet its initial aims more effectively by ensuring fairness in its application, increasing competition, boosting liquidity and facilitating growth. I therefore commend the clause to the Committee.
Question put and agreed to.
Clause 19 accordingly ordered to stand part of the Bill.
Clause 20
Capital-raising arrangements etc
Question proposed, That the clause stand part of the Bill.
Nigel Huddleston
Clause 20 and schedule 11 make changes to ensure continuity in stamp duty and stamp duty reserve tax treatment following changes made by the Retained EU Law (Revocation and Reform) Act 2023 that took effect at the end of 2023.
Stamp duty and stamp duty reserve tax are charged on transfers of securities in UK companies, but not generally on the issue of new securities. The main rate for both taxes is 0.5%. A 1.5% higher rate was applied on the issue or transfer of UK securities into overseas clearance services or depositary receipt systems, to reflect the fact that subsequent transfers of those shares would not be subject to stamp duty or stamp duty reserve tax while the securities remained in those overseas systems and services. A 1.5% higher rate charge was also applied on issues and transfers of bearer instruments. A bearer instrument is a document that constitutes the rights of the holder of that instrument to the securities that the document represents.
Following EU and UK court decisions in 2009 and 2012, HMRC accepted that the 1.5% charge on certain transactions was incompatible with the EU capital duties directive. The incompatible transactions were the issue of securities into depositary receipt systems and clearance services, and certain related transfers known as transfers integral to capital raising. HMRC also recognised that the charge on the issue of bearer instruments was incompatible with the capital duties directive. UK legislation was not amended, because at the time taxpayers could rely on the direct effect of EU law. However, now that the changes in the retained EU law Act have taken effect, that is no longer the case, and UK legislation must therefore be amended to prevent the 1.5% charge from being reintroduced for those transactions.
Clause 20 and schedule 11 will maintain the current position by removing the 1.5% charge in domestic legislation on the issue of UK securities into overseas depositary receipt systems and clearance services, and on certain transfers related to capital raising. They will also remove the 1.5% charge on issues of bearer instruments. The changes provide legislative certainty to businesses that there will be no charge on those transactions going forward.
Tulip Siddiq
The Labour party supports the clause, which is a necessary intervention to ensure that UK companies previously able to rely on the direct effect of EU law are not left at a disadvantage to international counterparts when issuing UK shares and securities on overseas exchanges. The legal certainty and the removal of the potential 1.5% charge will be welcomed by UK firms considering listing on overseas exchanges. It is vital that our tax system remains internationally competitive.
However, our priority in government will be to overhaul our domestic capital markets to ensure that high-growth British companies critical to the future growth of the economy choose to list here in the UK instead of opting for exchanges in the US and Asia. The UK currently lags far behind competitor jurisdictions, and the Government must work in partnership with industry and regulators if we want to regain our status as a top global listings destination.
Although I do not have any issue with the exemption confirmed by clause 20 and schedule 11, I urge the Minister to ensure that, beyond recent changes to the listings rules, he prioritises listening to industry voices such as the Capital Markets Industry Taskforce about the solutions that are desperately needed to resuscitate our own domestic markets.
Nigel Huddleston
I will not stray into a broader debate; we will have that, I am sure, on Third Reading or at another point. I made my points on the broader economy earlier, but I gently request that the Opposition stop talking the UK economy and UK businesses down. By doing so, they are talking down the workers and companies in their own constituencies.
This measure is designed to ensure the competitiveness of the UK’s code in relation to financial services, by providing certainty that unwelcome frictions will not be reintroduced for UK companies that wish to operate globally. I commend the clause and the schedule to the Committee.
Question put and agreed to.
Clause 20 accordingly ordered to stand part of the Bill.
Schedule 11 agreed to.
Clause 22
Rates of tobacco products duty
Question proposed, That the clause stand part of the Bill.
Gareth Davies
The clause implements changes announced in the 2023 autumn statement concerning tobacco duty rates. The duty charged on all tobacco products will rise in line with the tobacco duty escalator, with an additional increase for hand-rolling tobacco to reduce the gap with cigarettes.
Smoking rates in the UK are falling, but they are still too high: around 13% of adults are now smokers. Smoking remains the biggest cause of preventable illness and premature deaths in the United Kingdom, killing around 100,000 people a year and up to two thirds of all long-term users.
We are investing in a range of measures to support smokers to quit, including an additional £70 million per year to support local stop smoking services, £15 million per year to fund new national anti-smoking campaigns, and £10 million over two years to provide financial incentives to support all pregnant smokers to quit. In a world first, we are also providing £45 million over two years to roll out the new national “swap to stop” scheme, supporting 1 million smokers to swap cigarettes for vapes. Our policy of maintaining high duty rates for tobacco products will support the Government’s plans to reduce smoking to improve public health.
In the autumn statement, the Chancellor announced that the Government will increase tobacco duty in line with the escalator. The clause therefore specifies that the duty charged on all tobacco products will rise by 2% above retail prices index inflation. In addition, duty on hand-rolling tobacco will increase by 12% above RPI inflation. These new tobacco duty rates will be treated as having taken effect from 6 pm on the day they were announced, which was 22 November 2023.
Recognising the potential interactions between tobacco duty rates and the illicit market, the Government introduced tougher sanctions in July 2023, including penalties of up to £10,000 for any businesses or individuals who are caught selling illicit tobacco products. HMRC and Border Force will shortly be publishing an updated strategy to tackle illicit tobacco, with the aim of making further progress in reducing the size of the illicit market, tackling organised crime and reducing demand for illicit tobacco products.
The clause will continue our tried and tested policy of using high duty rates on tobacco products to make tobacco less affordable. It will help continue the reduction in smoking prevalence, supporting our Smokefree 2030 ambition, and reduce the burden placed by smoking on our public services.
James Murray
The clause provides for changes to the rates of excise duty on tobacco products, covering cigarettes, cigars, hand-rolling tobacco and other forms of tobacco, in addition to increasing the minimum excise duty on cigarettes. We understand that it also provides for changes to the simplified calculation in the Travellers’ Allowances Order 1994. These changes, as the Minister said, took effect from 6 pm on 22 November. We have no questions about the clause.
Debbie Abrahams
Can I just ask how the clause compares with the policy of our international colleagues —New Zealand, for example?
Gareth Davies
I am grateful to the Opposition for their position on the clause. It is a mutual endeavour to ensure that we reduce smoking rates. We should take pride in this country that, over the last couple of decades, both parties, when in government, have overseen a reduction in smoking prevalence to some 13%.
On the specific question about international comparisons, I do not have the information available, but I am very happy to write to the hon. Member for Oldham East and Saddleworth.
Question put and agreed to.
Clause 22 accordingly ordered to stand part of the Bill.
Clause 23
Rates of vehicle excise duty
Question proposed, That the clause stand part of the Bill.
Gareth Davies
Clause 23 makes changes to uprate vehicle excise duty for cars, vans and motorcycles in line with the retail prices index from 1 April 2024. Vehicle excise duty is paid on vehicle ownership, and rates chargeable are dependent on various factors, including vehicle type, date of first registration and carbon emissions data. The Government have uprated vehicle excise duty for cars, vans and motorcycles in line with RPI every year since 2010, which means that rates have remained unchanged in real terms during that time.
The standard rate of VED for cars registered since 1 April 2017 will increase by £10. The rates for vans will increase by no more than £20, and motorcyclists will see an increase of no more than £6. The changes outlined will maintain revenue sustainability by ensuring that motorists continue to make a fair contribution to our public finances.
James Murray
Clause 23 provides for changes to certain rates of vehicle excise duty by amending schedule 1 to the Vehicle Excise and Registration Act 1994. We understand that the changes to rates will take effect for vehicle licences taken out on or after 1 April this year. We understand that the rates of vehicle excise duty for light passenger and light goods vehicles and motorcycles will increase in line with inflation, as has been the case since 2010. We have no questions on the clause.
Gareth Davies
I am grateful to the Opposition for their position and understanding.
Question put and agreed to.
Clause 23 accordingly ordered to stand part of the Bill.
Clause 24
Rates of air passenger duty
Question proposed, That the clause stand part of the Bill.
Gareth Davies
The clause sets the rates for air passenger duty for 2024-25. The rates were announced at the spring Budget and will take effect from April this year. The Government are uprating air passenger duty in line with forecast RPI rounded to the nearest pound. That will help to ensure that air passenger duty receipts are maintained in real terms and that airlines continue to make a fair contribution to our public finances. As is standard practice, the Government gave the industry more than 12 months’ notice.
The short-haul international rates will remain frozen for 2024-25, benefiting over 70% of passengers. Following the 50% cut in air passenger duty for domestic flights in 2023-24, the rate for those flying in economy class will increase by just 50p to £7. The long-haul and ultra-long-haul economy rates will increase by £1. The long-haul and ultra-long-haul rates for premium economy, business class and private jet passengers will also increase. Overall, this means that air passenger duty rates will be frozen in real terms. I commend the clause to the Committee.
James Murray
As we heard from the Minister, the clause makes changes to air passenger duty. It increases the domestic reduced rate by 50p and the domestic standard rate by £1. In band B, the reduced, standard and higher rates will increase by £1, £3 and £7 respectively. In band C, the reduced, standard and higher rates will rise by £1, £2 and £6 respectively.
The new domestic band for flights within the UK was introduced by the Finance (No.2) Act 2023, and I would like to interrogate those figures more closely. The Minister may remember that we debated the new air passenger duty regime at the fourth sitting of the Finance (No. 2) Bill Committee on 18 May last year, when I asked him to explain the impact of the new domestic band on UK flights by helicopter and private jet. He helpfully clarified that there was no air passenger duty other than on fixed-wing aircraft, which meant that the duty did not apply to helicopter flights—news I am sure would have been met with relief in Downing Street. He also confirmed that private jets making domestic UK flights would be subject to a different, higher rate from other UK flights—perhaps he managed to slip that through without the Prime Minister noticing.
Let us consider the impact of clause 24 on domestic air travel. The truth seems to be that air passenger duty is going up on all UK domestic flights except for those taken by private jet, for which the tax is being frozen. At the same time, there is no change that we know of to the arrangements for helicopters, as they remain outside the air passenger duty regime. Can the Minister confirm that what this clause proposes in terms of domestic air travel is a tax rise on all flights within the UK except those made by helicopter or private jet, whose passengers will see a tax freeze?
Gareth Davies
I am grateful to the hon. Gentleman. I remember very well the exchange at the last fiscal event, and I note that since then, the leader of the Labour party has developed a new passion for flying in private jets courtesy of foreign Governments.
Let me try to address the hon. Gentleman’s concerns and explain what is going on here. The industry is notified of air passenger duty 12 months in advance. It is uprated by a forecast of RPI and those rates are then rounded to the nearest pound. He asked a very reasonable question about how that shakes out in terms of the actual rates. It largely depends on how they are rounded to the nearest pound; the actual rate is determined by whether the figure is rounded down or up. He pointed out particular types of aircraft and particular bands. In the instances that he described, the rates have been rounded down; others have been rounded up, which is why other rates have gone up. He is right that helicopters are not part of the APD regime, but they do incur fuel duty, and buying a helicopter incurs VAT.
Debbie Abrahams
Just to clarify, if notification is given 12 months in advance, does that mean that there will be a more progressive approach to taxation for private jets in this Budget?
Gareth Davies
The Bill implements the rate changes that were announced at the spring Budget last year, based on a forecast RPI, as I have described, but the principle that the hon. Lady talks about is absolutely right. We have in this country an established principle that the further someone flies, the more they pay. Long-haul flights are subject to a greater rate than short-haul flights, as are private jet flights, for which the rate is increased.
Gareth Davies
The rate on private jets is significantly more than any commercial flight passenger will pay.
Question put and agreed to.
Clause 24 ordered to stand part of the Bill.
Clause 26
Vehicle excise duty exemption for foreign vehicles
Question proposed, That the clause stand part of the Bill.
Gareth Davies
Clause 26 enables regulations to be made exempting foreign vehicles, or foreign vehicles that meet certain conditions, from vehicle excise duty. In the first instance, the power will be exercised to provide for a three-year exemption in respect of Ukrainian plated and registered vehicles belonging to individuals granted visas under the various visa schemes introduced in relation to the conflict in Ukraine.
As of 27 November, around 193,900 Ukrainians had entered the United Kingdom since the beginning of Russia’s illegal, unprovoked invasion of Ukraine in February 2022. The Government understand that a significant number have brought vehicles with Ukrainian number plates with them. Gov.uk guidance states that usually such vehicles must be registered and taxed with the Driver and Vehicle Licensing Agency if the keeper becomes resident or stays longer than six months. However, in advance of making regulations, the Department for Transport has already announced the exemption from VED for individuals in the UK under the family, sponsor and extension Ukrainian visa schemes driving vehicles with Ukrainian number plates.
The clause will ensure that individuals fleeing war in Ukraine who have not yet registered their vehicles in the UK do not face costs and administrative burdens associated with vehicle taxation and registration while they are temporarily in the United Kingdom. I commend the clause to the Committee.
Tulip Siddiq
I welcome clause 26, which gives the Government the power to exempt certain foreign vehicles from paying vehicle excise duty. I note the Government’s long overdue plans to regulate for a three-year tax exemption for cars belonging to Ukrainian refugees arriving in the UK under a visa scheme due to the appalling conflict in their country. I am confident that I speak for all members of the Committee in supporting that change in position, but in reality the intervention has come far too late to prevent many refugees from paying eye-watering bills.
Many Ukrainians have been forced to pay thousands on expensive insurance policies or replacement car parts due to having non-compliant cars, despite the fact that other temporary UK residents, such as overseas students and workers, have had no such problems. Most disturbingly, we have heard examples of refugees who have decided to drive their vehicles back to Ukraine and abandon them in the middle of a war zone to avoid UK registration fees that they cannot afford. The Department for Transport and the Government acted shamefully slowly in addressing the problem, despite the efforts of colleagues from across the House and campaigners to bring it to their attention over the past year.
We welcome the fact that action has been taken and we support clause 26, but I think the Minister should apologise on behalf of the Government to Ukrainian refugees that such a ridiculous situation was allowed to go on for so long.
Drew Hendry
The SNP welcomes the clause, but I echo the final comment by the hon. Member for Hampstead and Kilburn: why has this taken so long?
I and many others have written to Ministers about the issue in order to make lives easier for people who have come here from Ukraine for safe haven. It is easy to forget the difficulties facing people who are fleeing a war zone and have come for the respite and hospitality that people have displayed—particularly in Scotland, where some 260,000 Ukrainian refugees are being sponsored at the moment. While welcoming this belated measure, I ask that the Government look very carefully at how they can make lives easier across the board for people who are flee war zones such as Ukraine and seek safe haven here.
It is very important that we keep Ukraine in our minds just now. It would be very easy for it to drift off the news agenda or out of our minds, but Ukrainians are still under attack every single day. We must keep them in our minds, in every part of our business.
Gareth Davies
Let me attempt to respond to hon. Members’ comments. First, we should be very proud that our country has welcomed over 193,000 Ukrainians fleeing some of the most horrific circumstances imaginable. I completely agree with the hon. Member for Inverness, Nairn, Badenoch and Strathspey that we should not let the issue off the agenda or out of our minds. Just last week, the Prime Minister announced additional funding for the Ukrainian Government and people. We should be proud of that.
On clause 26, it is right that we make the experience for Ukrainian people in the United Kingdom as simple as possible. I understand that colleagues would like this measure to have been implemented more quickly, but there are a number of administrative complexities that come with it. That is one of the reasons why the 150 people out of the 193,000 people who have already registered their vehicle cannot be included in this measure, but as I have said, we are providing support in other ways. On that basis, I commend the clause to the Committee.
Question put and agreed to.
Clause 26 accordingly ordered to stand part of the Bill.
Ordered, That further consideration be now adjourned. —(Robert Largan.)
Finance Bill (Second sitting)
Tuesday 16th January 2024
(2 years, 7 months ago)
Public Bill CommitteesRead Full debate Finance Act 2024 View all Finance Act 2024 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 16 January 2024 - (16 Jan 2024)
The Committee divided: - Ayes: 2 / Noes: 9 - Question accordingly negatived.
The Committee divided: - Ayes: 2 / Noes: 9 - Question accordingly negatived.
The Chair
Welcome back. I remind colleagues to pass speaking notes to Hansard. We are broadcasting.
Clause 28
Rates of landfill tax
Question proposed, That the clause stand part of the Bill.
The Exchequer Secretary to the Treasury (Gareth Davies)
It is great to see you back in the Chair, Mr Paisley, and a pleasure to serve under your chairmanship. The clause increases the lower and standard rates of landfill tax, from 1 April 2024, in line with the retail prices index as forecast by the Office for Budget Responsibility at the time of the spring Budget 2023. Landfill tax is charged on material disposed of at landfill sites or unauthorised waste sites in England and Northern Ireland. The objective of the tax is to divert waste away from landfill, and support investment in more circular waste management options, such as recycling, composting and recovery.
Since 2000, landfill tax has contributed to a 90% decrease in local authority waste to landfill in England. Increasing the lower and standard rates of landfill tax by RPI in recent years has helped maintain a strong price incentive to divert waste away from landfill. The clause will increase the lower rate of landfill tax from £3.25 per tonne to £3.30 per tonne. It will increase the standard rate of landfill tax from £102.10 per tonne to £103.70 per tonne.
In conclusion, the clause increases landfill tax in line with RPI from 1 April 2024, to maintain a strong price incentive for diverting waste from landfill. I hope that it can stand part of the Bill.
James Murray (Ealing North) (Lab/Co-op)
It is a pleasure to be back with you in the Chair, Mr Paisley. As we heard from the Minister, clause 28 is about rates of landfill tax. As he outlined, the clause seeks to increase landfill tax in line with inflation, to £103.70 per tonne for the standard rate; the lower rate will be £3.30 per tonne. The landfill tax was introduced in 1996 to encourage recycling, composting and recovery, and reduce landfill. It increased the cost of waste disposal at landfill to encourage waste producers and the waste management industry to switch to a more sustainable way of disposing of waste material. The tax was originally UK-wide, but has been devolved to Scotland from April 2015, and to Wales from April 2018.
We will not oppose the clause, but will the Minister provide an update, given that I raised the issue of landfill tax fraud during the passage of the last Finance Bill, in May 2023? As he may recall, we then discussed the most recent estimate by His Majesty’s Revenue and Customs of the landfill tax gap—the gap between the landfill tax due and the revenue collected—which was £125 million in 2021. We recognise that at 17.1%, that gap was much larger than the overall tax gap for that year. He may recall that I asked how much of the £125 million tax gap identified in 2021 had been recovered by HMRC. He said that he would get back to me on that point, as he did not have the information in front of him. I wondered if he had it to hand now, so that he could put it on the record in Committee this year. I would also be grateful if the Minister shared with us whether HMRC has annual estimates of the landfill tax gap for years more recent than 2021.
Gareth Davies
I am grateful to the hon. Gentleman for that. I recall that exchange, and he is right to raise the issue of tax gap. Clearly, we all agree that we need it to be lower, and I assure him that at HMRC, every effort is being made to tackle the tax gap. I can update him; in 2021-22, the tax gap was 18.4%. As I say, HMRC is committed to continuing to tackle the gap, principally through two measures: first, through increased data sharing across Government agencies, and secondly, through the better use of intelligence-led interventions. Those two measures, particularly in 2022-23, recovered £280 million of compliance yield. If there are additional pieces of information and data that I do not have to hand, I am happy to follow up on those in writing.
Question put and agreed to.
Clause 28 accordingly ordered to stand part of the Bill.
Clause 29
Rate of aggregates levy
Question proposed, That the clause stand part of the Bill.
Gareth Davies
The clause increases the rate of aggregates levy from 1 April 2024 in line with the retail price index as forecast by the Office for Budget Responsibility when the rate was announced in the 2023 spring Budget. Aggregates levy is a charge on the commercial exploitation of virgin aggregate, which includes rock, sand and gravel. The objective of the aggregates levy is to encourage the use of recycled rather than virgin aggregate in construction. Returning to index-linking the aggregates levy rate following a period of rate freezes will ensure the value of this price incentive does not fall in real terms. The changes made by clause 29 will increase the rate of aggregate from £2 per tonne to £2.03 per tonne.
James Murray
As the Minister set out, the clause increases the rate of the aggregates levy in line with inflation. As the Government policy paper on this matter sets out, the aggregates levy was introduced on 1 April 2002. It is a tax on primary virgin rock, sand or gravel, which is mainly used for bulk fill in construction works. We understand the levy provides an incentive to aggregate producers and construction businesses to use recycled or secondary aggregate.
Interestingly, the rate of the levy has remained frozen at £2 per tonne since 2009. Could the Minister explain why the Government have chosen to raise the levy now, after 15 years of it being frozen? We recognise, of course, that levy rates will need to go up from time to time, but I would be grateful if the Minister could share the Treasury’s thinking behind the timing of this increase. It may, of course, be because there has been such high inflation under this Government in recent years that the increase in a nominal rate has become necessary. I would like to fully understand the Government’s thinking on this, so I would appreciate if the Minister could also confirm what representations were made to the Treasury as it was considering the decision over this rate, and what data was provided to him in making this decision.
Gareth Davies
The hon. Gentleman raises an understandable and legitimate question that many have asked, and I am happy to provide an answer today. As he points out, the aggregates levy was introduced many years ago and, at its introduction, was designed and introduced with the intention of being index-linked to inflation. However, over a number of years, the tax was subject to a specific piece of ongoing litigation; as a result of that litigation, the Government decided over many years that it would be inappropriate to change the tax and revert to index-linking during that litigation period. As that litigation has now concluded, and a review of the aggregates levy has concluded on the back of that, the Government have decided that it is now the appropriate time to increase the tax and return to how it was originally intended: to index it to inflation.
Question put and agreed to.
Clause 29 accordingly ordered to stand part of the Bill.
Clause 30
Rate of plastic packaging tax
Question proposed, That the clause stand part of the Bill.
Gareth Davies
The clause makes changes to increase the rate of the plastic packaging tax from 1 April 2024 in line with the consumer price index. The plastic packaging tax is charged on plastic packaging that does not contain at least 30% recycled plastic. It was introduced on 1 April 2022, as part of the Government’s resources and waste strategy. The tax provides an economic incentive to use recycled plastic rather than virgin plastic in packaging. It is designed to create greater demand for recycled plastic, which, in turn, will stimulate more investment in the collection and recycling of plastic waste, diverting it away from landfill and incineration. Increasing the rate of the plastic packaging tax in line with CPI will maintain the real-terms value of the price incentive to use recycled plastic in packaging. Clause 30 increases the rate of the plastic packaging tax from £210.82 to £217.85 per tonne from 1 April 2024.
James Murray
As we heard from the Minister, clause 30 raises the plastic packaging tax in line with CPI, and the change will take effect from 1 April. The Opposition have made clear throughout the introduction and the implementation of the plastic packaging tax that we are supportive of it as an important tool in tackling plastic pollution. The tax was introduced in April 2022 to provide an economic incentive for businesses to use recycled plastic in the manufacture of plastic repackaging. By applying such a tax on products that contain less than 30% recycled plastic, the tax was expected to create greater demand for recycled plastic, which would in turn stimulate increased recycling and the collection of plastic waste, diverting it from landfill or incineration.
As I set out in a Westminster Hall debate in October last year, we in the Opposition agree it is important to tackle less sustainable packaging products, including those from overseas. We also believe that it is important to build resilience here in the UK and that we have a clear, stable policy environment to encourage investment in our country. I was therefore concerned to note that, in response to the Government’s recent announcement that they would consult on a new mass balance approach to chemical recycling, the British Plastics Federation said:
“The lack of clarity to date has prevented companies from investing in the UK and some have looked elsewhere to build facilities.”
With the tax now having been in place for almost two years, what evaluation has the Treasury made of its success, including in building the domestic sector?
Gareth Davies
I am grateful to the hon. Gentleman and I am glad that he supports the taxation, which we were pleased to introduce in 2022. He is right to challenge us on the impact of the tax, and we have been clear that we intend to evaluate this when enough years have passed to be able to fully assess the impact. In December 2023, the Government came forward with a plan to evaluate the plastic packaging tax, and that is now published on gov.uk. I am happy to write to him with the provisions of that plan, which will be carried out to 2026.
The hon. Gentleman talked about the chemical recycling and mass balance approach. He should know that we engage very closely and extensively with industry ahead of fiscal events. On that specific point, we recognise that chemical recycling is a legitimate form of reprocessing plastic waste. However, following the constructive engagement with stakeholders that I described, and across the whole plastic value chain, the Government understand that is not currently possible for businesses to use chemically recycled plastic in packaging and claim a relief from the tax due to the way in which the recycled content is calculated. I assure him that we will continue to engage with the industry, and we know that it is a matter of great importance to it. My hope is that that can form part of the plan to evaluate PPT in due course as well.
Question put and agreed to.
Clause 30 accordingly ordered to stand part of the Bill.
Clause 35
Additional information to be contained in returns under TMA 1970 etc
Question proposed, That the clause stand part of the Bill.
The Financial Secretary to the Treasury (Nigel Huddleston)
Good afternoon, Mr Paisley. Clause 35 makes changes to improve the data collected by HMRC. That will enable HMRC to collect more accurate and timely information, helping to make tax easier to get right and harder to get wrong, and providing better outcomes for taxpayers and improving compliance. Clause 36 introduces a new simplified and fairer system of penalties for the late submission of tax returns and late payments of tax, for those taxpayers who voluntarily join Making Tax Digital for income tax self-assessment from 6 April 2024.
Turning to clause 35 in a bit more detail, the Government’s economic response to the pandemic was only made possible through the powerful use of data to make big policy decisions and deliver Government interventions. HMRC’s information about employers, employees and the self-employed was key to delivering both the furlough scheme and its self-employed equivalent, the self-employed income support scheme. The pandemic also highlighted gaps where a lack of data meant that the Government could not provide support to specific groups. For example, in the initial phases of the self-employed scheme, some self-employed people were excluded because they had only recently started a business and HMRC did not have the data needed to identify them and their potential entitlement to support.
James Murray
As the Minister said, clause 35 makes changes to the types of tax return for which HMRC collects data. According to the Government’s policy paper on this matter, the modifications are for the purpose of improving and enhancing the quality of the data HMRC collects. We understand that the changes are designed to enable HMRC to create regulations specifying additional information it considers relevant to the collection and management of tax.
We understand that HMRC intends to implement three new requirements. First, employers will be required to provide more detailed information on employee hours worked by real-time information PAYE reporting. Secondly, shareholders of owner-managed businesses will be required to provide the amount of dividend income received from their own companies separately from other dividend income, and the percentage share they hold in their own companies via their self-assessment return. Thirdly, the self-employed will be required to provide information on start and end dates of self-employment via their self-assessment return.
The Opposition recognise that this is a significant change, and it is clear from the Government’s policy paper on this matter that it will also incur large costs for businesses. The one-off impact covering transitional costs for businesses is estimated to be £44 million, while the extra ongoing annual administrative burden is estimated to be £9.6 million. The Chartered Institute of Taxation has conveyed its concerns that it seems unrealistic that the average transitional costs to businesses of providing the data on employee hours will be just £18.42. Does the Minister believe that the costings are accurate for businesses that will need to plan for the new requirements?
Beyond the forecast costs to businesses, there is also the question of data gathering and its purpose. This clause gives HMRC the power to collect taxpayers’ data. Is the Minister confident that the legislation provides appropriate authorisation for the purposes of the measure? The Institute of Chartered Accountants in England and Wales is concerned that it has not been fully explained why data concerning employee hours is relevant for the purposes of the collection or management of the taxes listed in section 1 of the Taxes Management Act 1970. The Institute believes that the legislation will not work to obligate employers to report hours worked to hours paid, as hours worked are not needed for the collection and management of tax. I would be grateful to know the Minister’s response to this concern.
We recognise that the timescale for introducing these measures is 2025-26, which will require HMRC to be ready and businesses to have got to grips with the necessary processes, guidance and software by then. What engagement has the Minister or HMRC had with businesses about this timescale, and has the Treasury considered drafting regulations for consultation prior to the legislation being enacted?
Clause 36 makes changes to the existing regulation-making powers that enable the Treasury to bring into force the penalties set out in schedules 24 to 27 of the Finance Act 2021. The new system that the schedules in the 2021 Act introduced will impose points-based sanctions for late submissions of returns and penalties for late payment of tax liabilities. We understand that the Government are planning for this system to come into effect with relevant self-assessment customers from 6 April 2026, through Making Tax Digital. Our understanding is that clause 36 will affect only volunteers who agree to test out the MTD system, which will therefore be before 6 April 2026. For the avoidance of doubt, will the Minister confirm that that is the case and make absolutely clear what penalties and sanctions such volunteers could face? Could he also confirm exactly what is meant, in the explanatory notes to the Bill, by the phrase:
“Where a change in circumstances means that HM Revenue and Customs does not have the functionality to support a customer, they may be moved back into the existing penalty regime.”?
There is a wider question about the timetable for delivering Making Tax Digital, which has slipped again and again. I would therefore be grateful if the Minister could make clear whether he has full confidence that the introduction of MTD for the self-assessment customers who are mandated for it is on track to happen by 6 April 2026.
Nigel Huddleston
I thank the hon. Gentleman very much for those questions and comments. I think he has a good understanding of the purpose behind the changes we are making, particularly in the context of the anxiety that many of our constituents face. We all had correspondence on this during the pandemic, when people were frustrated at not necessarily being able to get some of the support mechanisms for which they believed they were eligible because of that lack of information and data.
The macro point and the purpose behind the changes is well understood, and the hon. Gentleman is right to focus on the micro points. When it comes to the voluntary process, for example, which I will come on to in a moment, the whole point of having it is to learn before we make it mandatory. We expect and anticipate that we will need to learn from this experience, but going through that voluntary step first seems like a good process.
The hon. Gentleman mentioned the administrative burden on businesses as a result of this ask. We have chosen three out of the six because the information should be on hand or readily available already, so what we are endeavouring to do should be relatively straightforward. HMRC has been exploring with stake-holders how best to implement the proposals in a way that minimises burdens on businesses. No one wants to put a disproportionate administrative burden on businesses, but for the reasons that I outlined in the introductory comments, we see an upside to asking for the information. In practical terms, it will help nudging and supporting businesses to ensure that their taxes right. Should we face a situation such as the pandemic again, we will be in a much better position to understand the nature of businesses.
The hon. Member for Ealing North mentioned data and gave a total cost of £45 million for implementation of the measures. For the hours-worked data, the total estimated one-off cost to businesses is about £35 million. In subsequent years, the ongoing cost will and should be negligible. For the dividends data, the total estimated up-front cost is about £9 million; again, that remains consistent for subsequent years. For the start and end dates, there are negligible one-off costs, with total year-on-year costs estimated at about £600,000. Those costs are the current estimates based on the standard modelling approach and the measuring of administrative burden. We will of course keep a close eye on the costs.
I mentioned the variety of purposes and means by which that information could be useful, but the hon. Gentleman also made a point about information sharing, an issue that many stakeholders raised in the process of our updating this policy. I should note the work of the House of Lords Sub-Committee that investigated these issues and asked me similar questions not so long ago. I refer hon. Members to the answers I gave there, as well as further support. I want to provide the assurance, however, that there are strict laws about the sharing of data between Departments.
HMRC’s ability to disclose the information it holds to anyone is restricted by the Commissioners for Revenue and Customs Act 2005. Only by acting in accordance with the provisions of the Act can HMRC ensure that information is disclosed in a lawful way. Section 18 of the Act provides that HMRC must not disclose HMRC information to anyone unless there is a lawful authority to do so, and that includes other Departments and their agencies, local authorities, the police or any other public authority.
As I said, I am happy to respond further to the hon. Gentleman or to make further comments if I have not answered all the questions. However, I commend the clause to the Committee.
Question put and agreed to.
Clause 35 accordingly ordered to stand part of the Bill.
Clause 36 ordered to stand part of the Bill.
Clause 37
Abbreviations used in the Act
Question proposed, That the clause stand part of the Bill.
Nigel Huddleston
Finally, clauses 37 and 38 simply set out the Bill’s legal interpretation and short title in the usual manner for such legislation. I commend them to the Committee.
James Murray
We have no concerns about clauses 37 and 38, you will be pleased to hear, Mr Paisley.
As this may be the last time I get to contribute to the debate today—
James Murray
I am not intending to speak to any new clauses, so I thought to take this opportunity simply to thank you, Mr Paisley, for chairing, and to thank all the Clerks and House authorities. I thank all Members, Opposition Members in particular, and the third parties, including the Chartered Institute of Taxation, the Low Incomes Tax Reform Group, the Association of Taxation Technicians and the ICAEW, whose input has been invaluable.
The Chair
Thank you for those comments. I am sure people will appreciate what you have said. I also thank you for your contributions.
Question put and agreed to.
Clause 37 accordingly ordered to stand part of the Bill.
Clause 38 ordered to stand part of the Bill.
New Clause 1
Assessment of impact of the Act on compliance with climate change target
“(1) The Chancellor of the Exchequer must, within one year of this Act being passed, publish an assessment of the impact of this Act on the Government's ability to meet—
(a) the duty under section 1 of the Climate Change Act 2008 (the target for 2050), and
(b) its obligations and commitments under the Paris Agreement of 2015.”—(Drew Hendry.)
This new clause would require the Chancellor to publish an assessment of the impact of the Act on the UK Government's ability to meet its duty to achieve Net Zero by 2050 and its obligations under the Paris Agreement.
Brought up, and read the First time.
Drew Hendry (Inverness, Nairn, Badenoch and Strathspey) (SNP)
I beg to move, That the clause be read a Second time.
As we have heard today, the range of subjects we have covered has included air, road, shipping and much more, and yet the issue of climate change has not made a significant appearance, to the detriment of our proceedings. There is a climate emergency, and the public demand clarity on what is being done. The UK Government have shown time and time again that they do not take their published climate ambitions seriously and that they will simply, as they have demonstrated in recent months, do a U-turn on previous commitments and promises at the drop of a hat. Even their own former COP President says that they are not being serious on this issue.
Nigel Huddleston
It will not surprise you to learn, Mr Paisley, that I respectfully disagree with many of the comments made by the hon. Member for Inverness, Nairn, Badenoch and Strathspey. The Government are—[Interruption.] As I said and as always, I disagree respectfully. The Government are fully committed to delivering on our legal obligations to reach net zero emissions by 2050. The net zero strategy and the “Powering Up Britain” publication set out the actions that the Government will take to keep the UK on track for its carbon budgets, and establish the long-term pathway to net zero. The UK has already made good progress, reducing emissions by 48% between 1990 and 2021, faster than any other G7 country.
The autumn statement delivered the cross-economy enabling environment for investment that will be vital to deliver the net zero transition. It did so with measures such as permanent full expensing for plant and machinery investments, accelerating grid connections, and reforming planning. The package provides long-term certainty for industry to invest in decarbonisation and supports firms through the transition.
The Secretary of State for Energy Security and Net Zero is responsible for upholding duties under the Climate Change Act 2008, but His Majesty’s Treasury and HMRC consider climate change and the environmental implications of relevant tax measures, with a climate assessment published in all relevant tax information and impact notes. HMT and HMRC are exploring options to strengthen the analytical approach to monitoring, evaluating and quantifying the environmental impacts of tax measures.
Given all the work that is under way and the substantive work on these issues that has already taken place, I urge the Committee to reject new clause 1.
Question put, That the clause be read a Second time.
Drew Hendry
I beg to move, That the clause be read a Second time.
As the explanatory statement suggests, this is the opportunity for the Chancellor to publish an assessment of the impact of the Act on public finances and the cost of living crisis. The cold weather is really biting today across the nations of the UK, and people are having to turn up their heating to be able to simply survive. They are suffering already higher energy bills, boosted by the further 5% increase at the start of this month. The same families are struggling with soaring food costs, higher rents, higher mortgages and much more. The SNP’s issue with the Bill lies primarily in what has been omitted: help for those struggling families.
The UK Government seem determined to completely ignore the realities facing people across the UK. For example, just a few days ago, it was revealed that a quarter of a million children could be lifted out of poverty if the UK Government took the simple and humane step of scrapping the two-child limit, with an additional 850,000 children pulled out of deepening poverty if the policy was removed. In the absence of such measures, and many others to support people suffering from the cost of living crisis, such as the £400 energy rebate that we called for, we believe that it is incumbent on the UK Government to report on the measures that they are taking and how they are affecting the cost of living, particularly in relation to rising household costs.
Nigel Huddleston
I afraid that we are going to have yet another phase of respectful disagreement with the hon. Gentleman.
New clause 2 would require the Government to report on the likely impact of the measures in the Bill on public finances and the cost of living. Numerous Departments and Government bodies already have mechanisms in place to systematically monitor and evaluate the impact of Government policy on public finances and households across the UK. Those mechanisms are effective and ongoing, making the proposed new clause redundant.
It is the role of the Office for Budget Responsibility to produce official forecasts for the public finances twice a year, usually alongside a fiscal event. Those forecasts are produced independent of Ministers, objectively, transparently and impartially, as set out clearly by law. Furthermore, when considering specific pressures on the cost of living, mechanisms are already in place to assess the impact of Government policies on households’ personal finances. The Office for National Statistics plays a role in providing monthly updates through its “Cost of living latest insights” article, offering comprehensive data and showing trends.
In addition, our commitment extends to long-standing surveys and initiatives, including the family resources survey initiated in 1992; the living costs and food survey, which commenced in 2008; and the annual survey of hours and earnings, which has collected data since 1998. The Department for Work and Pensions also plays a crucial role with the annual publication of the “Households below average income” report, which monitors poverty and inequality trends across the UK, with emphasis on the wellbeing of the most vulnerable members of society.
Since 2010, His Majesty’s Treasury has published an “Impact on households” report at major fiscal events, to scrutinise the distributional impact of Government measures on personal finances across income groups. Distributional analysis published at the autumn statement 2023 shows that the typical household at any income level will see a net benefit in 2023-24 and 2024-25 following Government decisions made from autumn statement 2022 onwards. Low-income households will see the largest benefit as a percentage of income. Furthermore, looking across all tax, welfare and spending decisions made since the spending round 2019, the impact of Government action continues to be progressive, with the poorest households receiving the largest benefit as a percentage of income in 2024-25.
We believe that the mechanisms currently in place are effective in providing the necessary insights into the impact of the measures proposed in the Bill. In the light of those efforts and commitments, I urge the Committee to reject new clause 2.
Question put, That the clause be read a Second time.
Debbie Abrahams (Oldham East and Saddleworth) (Lab)
I beg to move, That the clause be read a Second time.
It has been a pleasure to serve under your chairship during today’s proceedings, Mr Paisley. New clause 3 would compel the Chancellor to assess the impacts of the Finance Bill on poverty, inequality, and health and healthcare demand across the UK, and to lay a report before the House within six months of Royal Assent.
Let me expand a little on why the new clause is so important. This is the first opportunity I have had to come to a Finance Bill Committee to advance these arguments, although I have regularly made them on Report and Third Reading. The new clause partly reflects my experience as a former public health consultant and academic, and relates to one of the reasons that I became an MP. It is about tackling health inequalities. It is not about changing anything in the Bill; it is about understanding what its impact will be. It is about our not working in silos and understanding the Bill’s impact on the NHS, education and so on. That is why I tabled it.
The new clause is also about transparency, to which the Prime Minister is very committed. It will have an important impact on the electorate’s lack of confidence not just in the Government, but in politics and all politicians. It is important that we are seen to be transparent and to be evaluating the work that we do. We can do that in a prospective way that anticipates what the impacts will be.
Finally, although the Government have a massive commitment to levelling up, we are experiencing one of the biggest health divides since 1980. I refer to 1980 because that was when our real understanding of the relationship between poverty and health began. The Black report was in 1980, and it was followed by Dame Margaret Whitehead, my former colleague at the University of Liverpool, authoring “The Health Divide”, which described the socioeconomic inequalities that drive health inequalities. Of course, that was in post-war Britain—a Britain with the NHS. Everybody thought that the NHS would be the saviour that would end all our health woes.
Evidence of the relationship between poverty and health has increased. “The Spirit Level”, by Professors Pickett and Wilkinson, showed that this is a universal experience and not just one in the UK. Health is driven by inequalities in societies right across the world. Indeed, it is almost a universal law that most of the societies with the smallest gaps between rich and poor do better than other societies, not just in health but in social mobility, crime reduction, increasing trust and so on, which are things that I think all of us here would subscribe to.
Nigel Huddleston
I should state at the beginning of my remarks that I completely understand the intent of new clause 3, because the hon. Lady is raising issues that are of great concern to hon. Members right across the House. However, she will not be surprised to hear that, once again, I respectfully disagree with her on the need for these assessments. We believe the proposed new clause is redundant because there are existing mechanisms in place to monitor and evaluate the impact of Government policy on public health inequality and poverty.
Debbie Abrahams
On that basis, I did ask a question at the autumn statement. In relation to the social security measures, I asked what were the anticipated impacts on the health of social security claimants. I have heard nothing back from anyone on that. If that evidence exists, what is it?
Nigel Huddleston
I shall respond to the hon. Lady on the plethora of analysis and support that goes on for a range of policy areas. We are not lacking in either interest in this area or consideration of impact. As I said, there are numerous Government Departments, bodies and other mechanisms already in place to systematically collect, monitor and evaluate the impact of Government policy across the UK.
The Department of Health and Social Care and its arm’s length bodies are responsible for developing and evaluating policies to help people to live more independent, healthier lives for longer. As part of DHSC, the Office for Health Improvement and Disparities works across DHSC, the rest of Government, the healthcare system, local government and industry, to shift focus toward preventing ill health, particularly in places where there are the most significant disparities. DHSC also invests in research and evaluation through the National Institute for Health and Care Research, which delivers robust evidence to inform policy development and implementation, including evaluation of policies and research to fill longer term evidence needs and gaps.
The Treasury carefully considers the impact of its decisions on those sharing protected characteristics, in line with both our legal obligations and our strong commitment to providing fairness. We go beyond our legal requirements by publishing a summary of equality impacts for tax measures within the tax information and impact notes alongside the Finance Bill.
Various parts of Government, including from within the Cabinet Office’s equality hub, promote the Government’s commitment to levelling up opportunity and ensuring fairness for all. The hub includes the Government Equalities Office, the Race Disparity Unit, the Disability Unit, and the Social Mobility Commission, all of which provide valuable input.
As I mentioned in answer to new clause 2, since 2010 the Treasury also publishes an “Impact on households” report at major fiscal events, but I will not repeat the comments I made there. The “Households below average income” report also provides valuable input. For example, in 2021-22, there were 1.7 million fewer people in absolute poverty after household costs than in 2009-10, including 400,000 fewer children, 1 million fewer working-age adults, and 200,000 fewer pensioners. We believe the mechanisms currently in place are effective in providing the necessary insight, so I urge the Committee to reject new clause 3.
Debbie Abrahams
I beg to ask leave to withdraw the clause.
Clause, by leave, withdrawn.
Question proposed, That the Chair do report the Bill to the House.
Nigel Huddleston
On a point of order, Mr Paisley. Before you conclude your comments, I think this is an appropriate opportunity for me to make similar comments and thanks to those made by my opposite number. I agree with everything he said. I put on record my thanks to you, Mr Paisley, and your co-Chair, who did not have the opportunity to participate in this Bill; there will be other opportunities in the future.
Of course, I thank the Clerks and all officials who have worked on this Bill across multiple Government Departments, including His Majesty’s Treasury and His Majesty’s Revenue and Customs, but it goes well beyond that. I thank members of the Committee in this place, and also members of the House of Lords Sub-Committee for their input and work. I also thank all those stakeholders who have provided invaluable input. Some have provided specific input recently in the form of written submissions to this stage of the process, but many have participated over many years in extensive formal and informal consultations. I put on record our deep gratitude and thanks to all those who have taken their responsibilities and interests incredibly seriously, providing great input into this Bill to date.
The Chair
Thank you for those comments, Minister. We have had a brace of Ministers, shadow Ministers and Committee Clerks. We did not have a brace of Chairs, but we did have the Statler and Waldorf-esque Parliamentary Private Secretaries in a brace. Thank you all for this vital work that Parliament does. The line-by- line scrutiny of the Bill is serious work, and people taking their time to really do this line-by-line is appreciated. I know that the staff, Clerks and Hansard will be appreciative of your kind comments, Minister, and yours too, Mr Murray.
Question put and agreed to.
Bill accordingly to be reported, without amendment.
Criminal Justice Bill (Eighth sitting)
Tuesday 16th January 2024
(2 years, 7 months ago)
Public Bill CommitteesRead Full debate Criminal Justice Bill 2023-24 View all Criminal Justice Bill 2023-24 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 16 January 2024 - (16 Jan 2024)
Alex Norris (Nottingham North) (Lab/Co-op)
It is a pleasure to resume proceedings with you in the Chair, Ms Bardell. I shall resist the temptation to start again for your benefit; I am sure you can look in the Official Report should you want to see the first part of my contribution.
I was talking about the inclusion of non-disclosure requirements in suspension orders, and I want to understand what the Minister thinks their function is. Is it to stop individuals who have had their domain name, IP address or website suspended or taken off them using it as a marketing tool or tool of notoriety? That would be a restriction on liberty and free speech, so I would be interested in the Government’s evidence base for that. Presumably, that must not apply to them talking to, say, their legal counsel, so what are the factors? There is no test in the Bill that a judge must apply.
Moving on to co-operation, since the internet by its nature is a global venture, we are glad that this is a four-nations provision, but there is some irregularity across the four nations, and I want to probe that with the Minister. Under paragraph 12 of schedule 3, in England and Wales, the “appropriate officers” who can make an application for an order are
“a constable…a National Crime Agency officer…an officer of Revenue and Customs…a member of staff of the Financial Conduct Authority, or…a person designated or appointed as an enforcement officer by the Gambling Commission under section 303 of the Gambling Act 2005”.
That seems quite a comprehensive list.
For Northern Ireland, the list is the same, except that it does not include the designated person from the Gambling Commission. Given the scourge of black-market gambling and the challenge it presents, is there not concern that it might be displaced to Northern Ireland? I wonder if the Minister might explain where he is up to with that. For Scotland, the list is just “a procurator fiscal”. That is a different approach. Presumably, it is the one favoured by the Scottish Government, but I hope the Minister might detail some of his discussions in this regard.
We know that many, if not most, of the sort of sites we have been discussing will be based outside the UK. The clause and the schedule give us a handy tool for UK-based ventures, but what more can the Minister tell us—he mentioned this a little in his opening speech—about his attempts to have some degree of harmony of regimes with our partners abroad, and what conversations does he think UK agencies should be having with their overseas counterparts to make sure that the powers that they have can be used to protect the British people?
The Minister for Crime, Policing and Fire (Chris Philp)
It is a great pleasure to serve under your chairmanship once again, Ms Bardell, and I hope that we get to do so many more times during the Committee’s remaining sittings. I thank the shadow Minister for his considered contribution on clause 20 and schedule 3. I will turn first to his questions regarding the conditions set out in schedule 3, in particular at paragraph 4.
Condition 1 sets the threshold for this power to be available to investigative agencies such as the National Crime Agency and the police, meaning that those agencies cannot apply for an order unless the IP address or domain name is being used in serious crime. Condition 2, which operates separately and additively, requires a connection to the UK jurisdiction, and any one of the four limbs listed at paragraph 4(3) can apply; as the hon. Gentleman correctly identified, the word “or” is used at the end of paragraph 4(3)(c), making it clear that only one of the limbs (a) to (d) in condition 2 have to be met. If one is met, that is sufficient for condition 2 as a whole to be met. Those four limbs specify different ways in which the domain name or IP address might link to serious crime in the UK’s jurisdiction. I hope that that makes it clear how those conditions operate.
The hon. Gentleman also asked why the non-disclosure power was needed. Its purpose is simply to prevent the criminal behind the IP address or domain name from being tipped off, inadvertently or otherwise, that a law enforcement agency is looking into them. We would not want the criminals to know they were being looked at. That is why the provision is constructed in that way.
The hon. Gentleman asked about territorial applicability. The Gambling Commission is principally an England and Wales body, and has only very limited functions in Northern Ireland. However, typically, if a gambling service is made available on the internet, it will be available in Northern Ireland as much as in England and Wales. If we go after a service provider in relation to a breach in England and Wales, shutting down the domain or IP address will also have the effect of preventing it from being accessed elsewhere.
For Scotland, the definition of “appropriate officer” is limited to a procurator fiscal. That reflects the different arrangements in Scotland and our discussions so far with the Scottish Government. Generally speaking, we respect the view of the Scottish Government when it comes to the application of the law in Scotland—I am sure Ms Bardell would impartially endorse that from the Chair. Where the Bill touches on devolved matters in relation to the Scottish jurisdiction, we correspond with the Scottish Government and proceed in general—I would not say always—by mutual consent.
For the reasons that we have already discussed, we can all welcome the purpose of clause 20 and the accompanying schedule 3. I therefore commend them to the Committee.
Question put and agreed to.
Clause 20 accordingly ordered to stand part of the Bill.
Schedule 3 agreed to.
Clause 21
Access to driver licence records
Chris Philp
I beg to move amendment 33, in clause 21, page 17, line 33, after “subsection” insert
“, and may make consequential amendments of this section”.
This amendment will ensure that, in the event that the list of bodies to which the new provisions apply is amended by the regulations, any necessary consequential amendments may also be made by the regulations.
The Chair
With this it will be convenient to discuss the following:
Government amendments 34 and 35.
Amendment 60, in clause 21, page 19, line 11, at end insert—
“(4) The Secretary of State must lay an annual report before Parliament providing information on the use of the powers introduced by this section.”
This amendment would require the Secretary of State to publish a report on the police’s use of the new powers giving them access to driver license records.
Clause stand part.
Chris Philp
Clause 21 will facilitate the ability of police and other law enforcement officers to access driver information from the Driver and Vehicle Licensing Agency automatically at the point of need for all policing and law enforcement purposes. The clause contains provisions for regulations and a code of practice to enable changes to be made for the purposes of access to driver data.
Police and other law enforcement officers frequently need to deal with unpredictable circumstances while operating under time pressure, and the police have provided compelling operational examples in which they could deal better with threats and harms faced by the public if they had direct and automatic access to DVLA driving licence data. That is why the Bill contains this clause.
Currently, automatic access to the DVLA driving licence data is limited to matters concerned with enforcing road traffic offences and Road Traffic Act 1988 purposes, which means that the police do not have automatic access to driving licence data for other purposes, such as investigating wider types of crime. They do have manual access to the data, but that is quite laborious and takes a long time. The clause builds on an existing regulation-making power and requires the Secretary of State to make regulations specifying the purposes for which, and the circumstances in which, the police can automatically access the driving licence database, so that all policing and law enforcement purposes are included.
The clause essentially expands an existing manual process and makes it automatic. At the moment, the automatic access applies only to road traffic matters. Given that we hold this data, I am sure that members of the Committee would expect the police to be able to access it in pursuit of criminals. Through the clause, we are delivering on our commitment to support the police by providing them with the tools they need. Members will recall that in the oral evidence sessions back in December, we heard support for the provisions from the National Crime Agency, the College of Policing and His Majesty’s chief inspector of constabulary and fire and rescue services, Andy Cooke.
We are also taking the opportunity to make the legislation simpler and more transparent. Under the current system, some law enforcement staff have access to the DVLA driving licence database and others do not. The clause allows all police and law enforcement organisations listed in proposed new section 71(4) of the Criminal Justice and Court Services Act 2000 to access DVLA driver information. It also changes the current legislative quirk whereby police staff are defined by law as police constables solely for the purpose of DVLA driver data, which is rather anomalous. It will define those permitted to access DVLA driver data as “authorised persons”, and regulations will set out the process for those individuals to become authorised.
We are conscious that police access to such personal data needs to be reasonable and proportionate, as set out in existing data protection legislation. That is why the clause will bolster the governance arrangements in this area by making them more transparent and straightforward, in preparation for the regulations that will broaden the access regime. In particular, the clause makes it clear which bodies can access DVLA driver data, which is necessary as the current legislation could be improved upon. There is a mechanism to amend the list of organisations that have access, while requiring the chief officer to be responsible for ensuring that appropriate training and oversight is provided by their organisation. That obviously includes the delivery of their data governance obligations.
Government amendment 33 ensures that if regulations amend the list of law enforcement bodies in subsection (4) of proposed new section 71 of the 2000 Act, such regulations may make consequential amendments to section 71—for example, to the definition of “chief officer”. Amendments 34 and 35 clarify the meaning of the term “chief officer” for each of the listed law enforcement agencies.
With your permission, Ms Bardell, I will speak to amendment 60 once I have heard the shadow Minister’s comments so I can respond to them. I hope I have set out why it is important that we put on a sounder and clearer footing the organisations and individuals who can access this data, and lay the groundwork to make automatic access possible for law enforcement purposes. I am sure we can all get behind that.
Alex Norris
I want to speak to amendment 60 in my name. I do not know whether the Official Report can capture this, but my feeling is, “Hmm!” There are things I hoped the Minister would say, not least because it would have reduced my contribution by half, but he did not, so I will have to see whether I can get him to say them.
This is a very important clause. It is a long-standing, accepted principle that under certain circumstances police officers can use driver information held by the Driver and Vehicle Licensing Agency. At the moment, it is for purposes related to the enforcement of road traffic offences. It is a well-established and uncontroversial principle that officers can talk to the DVLA and get information. We have no quibble with the clause seeking to make that a smoother process, and we have no problem with subsection (4) of proposed new section 71 of the 2000 Act, which broadens and clarifies who can ask for that information, but the clause potentially contains a very broad extension of powers.
Paragraph 370 of the explanatory notes says:
“This clause replaces existing section 71 of the Criminal Justice and Court Services Act 2000 with a new section 71, and inserts a new section 71A into that Act. It provides for police and law enforcement bodies to have access to driving licence data held by the Driver and Vehicle Licensing Agency (“DVLA”) and provides powers for the Secretary of State to make regulations concerning the purposes for which such data may be used and any conditions which need to be met by any person accessing the data.”
That is a really significant change. The police had access to DVLA information in relation to a very narrow set of offences, but the clause is essentially saying that the information is fair play for enforcement agencies, subject to whatever regulations a Secretary of State may set in the future. That is an egregious use of Henry VIII powers. If the Government have a regime in mind, they should say what it is. Instead, we are possibly giving over the entire DVLA database to the Secretary of State, and it is currently not clear what it will be used for.
Chris Philp
First, for clarity, I should say that the purpose for which the information might be made automatically accessible is circumscribed by the words at the very end of the newly created section 71(2), which says the that Secretary of State
“may prescribe only such purposes and circumstances as are related to policing or law enforcement.”
It is not for any purpose; it has to be related to policing and law enforcement.
Secondly, I pointed out that the police already have the ability to access the data manually for police and law enforcement purposes. The clause simply paves the way for them to do what they currently do manually and instead do it automatically, provided that it is for a police or law enforcement purpose.
I hope those two points give some reassurance that the clause is not some gigantic land grab. It simply makes automatic what is currently manual and it is circumscribed in the way that I described.
Alex Norris
The second point and the tone of the Minister’s contribution certainly give me a degree of comfort. The first point does not give me any comfort at all. The line that he quoted, which provides that the Secretary of State
“may prescribe only such purposes and circumstances as are related to policing or law enforcement”,
is a landing zone as wide as could possibly be needed to give police access to the DVLA database for all sorts of things. I will get on to that shortly. I would be delighted if the scenarios I am about to talk about are not what the Government intend, or even silly ones. I do not think that is the case, but I will be the gladdest person in the room if it is.
At the moment, I think the public would think there are sensible uses of the data, such as to double-check the last known addresses of a wanted person. Taken in extremis, however, the clause could mean that all the photos on the DVLA database become fair game for law enforcement. There are 41.2 million vehicles registered with the DVLA. We are talking about the data of tens of millions of people and, crucially, their photographs. The landing zone that I described under subsection (2) of proposed new section 71 means that someone’s photo could be used for a huge range of things.
Starting from where we think the public would be on this, the public expect and know that retrospective facial recognition is already used routinely. If a person commits a crime, they know that their custody photo will be held on file and that, if they are convicted, it could be held for six to 10 years, depending on the nature of the offence. It is a tale as old as the technology that the photo might subsequently be checked against footage relating to another crime and used for its detection. Similarly, if someone commits an act that means that their DNA is kept on file, that might be used in relation to unsolved crimes that happened in the past or to tackle offending in the future. All that is sensible.
On both fronts, we start in a sensible place, with the use of the DVLA database for cross-references to help detect crime, and the use of photos of offenders that lie on file to detect crime. The risk comes when we mix those two sensible principles.
Peter Dowd (Bootle) (Lab)
I have listened carefully to my hon. Friend. Does he agree that there is a danger that we will get mission creep and, more importantly, that the public will see it as such? As time moves on, we will get another bit, another bit and another bit.
Alex Norris
I absolutely agree, and that is exactly the point I am about to make. It is a legitimate anxiety. If that is wrong and I am somehow being conspiratorial, albeit it is not my nature, the Minister can tell me and that would give me a degree of comfort, but I think, and it has been expressed to me by interest groups, that there is a legitimate anxiety that the clause could mean that the police will access tens of millions of driver photos to solve crimes.
There is a problem with that on two fronts. First, we have the question whether that is a fair balance between individual liberty and collective safety. If that is what the Government want, we need to have that debate much more clearly before we get to these specifics. Secondly, certainly for the photos that are on file today, probably each one of us in the room, Members and beyond, is on that database, but none of us will have given our photograph with informed consent, knowing they were going to be used for the proposed purpose. That is a huge problem, not least because it is a kind of coercion. I would still give my photo on that basis, because the ability to drive is fundamental to my needs—certainly for work, never mind family life. But, again, it is a form of state coercion, rather than something that would necessarily be the right thing to do. Many people—many of my constituents, I know—would not consent on that basis. We live in an age of high-profile conspiracy theories and those who make an industry of them, and we should not give grist to the mill of yet another one.
Alex Norris
I give way to the Minister; nothing would please me more than to be contradicted.
Chris Philp
Existing DVLA data, including photographs —I have a driving licence; I am sure that the hon. Member has one and everybody on the Committee probably does as well—can already be searched by the police; or rather they can request information on a manual basis. That can happen already, to each and every one of those 40-odd million records, for law enforcement purposes. That has a statutory basis, via schedule 2 to the Data Protection Act 2018, which allows access to that kind of data for police and law enforcement purposes. The principle of police access to that data for law enforcement purposes is already there.
I pose a brief example: if somebody was wanted for an offence such as rape, and the police could not track them down and they were not on the custody image database—let us say that they had never been into custody—would the Committee want the database to be searched to see whether a recognition match could be obtained to find that person? That can happen at the moment, and I think that is right. I would like to check whether the shadow Minister agrees.
Alex Norris
There is a significant difference between what the Minister talks about, which is using, on an individual basis, information that is available to cross-reference—perhaps to deal with known aliases or known addresses—and where this could go. I mean a broad-scale use of surveillance, seemingly without any guardrails, that would essentially allow tens of millions—I think it is in the 40-something millions—of photos to be put on essentially the same footing as photos from the custody suite.
Peter Dowd
I heard the Minister’s intervention, but I am increasingly concerned about the point I made about mission creep and proportionality. That is what we must bear in mind. Would my hon. Friend agree? This partly goes back to amendments 61, 58 and 59: let us be as precise and specific as we can—in fact, let us have some control rather than this mission creep, and always have human rights and the question of proportionality in the back of our minds.
Alex Norris
“Proportionality” is the exact word here. It is about finding balance, as I say, between individual liberty and our collective safety. If we are saying that, in all instances where the police have a photo of a possible offender, we have complete comfort about their searching the entire DVLA database to try and identify that person—well, that is a very significant change. I would argue strongly that that is different from saying, “Well, we think we might know who it is; let’s apply for the driving licence of an individual.” I think that the public would see a big difference.
The issue becomes even more important given the pace of technological change; we have been talking about retrospective facial recognition technologies here, but live facial recognition technologies are developing at breakneck speed: cameras can scan huge crowds of people, check who they are and flag persons of concern. The Minister, I think, has a degree of enthusiasm for that technology; it is a plank of his plans around violence against retail workers, and shop theft more widely.
I recently visited South Wales police because I wanted to understand the use of this technology. With your indulgence, Ms Bardell, I will take this opportunity to put on the record my thanks to the police and crime commissioner for South Wales, Alun Michael, for his work. He is stepping down from public office at May’s elections after more than half a century in different posts. He has sat in the chair that I occupy; he has sat in the chair that the Minister occupies; he has sat in Cabinet, and he is one of the few PCCs to have served the entire 12 years of that post’s existence. His is a life of extraordinary public service to the UK and Wales, and to Cardiff, and we have been very lucky to have him.
As I was saying, South Wales police is very much in the vanguard of facial recognition technology. In a recent oral questions, the Minister graciously made reference to the work of South Wales police in this area, particularly the oversight that it is doing through the PCC’s office, which may well be a good model—in fact, it very much is. However, it is not without controversy, partly because it is in the vanguard and that sort of disruption is generating significant public interest.
There was quite a bit of public debate around one of the events in question: a Beyoncé concert at the Principality Stadium. That was a huge event. It had incredible hype; people really did everything to try to get tickets. Live facial recognition technology was used at that concert. The police advertised it, defined a public watch list, and said, “We are looking for anyone who is a known terrorist, in light of the Manchester bombing, and for paedophiles, in view of the likely attendees of the concert.” That probably finds the right balance: the public are informed and there is a defined watch list. There is a degree of common sense there.
As I said, what South Wales police have put in place, and what I think we are going to see across the country, is a model where we have civilian balance to the operational independence of the police and where the public’s representative, as we have in England and Wales in the form of police and crime commissioners, is able to know what is happening and to have public oversight. However, there is a real risk around how that sort of technology could be combined with the powers in this clause. The use of live facial recognition technologies could be combined with the entire DVLA photo database for the purposes of live blanket surveillance. I do not think that is what the Government want, but I do think that we have to hear that they do not. Relying on Henry VIII powers makes it even worse.
It is welcome that, according to proposed new section 71A of the Criminal Justice and Court Services Act 2000, a code of practice will be issued. That is really important, and speaks to my amendment 60, which is a pretty basic attempt to put some degree of parliamentary guardrail on to this new technology and its use in law enforcement. It states that once the Bill has received Royal Assent, a report on its usage must be published by the Secretary of State on an annual basis. I will be honest: I am not precious about the form that that should take, but I am precious about technology that has moved at great pace and with which there has been very little parliamentary engagement at all.
Stronger guardrails should be set. We have to be really cautious about other changes we might make, such as those in clause 21, that would mean that a significant database could be used for proactive surveillance of people who have never done anything other than apply for a provisional licence. That point could be held, but we would have to argue with the public and build public confidence around it. We would have to be shown the evidence for the effectiveness and the operational cases. I do not think the Government have done that.
My hope is that I am taking the issue far beyond what the Government intend. I will be very glad if that is the case. Part of the problem is that we are relying on regulations when we have no idea what their form will be. I stop at this point. I hope the Minister will be able to give the Committee some comfort.
Vicky Ford (Chelmsford) (Con)
I have listened extremely carefully to the shadow Minister and the Minister. I take issues of data protection and privacy very seriously, but I also believe that members of the public expect us to try to keep them safe, and expect the police to be able to use technology to try to keep them safe.
I listened to what the hon. Member for Nottingham North said about the facial recognition technology used in south Wales. Those same south Wales cameras were used last half-term in my constituency of Chelmsford and in Southend in Essex. As a result, a number of individuals were arrested, including somebody who had come into Chelmsford from outside and was wanted for a very high-profile sexual offence. What the Minister has been saying about being able to use this technology to arrest rapists is not hypothetical; it has happened, and it happened in my constituency in Chelmsford.
Alex Norris
I am sorry to ask the right hon. Member to give way, because I have said so much—but I guess the point I was making about the Beyoncé concert was about having a defined watch list of people known and suspected of having done significant crimes. Such measures feel like a proportionate tactic to apprehend them, but is that enough for us to say that therefore everybody’s faces ought to be in play, even though the vast majority have never done anything wrong?
Vicky Ford
I was just coming to that point. I completely hear what the hon. Gentleman is saying about widening out the potential dataset of photographs that could be used. I suspect that most members of the public would say it is utterly reasonable to widen out the set of faces we could look at. For instance, we might have a picture of somebody who is a rapist and was never known before, but their photograph might have appeared on a wider database such as that from the DVLA, rather than on a known potential suspect list. If that helped to find really dangerous criminals, I suspect most members of the public would accept that.
I agree that there need to be very strong measures to make sure that we do not turn into a surveillance society, such as we have seen in some much more autocratic countries, where those pictures can then be used against innocent people. I believe the Minister is trying to say that the protection is there in the Bill. When these cameras have been used, there have been very strong rules about where they can be used. The cameras used in both Chelmsford and Southend were highly publicised, with signs and alerts that the technology was being used in that place on that day. Those sorts of measures are important.
I would be interested in a bit more clarity from the Minister about ensuring that we do not turn to inappropriate use, as we have seen in some autocratic countries, while also ensuring that we can help the public by making use of the best technology to identify those who have committed the most serious crimes.
Chris Philp
I would like to speak to a couple of matters concerning the clause, and then talk about the read-across into facial recognition. I think there is some conflation of two different kinds of facial recognition—live and retrospective—only one of which is relevant here. I will explain how that works and how it might be relevant.
Let me speak first to the to the substance of the clause. First, just to be precise, this is not a Henry VIII power, which is a piece of secondary legislation that can amend primary legislation. This does not create a regulation-making power to amend primary legislation; it simply creates a list. It is not technically a Henry VIII power, but it does specify the circumstances, or the policing and enforcement purposes, for which data can be used.
Secondly, we are not passing clause 21 expressly to authorise the use of DVLA data for facial recognition or indeed for any particular law enforcement purpose; we are simply creating a regulation-making power. Regulations might be brought forward using this power to do any number of law enforcement activities, including facial recognition, but that would, of course, have to be debated at the time and subject to the affirmative procedure. This is enabling legislation; we are not actually passing the substance of any particular power today.
Since members of the Committee have raised questions about facial recognition, I would like to address them. There are essentially two different kinds of facial recognition—separate concepts—one of which is relevant and one of which is not. Let me start with the one that would not be relevant here: live facial recognition. Live facial recognition would never need to use images from the DVLA database, the passport database or anything else. Live facial recognition takes a watch list of people wanted for criminal offences or wanted by the court.
Such technology was run recently in Croydon—my borough—where I think there are about 12,000 people wanted for criminal offences. The camera was set up, as it was in Southend and Chelmsford, in Wales, for the coronation and at the Silverstone Grand Prix. Everyone who walked past those cameras in Croydon town centre got scanned. There were public signs up; the authorised professional practice says that public signs have to be put up, which I would have thought would mean criminals would not walk past the cameras—but they do.
Over a couple of afternoons in Croydon, several thousand people walked past the cameras, despite the fact that there was a sign up saying, “The police are using live facial recognition” and in the course of those two afternoons, there were 17 alerts and all were accurate. The police would stop each person, have a conversation, ask for ID and so on, and all 17 had been accurately identified. Those 17 people were all arrested because they were wanted for offences. One of them was a wanted rapist who would otherwise not have been caught. It was just good fortune that that wanted rapist had to walk past the camera and was apprehended. Were it not for that, that wanted rapist would still be wandering around. There was another person who had been wanted for grievous bodily harm since 2015—for eight years—and they were arrested as well. In Croydon, the scheme was run in the first couple of weeks of December.
Concerns have been raised previously about accuracy and disproportionality: does the technology pick on members of certain ethnic communities, as it were? There was litigation that preceded South Wales using it, back in about 2020. I join the shadow Minister in commending Alun Michael for his work on live facial recognition, where he has shown real leadership, and for his long career in public life—in Parliament as a Secretary of State, as Welsh First Minister, and as a police and crime commissioner for the last 12 years or so.
The litigation happened, and the court set out certain conditions that had to be met, one of which was around accuracy—I think the false positive rate had to be one in 1,000—and disproportionality. The algorithm was improved and tested by the National Physical Laboratory at 0.6, which is the setting that the police use. At that setting, it found that the false positive rate was, I think—I am speaking from memory—one in 6,000, which is six times more accurate than the court specified, and that there was no disproportionality based on either gender or ethnicity.
For the one-in-6,000 false positive, what would happen—this has not happened in Croydon, because only 17 people were stopped—is that the police would say, “Excuse me, sir or madam, can you just identify yourself?” If they turn out not to be the person the police think they are, obviously the police will say, “Sorry to disturb you—off you go.” But that is one in 6,000, and it did not happen in Croydon, because the police did not stop 6,000 people.
So that is live facial recognition. The police do not need access to a DVLA database or password database, or even the custody database; they just need a list of people who are wanted. In the examples in Chelmsford, Southend and Croydon, they caught people who were wanted for offences or who had absconded from court, who would otherwise still be wandering around. It was used at the coronation. Three camera points were set up and, similarly to the Welsh example, the watch list included known terrorists, fixated people—people who are obsessed by the monarchy—and also wanted offenders. I think three wanted people were caught on the coronation day, including a wanted sex offender who happened to wander past the camera. The technology has also been used in Soho to try and catch robbers who were stealing mobile phones and so on.
I hope that illustrates to the Committee how live facial recognition is useful. It comes under the auspices of the Supreme Court judgment in the Bridges case, and authorised professional practice is published by the College of Policing. I think the Information Commissioner’s Office has also looked at it. Live facial recognition, which does not need DVLA data anyway, has a good basis, and it is catching people who would otherwise not get caught.
Peter Dowd
We can all come up with our examples, whether they be of rapists or a missing person, for example—who would not want to find a missing person who might have been missing for years and who we are trying to find? That is not the issue. We have used DNA in the past, and we all think it is wonderful, but it is used within parameters. Yes, let us have CCTV and facial recognition, but they have to be used within a certain context.
Then there is body-worn video and the move towards using algorithms in the detection and prevention of crime —and, in some places, the deterrence of crime—and also the issues around AI. I do not think there is a problem with that at all, but it has to be set in a context. We should not take a piecemeal approach to the whole question of technology. We are dealing with a vast area, and this must be set in that wider context. Perhaps the Minister can go off and think this through, outside this Criminal Justice Bill, and set in process a review of the whole question of artificial intelligence and so on, as part of crime reduction, crime prevention and crime detection.
Chris Philp
The hon. Gentleman is making a very reasonable point. In fact, I was going to come on to it later, but I will address it now. As for the current deployments of live facial recognition in places such as Wales, Croydon, Southend, Chelmsford, Soho and elsewhere, a framework was set out by the case of Bridges v. South Wales Police. There is authorised professional practice from the College, but that framework is there. The hon. Gentleman is, however, making the valid point that it would be useful to set out—outside of this Committee, as he said—a broader strategy, framework or explanation of how the technology can be used. That is not just the case for live facial recognition, but also for the retrospective recognition, which I will come on to in a minute. It is all set out, and we could perhaps debate and discuss it in the round.
The hon. Gentleman is making a reasonable point about something that I had in mind to do in the relatively near future. That is something that I am working on in the Home Office, and his suggestion has spurred me on to expedite that. We want to have this set out transparently and comprehensively so that everybody can look at it and know where they stand. It has actually been done in relation to live facial recognition, but it would be helpful to set it out in a broader context.
Jess Phillips (Birmingham, Yardley) (Lab)
The point that my hon. Friend the Member for Bootle (Peter Dowd) made is far more eloquent than mine. The Minister is clearly very enthusiastic and learned about this issue. When he was talking about how live facial recognition does not rely on DVLA data or any photographic data at all, the Minister said that we just need a list. What does that rely on, then? It must rely on some sort of photographic data.
My second point—I will try to be slightly more eloquent and not sound like I am asking my kids to turn the telly on for me because I do not understand it—is about my kids. I do not mind my DVLA data being used; I will tick the box or whatever. It strikes me, however, that my son has a driving licence, and I feel slightly anxious about the way that large groups of young boys get treated like they are a rabble. There are all the brilliant examples of this, such as finding missing people or catching rapists—“Great. Wahey! Let’s lock them all up”—but I feel slightly less comfortable about my son’s photo being used, funnily enough, in what might be a broad-brush police and crime approach.
Chris Philp
I thank the hon. Lady. On the first question, which was about how live facial recognition works, we first of all need a watchlist—the list of wanted people—and then the photographs. Maybe there will be someone who is wanted for rape, and we have that person’s photograph. Maybe it is someone the police have encountered before, but they just cannot find them. Maybe the police have gone to what they think is the person’s home address, and the person is not there, but they have their photograph. They have that data. Then, in the case of the Croydon deployment in early December, there were 12,000 photographs of people who were wanted for different offences—the police had those photographs.
Then, the faces of people walking down the road are scanned. Each time someone walks past, their face is scanned to see whether it matches. For the vast majority, there is no match, and the scan is instantaneously, immediately and automatically deleted. There is no need for any manual intervention; it gets deleted straight away, like this—although I am not sure how my clicking my fingers will be rendered in Hansard. If the hon. Lady or I had walked past, we would be scanned and, one hopes, there would not be a match. Then there would be instant, automatic deletion. If someone is scanned and their photograph is one of the 12,000 on the list, however, there is a flash—that was a double click, for the benefit of Hansard—and an alert is sounded. The officer will then go over and say, “Excuse me, sir”—all of the 17 who were stopped were men, by the way.
Chris Philp
The officer will go over and say, “Excuse me, sir, what is your name?” When he has established that the match is accurate and that they are who the system thinks they are, it is a case of, “You are under arrest for X, Y or Z”.
That is how the live system works. There is no need to access any standing database such as that of DVLA; we just need the pictures of the 12,000 wanted persons. Depending on the deployment, we can choose who goes on that list. In the South Wales deployment, they were particularly concerned about terrorists who might try to cause an explosion in the arena or paedophiles who might seek to prey on the young girls going to the Beyoncé concert. The list can be varied depending on the location. I would hope, though, that any watchlist would always include people who are wanted for offences.
I will now come on to retrospective facial recognition. I repeat that we are not authorising this today by passing this clause; we are simply creating a power to make regulations in the future to do so. I just thought I would be clear about that. We are not creating this power; we are simply creating a legislative framework through which future regulations might be brought forward.
Jess Phillips
On a technical point, could this technology also be used to find witnesses on the bus, for example? I do not expect the Minister to know the answer to that question, but just to add a bit more enthusiasm to his love of this technology, I can see that there might be such uses for it.
Chris Philp
That is a really good question and I do not know the answer to it. However, I can certainly find out and come back to the Committee. I know that this technology can be used to find missing persons. If someone has gone missing, the police can do a search and see if they pop up somewhere.
As for finding witnesses, of course the witness has not committed a crime, so one would have to be a little bit careful about infringing on their rights. However, I will take that question away and get an answer, and I will write to the hon. Lady and the shadow Minister, and indeed the rest of the Committee, because it is a very good question. I am afraid that, as I stand here today, I do not know the answer, but that could help to find witnesses.
Alex Norris
The Minister is being very generous with his time. There is a degree of comfort with the point about regulation. If concerns continue to grow about the use of DVLA data in retrospective facial recognition, Parliament will have its day. And on that basis, I will not divide the Committee.
However, I want to press the Minister on something else. He is right to say that this clause is an enabling clause, but he must have an idea of what he wants it to enable. Why is it in the Bill? The Government must have something in mind for it; otherwise, there is no point in it standing part of the Bill.
Chris Philp
It could be; that is certainly a possibility that I have in mind. If those regulations were brought forward, and maybe there would be some further clarifying codes of practice and so on that will be needed as well, it would in theory be possible to bring forward regulations such that, if the person or the suspect—it might be the murderer in that Coventry nightclub, or the sex offender on that bus. Imagine if their image was not on the custody database; imagine that they had never been arrested, or convicted, or anything. The police did not have their picture; they would not have found them. It would obviously be useful, particularly for more serious offences, to be able automatically to search other facial image databases besides the custody one, in order to catch the rapist, the serious sex offender and so on.
The hon. Member for Birmingham, Yardley asked a question about her son. There is a question of proportionality here. For example, regarding this database, in these regulations one could—this is not for the Committee today, but I am just saying it—specify a threshold, and say that this would only be used for crimes over a certain level of seriousness. Obviously, rape and murder would meet that. GBH, drug supply, firearms, knives and so on, might also be specified, but a parking ticket would probably not be. In these regulations—this is one of the reasons why the wording is flexible—one could specify that threshold, and we would obviously then debate where that balance should lie. One does have to be cognisant of proportionality and privacy considerations, as indeed data protection law in any case requires us to do.
I hope I have given the Committee a bit of a flavour of how these regulation powers—
Chris Philp
It is not often that someone says that after I have been speaking. I hope I have given a bit of a flavour of how this could help catch serious criminals who might otherwise not be caught. We would debate the specifics when the time came. There would, of course, be a code of practice and everything else to set out those guard rails. I have already indicated in response to, I think, the hon. Member for Bootle, that there is a case for a wider policy statement setting out the strategy in this area, which we can discuss and debate.
I appreciate that we have strayed a little beyond the strict confines of this clause, Ms Bardell, but the Opposition raised some reasonable questions that I really wanted to try hard to answer. I will finish by saying that I spoke to my local police commanders, Superintendent Mitch Carr and Chief Superintendent Andy Brittain, encouraging the deployment of live facial recognition in Croydon. I know 17 people got arrested. We have heard how it was done in Essex: in Southend and in Chelmsford. I encourage members of this Committee to talk to their local police and say, “Try it out in your area,” and see who gets caught. At the moment, South Wales police and the Met have the necessary vans, but they will lend them. I think South Wales police lent the vans to Essex. If anyone wants to suggest it, they could ask their chief constable to borrow the van from South Wales police or the Met, try out in their constituency, and see who gets caught.
Amendment 33 agreed to.
Amendments made: 34, in clause 21, page 18, line 19, leave out “police force listed in subsection (4)” and insert “body”.
This amendment and amendment 35 specify in more detail the relevant chief officers of bodies to which the provisions will apply.
Amendment 35, in clause 21, page 18, line 20, at end insert—
“(aa) in relation to a police force listed in subsection (4)(b) to (d), the chief constable of that police force;
(ab) in relation to a service police force listed in subsection (4)(p) to (r), the Provost Marshal of that service police force;
(ac) in relation to the tri-service serious crime unit, the Provost Marshal for serious crime;
(ad) in relation to the Service Police Complaints Commissioner, the Service Police Complaints Commissioner;”—(Chris Philp.)
See the statement for amendment 34.
Clause 21, as amended, ordered to stand part of the Bill.
Clause 22
Powers to compel attendance at sentencing hearing
Question proposed, That the clause stand part of the Bill.
The Parliamentary Under-Secretary of State for Justice (Laura Farris)
It is a pleasure to serve under your chairwomanship, Ms Bardell. I am pleased to be able to speak to the provision contained in clause 22, which has had widespread support from Members across the House. In the past year or two, several high-profile murderers—Thomas Cashman, Jordan McSweeney, and most recently Lucy Letby—have refused to attend their sentencing hearings, causing the victims’ families significant further distress. This can be seen as the final insult, and it is also the coward’s approach, affronting the victims one last time by robbing their families of a chance to look them in the eye as the judge determines their fate. The worst offenders should be required to face the consequence of their actions, and hear society’s condemnation expressed through the sentencing remarks of the judge. Indeed, it is with those words ringing in their ears that they should hear the prison door clang shut.
Clause 22 inserts new sections 41A and 41B into a new chapter 2A within part 3 of the sentencing code. New section 41A creates an express statutory power for a Crown court judge to directly order the most serious offenders to attend their sentencing hearing. It applies to adults and children who are convicted of a sentence for which the maximum potential penalty is life. Any offender falling in that category who refuses to attend without a reasonable excuse commits a contempt of court. In the case of an adult offender they could face a maximum penalty of an additional two years in prison; in the case of a child offender who refuses to attend, the maximum penalty is a £2,500 fine.
New section 41B is intended to enshrine current common law practice in statute, making it absolutely clear that the Crown court has a power in law to direct a prison to produce any adult offender, not just those looking at a potential life sentence, to court for their sentencing hearing. It makes clear that prison officers and prisoner escort officers may use reasonable force to produce an adult offender to court for their sentencing hearing where it is necessary and proportionate. The final decision on reasonable force remains with the prison governor and the escorting staff working under his or her authority. Children will not be subject to reasonable force for that purpose, in line with existing policy. It will remain a matter for judges to decide whether to order an individual to attend court or to require a prison to produce them.
Alberto Costa (South Leicestershire) (Con)
I thank my hon. Friend and the Government for bringing forward this clause, which I wholeheartedly support. It is a way of ensuring that there is an element of responsibility that the public can see in what is, after all, an open court forum.
On the use of reasonable force—if the Minister does not have an answer today, perhaps she can write to me—is there a way of ensuring that there is a mitigation against the possibility of the offenders raising civil proceedings against the state for alleged excessive force? Has any thought been given to that? If not, perhaps the Department could write to the Committee to explain how that would be dealt with. We would not want a situation where the public then say, “How is this individual able to make a claim against the state on the grounds that he or she had to attend court?”
Laura Farris
I thank my hon. Friend for his sensible question; I will write to him. One of the points I have clarified is that prison officers understand the use of reasonable force, because they have to use it at other times, and it is well understood by the police. “Reasonable force” has a meaning in context—it is not just a judgment call to be made on the day. However, that is a good point, and it deserves a response.
Returning to my remarks, in exercising their discretion a judge may decide not to order an individual to attend if they may cause significant disruption in court or further distress to victims, or if there is a significant mental health complaint that may prevent their attendance. Courts will also be required to consult with young offending teams before any decision is made on a child offender. I recognise that the provisions may not guarantee that every offender will end up attending their sentencing hearing.
Peter Dowd
I am unsure whether the Minister has considered the issue in relation to the victims charter. The victim’s family could be in court. Is there the potential, as part of the victims charter, to consult the family—
Peter Dowd
Yes—to consult the victim or the victim’s family on that issue? The victim or their family could be sat there, and the person could be brought in and be challenging, difficult and so on. As part of victims’ rights, would the Minister consider giving consideration to the consultation of the victim or their family in those situations?
Laura Farris
The hon. Gentleman makes a good point. It is generally accepted—this is consistent with the thrust of what we have heard—that it is an affront to the victim’s family when the defendant, who is a ward of the court for the purposes of the criminal proceedings, elects not to attend their sentencing. It has always been presented in one way, but the hon. Gentleman is correct: there is an argument to be made, particularly if the defendant is difficult, disruptive or perhaps politically motivated—[Interruption.] I have been reminded that it is for judges to decide, but the point that the hon. Gentleman makes is that perhaps the victim’s family should be part of that decision-making exercise.
Peter Dowd
Yes, I think it is important that families be consulted throughout the process and beyond it. The judge has discretion, but the victim should have the right to be consulted. What the judge does is a completely different matter, but the families or the victim should be consulted if appropriate.
Laura Farris
Let me revert to the hon. Gentleman in writing on that point. I conceded that there is no guarantee that every single offender will attend their sentencing, but the Bill provides a power for a Crown court judge to order that to happen in certain circumstances. It will also ensure that serious offenders who fail to attend receive punishment. That sends the clear message that offenders are expected to attend their sentencing hearing, and that the wider public have the right to see that justice is done. I commend the clause to the Committee.
Alex Cunningham (Stockton North) (Lab)
It is a pleasure to serve under your chairmanship, Ms Bardell. I assure the Minister that in the interests of a continuing atmosphere of co-operative working, I, like my hon. Friend the shadow Minister for policing, will be constructive in my comments, to enable the Government to justify their legislation by explaining how it will work. Where we have reservations or see the need to offer new ideas, we will do so to help them get it right. I am sure that they are as keen as we are to improve this Bill and ensure it is fit for purpose. Judging by the huge number of Government amendments, they have already recognised at least some of its weaknesses.
As outlined, the first part of clause 22 enables the Crown court to directly order an individual to attend their sentencing hearing by creating an express statutory power to make an attendance order. According to the Library research document, and as the Minister mentioned, any adult who refuses to attend without reasonable excuse will commit a contempt and therefore faces a maximum penalty of an additional custodial sentence of up to 24 months. Any child who refuses to attend faces a penalty of £2,500, but I wonder how a child will ever be in a position to pay such a penalty, particularly if they are given a custodial sentence.
The second part of the clause creates an express power for judges to require prisons to produce adults to court for sentencing hearings. It also makes it clear that prison officers and prisoner escort officers may use reasonable force to produce an adult to court for their sentencing hearing where that is necessary and proportionate. However, the final decision on whether to use reasonable force remains with the prison and escorting staff. Children will not be subject to use of reasonable force for this purpose, in line with domestic policy, guided by the Taylor review of 2020 and the UK’s commitments under the UN convention on the rights of the child. We can only welcome that.
There are many questions that the Minister needs to answer about how easy it will be to implement this policy. We will not oppose the clause, but would like her to spell out how practical it is, and what alternative provision she has in mind if it is impossible to compel a defendant to attend a sentencing hearing.
There is nothing in the Government’s explanatory notes about the resources needed to deliver the policy, and I hope that the Minister will address that. If it is not resourced, it simply will not happen, so we seek clarity there. Likewise, there is little if anything about how the staff who will be at the sharp end of delivering a defendant to court will be protected.
We would also like to understand what the new law would add to judges’ existing powers to compel people to attend their sentencing hearing. Above all, we would like to explore with the Minister whether this new law could actually work, and whether it is in the best interests of the victims. We do not want them to be further traumatised by the sentencing hearing.
We know why this proposal is being brought forward. The Minister talked about a number of high-profile cases in which the defendants refused to attend their sentencing hearing. There have been many: Zahid Younis, in September 2020, sentenced for the murder of Henriett Szucs and Mihrican Mustafa; Koci Selamaj, in April 2022, for the murder of Sabina Nessa; Jordan McSweeney, in December 2022, for the murder of Zara Aleena;Thomas Cashman, in July 2023, for the murder of Olivia Pratt-Korbel; and of course Lucy Letby, in August 2023, for the murder and attempted murder of 13 infants. In those cases, the families never had the chance to look the killer in the eye, or to spell out the effects of their loss.
Perhaps that is why the witnesses we questioned at the start of this Bill’s progress in Committee were supportive of the new law, though from the quotations I am about to use from their evidence, it is clear that many questions are still to be answered. Baljit Ubhey, director of strategy and policy at the Crown Prosecution Service—apologies if I mispronounce these names—described it as
“an important measure, given some of the high-profile cases we have seen and the impact they have had on victims.”
She went on:
“We will have to look very carefully at how we apply for that power—which allows the court or the prosecutor to apply for compulsory attendance—and seek victims’ views”.
Others have made that point this afternoon. She went on:
“The consideration to think about is whether that would cause extra violence. There is something in the Bill about the use of force, which prison custody officers would need to think about”.
I will address that in detail later. Baljit went on:
“I can see why it is in the Bill, but we will have to wait and see how it operates in practice.”––[Official Report, Criminal Justice Public Bill Committee, 12 December 2023; c. 20, Q46.]
Baroness Newlove, the Victims’ Commissioner for England and Wales, expressed concerns about victims:
“In terms of victims and their families, both personally and professionally assumptions are made about them when people do not even understand the victim’s journey. I get annoyed at that. I think this is a very important point, because victims sit there for weeks…on end, listening to evidence and having no voice at all. Part of the victims code is to have the victim impact statement, and there is the ability to read it out if there is conviction. I think it should be respected that the family have that kind of relationship, because they have listened to that evidence about their loved ones.”
She went on:
“I also think that you do not know how to judge an offender. They could say that they are coming in the dock and then not play ball. I have seen for myself—evidence shows this—that even through the court trial they will turn their backs, goad you and do everything. If it is still to the judge’s discretion and direction, I would like—I have said this previously—for the judge to own the courtroom if the offender does play in the dock and does not respect the perimeters. Victims’ families are told to respect the perimeters of the courtroom, and the judiciary needs to have that respect. If it happens that they do not want to turn up in dock, a deadline should be put on what is going on. If not, put something in their cell if they are in the court building.”––[Official Report, Criminal Justice Public Bill Committee, 12 December 2023; c. 25, Q59.]
I ask the Minister to address Baroness Newlove’s concerns, which many of us in Committee share, and specifically the concern about how a defendant kicking off will be dealt with under this proposed new law.
Dame Vera Baird KC, the former Victims’ Commissioner, questioned the need for the clause at all:
“As I am sure the Ministers know very well, this adds absolutely nothing to the current law. A judge can order somebody to come into court. If they do not, it is a contempt of court.”
When I pointed out to her during the evidence session that the
“clause actually talks about using ‘reasonable force’”,
she responded:
“But you can already use reasonable force. As long as it is proportionate and necessary, the Prison Service is entitled to use reasonable force to fulfil the orders of the judge. If the judge says, ‘You must come’ and you do not come, it is, No. 1, a contempt of court”—
just as in the proposals before us—
“And guess what the maximum sentence is for a contempt of court? It is two years, exactly as it is in the Bill. If a person does not want to come and the officers regard it as necessary and proportionate to use force to bring them, they are entitled to do exactly that to fulfil the judge’s requirements. There is really no change here.
I well understand the sense from a victim that they want this moment—‘Right, he’s going to face what he’s done now and I’m going to get some benefit from that.’ But the reality is that you cannot capture somebody’s mind, can you? There are always risks that people who are dragged into court might be a nuisance.”
Later on, she said:
“I think it was the former Lord Chief Justice John Thomas who suggested that a better way was to make sure that if the person does not come out of the cell, he is in a cell to which the sentencing can be broadcast. He cannot get away and the victims know that he has, as it were, faced his moment.”––[Official Report, Criminal Justice Public Bill Committee, 12 December 2023; c. 59-60, Q156-157.]
I hope that the Minister will take the time to outline just what her proposal adds to the law, and what alternatives there are to forcing an angry, abusive and possibly violent defendant to sit in the dock.
I will now move on to proposed new section 41B(4) of the sentencing code, which refers to using “reasonable force” to ensure that a defendant attends court. We heard evidence from Mark Fairhurst, chairman of the Prison Officers Association, on the issue. Members will recollect that he told the Committee that he saw no problem for his members in delivering their role in the policy. He told us:
“It is quite easy for prison officers to force someone to attend court; we restrain them on to a cellular vehicle and then they are taken to court. The problem arises at the other end because the courts are run by private security firms now. Have they got the staffing levels needed to take someone who has been recalcitrant off a bus and into a cell in the court? Have they got the resources to drag them into the dock if they are still displaying violent tendencies? Will that disrupt proceedings in the court? Will they be abusive to victims? Will it be distressing for the victims of crime to witness that in the dock? There are a lot of issues we need to look at.”––[Official Report, Criminal Justice Public Bill Committee, 14 December 2023; c. 96, Q39.]
I have made some inquiries about how reasonable force is currently used by prison officers to deliver a defendant into the hands of the security company or court that receives them. It came as a surprise to learn that it involves three prison officers in full riot gear—including overalls, gloves, steel-toed boots, helmets and shields—approaching the prisoner, securing them and getting them into the transport vehicle. Their job is then complete, and responsibility passes to the private security firm staff to deliver the defendant to the court. Unlike the prison officers, neither private security staff nor receiving court staff are equipped with either the personal protective equipment or the training to transfer the defendant first into the court cell and then to the dock.
That level of restraint of a defendant, and risk to employees of the court or agency staff, may be required only occasionally, but what training and equipment will agency and court staff be provided with to ensure that they are as protected as our prison officers? Training is a real issue, and I would be obliged if the Minister would outline what training staff will receive to ensure their and the defendant’s safety. What financial provision has been or will be made to provide such support for staff? The Minister will be the first to recognise our duty of care to these people. If she wants the measure to succeed, she must outline to the Committee exactly how it can be implemented safely. What risk assessment of the whole policy has been conducted? Perhaps more relevantly, what risk assessments will be conducted each time the measure is applied?
I mentioned the case of Lucy Letby. She refused to attend her sentencing hearing and refused to attend via video link. She remained in the cells below Manchester Crown court as bereaved family members delivered victim personal statements, and the judge passed a whole life order in her absence. Like Letby, Thomas Cashman travelled to Manchester Crown court but declined to leave his cell for his sentencing hearing, claiming that he had been provoked by court officials.
Assuming that the Minister’s intention is that defendants such as Letby and Cashman would be forced into court, can she advise how that will be done, and whether she believes such an action is in the best interests of the victims? Perhaps she believes that sanctions can be placed on such people. However, in Letby’s case, the threat of a lengthier sentence would be entirely pointless, because the sentence of life without parole is the most severe penalty the law of England and Wales allows. What sanction can be placed on an offender who knows that the judge will pass a whole life order? Will they be refused visiting rights, or other rights enjoyed by prisoners? What are the Minister’s thoughts on Baroness Newlove’s view that, if defendants object to leaving their cell, a live link should be set up inside? That is also the view of the former Lord Chief Justice, as we heard. It is hard to see how that will be achieved when our justice system’s funding is already stretched to the limit. Perhaps the Minister can also address that.
The charity Justice is also cautious about the introduction of new powers to compel defendants’ attendance at sentencing heroes—hearings. Not heroes; there are no heroes in this business. The charity said that the new powers are unlikely to address the issue in a positive manner:
“A statutory power to require individuals facing a life sentence to attend sentencing hearings is at best unnecessary and at worst, when backed by force, dangerous.”
The briefing from Justice aligns with others in saying that this policy puts staff at risk. It goes on to say that it is questionable whether the discretion to use force in proposed new clause 41B(4) is real, or merely apparent in view of subsection (6). That subsection provides that a
“person is to be treated as having complied with an order under subsection (2) if they have done all that they reasonably can to secure that the offender is produced before the court for the sentencing hearing.”
Given that subsection (4) provides the authority to use reasonable force, failure to use such force when it is available arguably places those responsible for securing production at risk of being held in contempt themselves for failing to comply with a court order. Prison governors and custody officers are accordingly placed in an invidious position.
Laura Farris
I thank the hon. Gentleman for his remarks. I would like to clarify immediately that attendance by video link is attendance. If the judge deems that the person would be disruptive in the courtroom, they will still be deemed to have attended if there is a live video link to the cell.
I think the hon. Gentleman asked about methods of restraint, and I will deal with that through two points. It is, of course, within the power of the Prison Service to have the person restrained in the cell, so that they are compelled to listen to the judge’s sentencing remarks. Prison officers are familiar with exercising restraint, and with moving disruptive or reluctant prisoners around the estate, and out of the estate into court.
The hon. Gentleman asked whether court security staff would have sufficient training and would be able to carry out their role. That is a fair point, but they are protected at work under the Health and Safety at Work etc. Act 1974 and the Manual Handling Operations Regulations 1992, which would cover something like this. It would be for the employer to ensure that staff are reasonably safe in carrying out roles. I would anticipate that a judge could take this issue into consideration in making their order in the first place. I remind him that there is more than one way that a person can be compelled to attend their sentencing hearing.
Alex Cunningham
I gave the example of prison officers in full riot gear, and with shields, restraining a prisoner. Is the Minister really saying that the employer will be responsible for providing similar equipment to court staff, to ensure that they carry out this policy?
Laura Farris
Just to be clear, that is not the statutory duty that would apply. If somebody was deemed to be that level of violent, threatening or difficult, one might assume that the judge consider that very carefully and exercise their discretion. I have said that there is more than one way that attendance is deemed to have taken place, and it does not involve being dragged kicking and screaming into the courtroom. I hope that answers some of the questions. The duty on the employer is to create a reasonably safe place of work, obviously within the parameters that some court staff are engaged in a security capacity and therefore a more robust form of engagement might be reasonably anticipated. I will leave that there.
The hon. Gentleman made a good point about the sanction. If somebody faces a whole-life tariff, why does adding a couple of years matter? It is true that with a whole-life tariff, a person probably has the greatest difficulty with an increased sentence, but I remind the hon. Gentleman very gently of Jordan McSweeney, who used that argument when he said he would not attend. This was reported. He said he did not want to go to court and did not care because he was going to get a long sentence anyway. He got 37 years. But shortly afterwards he was in the Court of Appeal, appealing against his sentence. He was successful and got it reduced by four years. So he did care about the length of his sentence. I think that rather negates that point, if I may say so.
A point was made by the former Victims’ Commissioner, Vera Baird, that I want to take forward. I tried to make this point in my speech, but perhaps I was not clear enough. We accept that the judge now has discretion to make such an order, but we have found that it is not evenly or always applied. It depends who the judge is and where they are sitting. By putting the measure in the Bill, we are creating a power in statute for a judge to make an order to compel a person to attend their sentencing for any serious offence where the maximum is a life sentence, as I have said. That is a change. In proposed new section 41B, the judges can direct a prison to produce any adult offender irrespective of the offence.
Alex Cunningham
I am grateful to the Minister for giving way, but I do not accept her explanation of how this adds to the law. Perhaps she would like to take it away and come back to the Committee to spell out exactly how it does. Her explanation, I am afraid, did not cut it.
Laura Farris
Let me give the hon. Gentleman a practical illustration. Lucy Letby was not compelled to attend her sentencing hearing. She was a young woman in her early 30s and not obviously a massive danger to the victims’ families or somebody who was going to be disruptive, yet the judge did not compel her attendance. We think that the provisions in the Bill alter that and make it far more likely that somebody would be required to attend their hearing.
Jess Phillips
With regard to that particular case, the Minister is absolutely right. It would seem that somebody could use reasonable force to get Lucy Letby there. The fact that she is a woman and the vast majority of the security staff in the court would be men would, I imagine, make them pause with concern as employers. My hon. Friend the Member for Swansea East just pointed out to me that these court security officers earn around £18,000 a year. If this piece of law is saying that it is still up to the judge, where is the compulsion? Currently, it is up to the judge. In Lucy Letby’s case, it was up to the judge. The measure still says that it is up to the judge. So why does it make a difference?
Laura Farris
The difference it makes is that now we will not necessarily even see a judge consider exercising that discretion. By putting it into primary legislation—I appreciate the word “may” is used, and I am not going to pretend otherwise—you are essentially saying to the judge, “The time has come for you to exercise your discretion. Considering this defendant, in these circumstances in this case, are you going to compel attendance in the circumstances that are set out in the Bill?” There are other examples of where we put things on the statute book that existed somewhat loosely as a practice or in common law and were not been evenly applied, and it has ended up with a much more linear application of something that we think is socially desirable. That is the effect.
I want to make one other point. The hon. Member for Stockton North made some good points about people in riot gear, but I think one of the things he would perhaps gently concede, looking back particularly over the last two to three years of some of the most high-profile cases, is that it has developed into something of a trend. In some high-profile cases, people are aware that they have got away with not going. People say to their lawyer, “Do I have to go?” and the answer is no. The clause changes that. Actually, if you get back into a pattern where the defendant is in the dock for sentencing, you will see much less resistance. I am afraid to say that there has been a bit of contagion around this particularly pernicious conduct, and the clause is aiming to right that wrong. By embedding a practice where effectively they do have to go, or at least they will be video linked up, there will be no way in which the court will not be able to see their face as the remarks are read out to them. In some way or another, I hope that alters this ugly pattern of behaviour.
Carolyn Harris
I totally agree that somebody should be held accountable and should appear in court. We have already established that prison officers will load the prisoner on to a van. Those prison officers, for no other reason, are on approximately £30,000 a year. They will have had appropriate Home Office training to do that job. However, at the other end, you are asking security officers, who may only have a Security Industry Authority licence and are on approximately £19,000 to £20,000 a year, to do the job that you have asked the prison officers to do. Why would they want to put their life on the line in dealing with these potentially dangerous people for that kind of money, without the appropriate training to allow them to do the job?
Laura Farris
I think that warrants a further answer to Committee members. I think that the measure is feasible and could be considered by the judge. On most occasions, you will not be dealing with a necessity for three people in riot gear, but I accept that that might occur. You are entitled to an answer as to what it would look like at the court stage of the proceedings if the judge had decided that somebody who was deemed to be that dangerous on the way in was going to be transported to court. I accept that, so we will get back to you.
The Chair
Order. Before the hon. Member for Stockton North intervenes, I have been very flexible, but I remind Members to adhere to the regular rules of the House and speak through the Chair rather than referring to each other as “you”. I know that it is difficult because you are all sitting opposite each other, but it would be helpful, particularly for Hansard colleagues.
Alex Cunningham
The Minister’s point about the trend in high-profile criminals opting not to face the music in court was well made. That is why we certainly will not oppose, and in fact support, this provision. However, it is fair for us to ask and understand exactly how these things will happen. The Minister suggests that the provision is different from the existing powers. Does that mean that perhaps through the judiciary, the judges will be given some form of direction in relation to this piece of legislation that will say to them that if a defendant refuses to appear, they must consider whether they are going to compel them to do so? Or will we be in the same place as we are now, where it is just up to the judge whether it suits him or not?
Laura Farris
The statutory intention is that judges will exercise this power. It is plainly recognised and has been well publicised that there is public opprobrium towards the idea that the defendant, particularly in very serious cases, somehow has any kind of control at the end of the process. To be completely honest, the video link would not have been a viable option for a judge until very recently—probably in the life of this Parliament since the general election—but now that that exists, we would reasonably expect judges to make that order as a minimum quite frequently.
Question put and agreed to.
Clause 22 accordingly ordered to stand part of the Bill.
Clause 23
Child sex offences: grooming aggravating factor
Amendment made: 36, in clause 23, page 22, line 11, at end insert—
“(2) In section 238 of the Armed Forces Act 2006 (deciding the seriousness of an offence), after subsection (7) insert—
‘(8) In section 70A of the Sentencing Code (sexual grooming of child as aggravating factor)—
(a) the references in that section to a court are to be read as including a court dealing with an offender for a service offence, and
(b) the reference in subsection (1) to a specified child sex offence is to be read as a reference to an offence under section 42 as respects which the corresponding offence under the law of England and Wales is a specified child sex offence.’”—(Laura Farris.)
This amendment modifies section 70A of the Sentencing Code (inserted by clause 23), as it applies under the Armed Forces Act 2006.
Question proposed, That the clause, as amended, stand part of the Bill.
The Chair
With this it will be convenient to discuss new clause 25—Grooming as an aggravating factor—
“After section 72 of the Sentencing Code (supply of psychoactive substance in certain circumstances) insert—
‘(72A) Grooming
(1) This section applies where a court is considering the seriousness of an offence which is aggravated by grooming.
(2) The court—
(a) must treat the fact that the offence is aggravated by grooming as an aggravating factor, and
(b) must state in open court that the offence is so aggravated.’”
This new clause ensures grooming is to be seen as an aggravating factor in certain cases where the victim is an adult.
Laura Farris
I am pleased to be able to speak to clause 23. We are all familiar with the range of high-profile cases involving so-called grooming—
The Chair
Order. I do not want to single anybody out, but I just want to remind Members of the importance of our proceedings and the seriousness of what is being discussed. There has been some activity going on on the Back Benches in some areas that is interrupting me and my flow, and disrupting my attention. I ask Members to be as still as they can during proceedings and to pay attention—not just for the business of this Committee but for those who are watching, for whom this is a very serious matter.
Laura Farris
I thank the Chair, and remember her direction to direct my own remarks towards her, which I will try to do on this occasion.
I am pleased to speak to the provisions contained in clause 23. In recent years, there have been a number of high-profile cases involving so-called grooming gangs—groups of offenders involved in child sexual exploitation—in Rochdale, Rotherham, Telford, Newcastle, Oxford and Reading, and those are just the ones we know about. The discovery of the network of those grooming gangs was a significant factor in this Government’s setting up the independent inquiry into child sexual abuse, chaired by Professor Jay, who did the initial report into Rotherham. The Government believe that grooming gang members should face sentences that reflect the seriousness of their offending, which is why, last April, the Prime Minister made a commitment to introduce a new statutory aggravating factor to target grooming behaviour.
This new measure, introduced by clause 23, creates a statutory obligation to consider grooming an aggravating factor when sentencing specified child sex offences, including rape and sexual assault. In plain English, that means they will get a longer sentence. It will capture offenders whose offending is facilitated by, or involves, the grooming of a person under 18. The grooming itself need not be sexual.
It is already the case that both grooming behaviour against the victim and acting together with others to commit an offence are high-culpability sentencing guidelines for a number of sexual offences. However, this measure goes further by creating an obligation to aggravate the sentence in instances where the offence has been facilitated by grooming undertaken by a defendant who is a participant in a grooming gang, even if they did not personally groom the victim. That means the aggravating factor will, for the first time, capture models of exploitation not currently directly addressed elsewhere: for example, where an offender assaults a victim who has been previously groomed by another member of the same grooming gang.
The measure requires the courts to consider grooming an aggravating factor when sentencing in relation to any of the listed child sex offences. It will remain within the court’s discretion to consider grooming an aggravating factor irrespective of the offence being sentenced where it is deemed to be relevant to the offending.
Jess Phillips
It is a pleasure to serve under your chairship once again, Ms Bardell. I am pleased that the Minister leaned on it being a year on from the child abuse inquiry—not one of whose recommendations, I think it is fair to say, has yet come to fruition. Well, hope springs eternal for this year! There are plenty of recommendations for the Government to crack on with in this regard, and I look forward to seeing some sort of timeline from the Home Office of any progress in that particular area.
New clause 25, which I tabled, seeks to try to include adult grooming victims on the same footing as children. The grooming of adults is widely and wildly misunderstood, despite there being considerable overlaps of perpetrators and, in fact, perpetrator behaviours and tactics of those seen in cases of child sexual grooming.
At the moment, sexual grooming is a crime only when the victim is a child, but grooming can and does happen to adults as well. It is a technique used by perpetrators to ensure compliance on the part of the victim and to avoid detection, as the victim’s actions are more likely to appear consensual when they are being groomed. Grooming is a deliberate process of limiting the freedoms of a person by gaining control over them and creating a dependency.
New clause 25 would make an aggravating factor of grooming in certain adult cases, including around domestic and sexual abuse. That would both challenge the misconception that adults cannot be groomed and send a message to perpetrators of domestic and sexual abuse that the grooming of adults is being taken seriously and will not be tolerated.
The 2018 Spicer report acknowledged for the first time that not only children but women over 18 are being groomed and sexually exploited. Since 2019, STAGE, the partnership against adult sexual exploitation—I make a declaration that I am the chair—has supported over 700 adult women who have experienced grooming just in the north-east and Yorkshire. The issue is widespread and prevalent in every part of the UK, but is under-represented in UK legislation.
STAGE’s work has confirmed that grooming is a common technique used to manipulate people for sexual exploitation. It has a negative impact on people’s ability to consent and to make capacitated decisions. However, for adults who have experienced grooming, this is often reduced to making “poor life choices”, because of the belief that grooming can only happen to children.
Everything that we heard yesterday about what was said to the girls in Rochdale is being said today to somebody over the age of 18, or even to somebody of the age of 18. Adult victims of grooming are repeatedly asked victim-blaming questions such as “Why did you get back in the car?”, “Why did you stay with them?” and “Why didn’t you leave?” by professionals and services that are meant to be protecting them. This ignores the immense impact of grooming. Because of this, many victims and survivors feel unable to leave their perpetrator, or may not even recognise the abuse that they are experiencing. Until the grooming of adults is recognised in legislation, it will continue to be misunderstood by law enforcement and the criminal justice system, and victims will not be adequately protected. That is why I have tabled new clause 25.
Yesterday, in the light of the Rochdale report, I thought of a woman I had supported. I wanted to make sure, because of the media, that she was okay, because when these sorts of things happen it is pretty traumatic for women who have been exploited in childhood and adulthood. She is 27 years old, so the legislation we are debating would not include her. I needed to search through my email to find her phone number. I found among my emails a letter that I had forgotten, which she had written to the now ex-Home Secretary, the right hon. and learned Member for Fareham (Suella Braverman). I will read it now:
“Following on from your statement on the 2nd of April 2023, I am writing this letter as a victim who has been let down by countless professionals and services, but worryingly the Home Office itself.
I will begin by providing a summary of my experiences. I was groomed at the age of 13 and this then led on to me experiencing sexual and criminal exploitation for over a decade, whereby I was trafficked all-round the country and sold from one gang to another. There were countless times where I was gang-raped, injected with heroin and left black and blue. I was exposed to serious and organised crime and my perpetrators would laugh at how they continued getting away with what they were doing to me and so many other girls. I did not see any of my family for years and my childhood and early adulthood was stolen away from me.
Whilst I acknowledge your statement that you vow to stamp out child grooming gangs, that is a very easy statement to make. Victims of this crime all around the country have heard it all before. Although you’ve announced new measures to tackle the issue, it makes me question how is this achievable when there are so many flaws in the systems already in place, such as The National Referral Mechanism (NRM).
The police did not refer me into the NRM, despite them full well knowing I had been trafficked. I have spoken with several police officers over the years who do not know what the NRM is, let alone know that they are first responders. It took 562 days for me to get my conclusive grounds decision and for most of that time I continued to be exploited. Nearly a year ago, I was sitting in a hotel paid for by the police, after I’d been physically and sexually assaulted. My accommodation was not safe, and I had requested a safe house. After a lot of back and forth, I was eventually told by…the Home Office’s contractor for NRM services, that a safe house was not an option as I was a British national and that there were no other appropriate housing options. I had to return to unsafe accommodation to then be raped and physically assaulted again.
As you have overseen a system that has routinely let vulnerable people down, I would like to know what action has or is going to be taken to improve this?
I spent days and days in police interviews going into as much detail as I possibly could, with the hope that I would get justice and the men who had tortured me would end up behind bars. The reality is so many victims like me must drop out of investigations because we are not safeguarded, resulting in thousands of perpetrators on the streets continuing to exploit and intimidate vulnerable children and adults. If possible, imagine you are at a police station as a victim of this crime and a stream of text messages come through your phone from your perpetrators saying that they know where you are and that if you do not leave, they will kill you and your family. That is just one example of a threat I have received.
This is not going to stop until appropriate measures are put in place to protect us. In the meantime, the trauma victims experience at the hands of their exploiters is exacerbated when we are routinely let down by the so-called systems in place to protect us. I haven’t even covered in this letter, the battles we face accessing support for our mental health and the legal challenges.
I do hope that you read this letter and that it provides you with an opportunity to reflect on an example of someone who has experienced failures from the Home Office.”
I just ask that we do not fail her again and that we recognise the abuses that she suffered. For women who have been sexually exploited in adulthood—by the way, the sexual exploitation of adults is not defined in law; it has no legislation around it, but believe you me, there are some new clauses coming down the line later—I ask that we recognise that the people who groom children go on to groom the same women as they turn into adults, when they do not have the same protections. I completely agree with everything that the Minister has said; I just want it for her as well. That is all that new clause 25 seeks.
Alex Cunningham
As the Minister outlined, clause 23 creates a new aggravating factor to apply when a court is sentencing an adult for a specified child sex offence and that offence was facilitated by or involved the grooming of a children—that is, a person under 18. The court is required to treat the grooming as an aggravating factor, but that does not apply where the person who committed the offence was a child under 18 at the time of the offence.
Clause 23 requires the judge to state in open court that the offence had been aggravated by grooming. It could be undertaken by the offender, or a third party, and committed against the victim of the underlying offence, or a third party. Where the grooming is undertaken or facilitated by that third party, the offence will be considered to be aggravated if the offender knew or could be reasonably expected to have known about the grooming when the offence took place. The person groomed need not be the victim of the offence.
I understand from the Government’s explanatory notes that this is to allow for a case, for example, where child A is groomed to recruit child B and an offence is then committed against child B. Clause 23 also does not require that the grooming be undertaken as part of a gang.
We must not lose the context in which this clause operates, which is horrific cases of offenders preying on the most vulnerable. In recent years, there have been a number of high-profile prosecutions of grooming gangs, including in Rotherham, Telford, Newcastle, Rochdale and Oxford. In 2014, the independent inquiry into child sexual exploitation in Rotherham between 1997 and 2013 identified that at least 1,400 children and young people in Rotherham had been sexually abused or exploited. Who knows how many children there are across the country if one area had as many as that?
Just yesterday, the report on child sexual exploitation in Rochdale was published, again illustrating and demonstrating the extent of the crime. I am sure everyone on the Committee will share my sadness in hearing my hon. Friend the Member for Rotherham (Sarah Champion) speaking in the media over the last 24 hours about how things have not got any better. My hon. Friend the Member for Birmingham, Yardley also talked about how none of the recommendations has yet been implemented.
Laura Farris
Let me start with the shadow Minister’s comments. He asked about the definition of grooming, the nature of the prosecution and the scope of a grooming gang. There is no definition of grooming because of the broad range of behaviour that it can encompass. Identifying a grooming gang is a task for the police working in conjunction with the CPS. One force told me recently about a grooming gang prosecution in which they had to identify the number of defendants. They were talking about tens of defendants and tens of victims, and some of the defendants in the grooming gang had never met each other and had no idea who the other people were. It was quite a difficult exercise for the CPS to judge how best to get a prosecution and a conviction. In that case, they succeeded, but that is why the definition is not set out in law. It is dealt with on a case-by-case basis.
The shadow Minister challenges me to explain what this provision adds, when grooming is already an aggravating factor and is often considered in child sex offences and taken seriously. I hope I have explained, but I will clarify again if he did not understand. We are simply adding that a member of a grooming gang, as defined within the parameters of that case, can be subject to the aggravation provision at sentencing, irrespective of the fact that they did not directly groom the victim of that child sexual offence. They could be a tangential member of the gang—perhaps one of the people who has never met one of the other defendants, such as in the case I just outlined—yet they could still be subject to the aggravation.
The shadow Minister asked about cost. That is a fair question, and I will have to come back to him in writing on that. We will add it to the list.
Jess Phillips
I feel I know what grooming is, but, on the Minister’s earlier point about the Court of Appeal reducing the sentence, without a proper definition of grooming or at least a working definition in secondary legislation or regulation, are we not at risk of appeal? I do not know whether she or any of us has sat through a lot of court cases like this, but the idea that there is heavy knowledge in police forces, the CPS and the judges of our country about exactly what grooming or coercive control are, I have to say, is for the birds. I am a bit worried about the risk of appeal on a loosey-goosey case that could be grooming. Why would someone not just take it to appeal immediately, if their sentence was aggravated?
Laura Farris
I will come back to that. For the purposes of this afternoon’s Public Bill Committee, the issue is not whether the courts have an adequate understanding of grooming.
I will give my experience. I was appointed as counsel to the independent inquiry into child sexual abuse. I worked on that inquiry from 2016 to 2017, and it is on my Register of Members’ Financial Interests. I was also instructed by a Telford victim in a public law challenge—not a criminal law challenge in the High Court—against the local authority in relation to its breaches of various duties to her. So I have direct familiarity with cases of this nature.
There are many, many issues with this kind of offence. I think that the courts understand child sexual exploitation and grooming gangs and that it is left deliberately loose in law so that a range of behaviours can be encompassed. The one that the public are most familiar with is sexual exploitation, but there are other forms of grooming that go much wider and where there is no sexual element. It is right that that flexibility exists so that somebody is not outside the possibility of being a victim of a grooming offence.
Peter Dowd
This is an incredibly complex, difficult, challenging and sensitive subject. A question arises, though, and I will put it to the Minister. There are many definitions of grooming. There are international definitions —legal definitions in other countries—of what grooming is. So while I accept the point the Minister makes about trying to keep it flexible, we have the capacity to easily —if not easily, then as clearly as we can—determine what exploitation or grooming actually is. The work has been done and we have to build upon it. Does the Minister not agree that it is not beyond the wit of this Parliament to try to determine or define what we consider grooming to be? I say that with all of the sensitivity that I can bring.
Laura Farris
I thank the hon. Gentleman for his intervention and I promise that I will give some thought to that, but I just wanted to come back to the new clause tabled by the hon. Member for Birmingham, Yardley. This is not about creating a new offence. The treatment that the victim the hon. Lady described was subjected to is already covered by criminal law. This amendment is simply about an aggravating element going into statute in relation to grooming.
As the hon. Lady is well aware, the difference is that we are confining our amendment to the grooming of children for sexual purposes. That is our amendment. We have focused our amendment on that because child sexual exploitation by grooming gangs has been so problematic and so serious.
I will go back to some of the examples that the hon. Lady gave, although it is very difficult to respond to an individual’s case in the context of a Public Bill Committee, because I do not know all the details. I think that the hon. Lady said that the person was 27 and had been groomed since the age of 13. The vast part of what she suffered in the early days would be captured by this provision, because she was a child. I appreciate what the hon. Lady said about the continuing grooming—I think she said that that person is still being groomed today.
Laura Farris
But, in a case of this nature, the judge would still have the discretion to consider that treatment as an aggravating circumstance, so there is nothing precluding a judge—they would have to get to the end of the trial, get the conviction and get the offence—from treating it as aggravating. I have not been given an example, in the context of this particular clause, of somebody going to court about a case of this nature, getting the conviction and then getting a sentence that was not sufficiently serious.
Laura Farris
Well, grooming cases are brought to court, and convictions come from those cases.
One thing that I would gently say, since the example of Rochdale has come up a lot, is that the report that was published yesterday relates to the period between 2004 and 2013. When we worked on IICSA, Rochdale and Rotherham directly informed why IICSA was set up and why Alexis Jay was appointed chair of that inquiry. IICSA was informed by all the cases we were looking at, whether it was Dolphin Square, residential schools, the Catholic Church or the Australian migrant scheme. Even though Andy Burnham commissioned that review, it related to a time period that goes quite a long way back, starting from 20 years ago, rather than what is happening in your—[Interruption.]
The Chair
Order. I remind Members how important their contributions are and to please intervene and put comments on the record, so that we can capture them.
Laura Farris
What came out of yesterday's report was shocking, but it was also known. As I said, it informed IICSA. We looked at Rotherham extensively throughout. I did not read the report and say, “I’ve never heard any of this before.” I knew about it, and I had spent time on stuff like this. I am simply saying about the case that the hon. Member for Birmingham, Yardley described—a horrific case—is that the clause would, first, cover a perpetrator being brought to justice who had abused her as a child. Secondly, if her case got to court and she got a conviction on the multiple offences that she seems to be describing, there is nothing to stop the judge from treating it as aggravating and enhancing the sentence.
Jess Phillips
If there is nothing to stop a judge in a case where an adult has been sexually exploited as an adult because of multiple perpetrators over many years—different faces changing, some just in adulthood, some from childhood, but basically a pattern is set when someone abuses a child and that carries on for a lot of their life—is the Minister saying that as we can already aggravate on the basis of grooming an adult, what do we need this piece of legislation for children? Also, to push back heavily, I cited in my speech the 700 cases of adult sexual exploitation found in Yorkshire and Newcastle alone, so if her idea is that adult sexual exploitation is not a big issue in our country, on the same scale if not greater than child exploitation, I suggest that she has not been out to the country.
Laura Farris
I will keep my remarks concise. Let us look at adult sexual exploitation—I accept, by the way, the breadth of the problem without reservation. First, the adult, simply by virtue of being an adult, has more ability to vocalise their experience than a child does. Secondly, there are more forms of exploitation—for example, forced labour or human trafficking, both of which overlapped with what the hon. Lady described. The case of children who are victims of grooming gangs is specific, and it is also a direct thing that we dealt with. The clause is directed just at children.
Peter Dowd
I hear the point that the Minister makes about the ability to vocalise. I gently challenge her on that one, however, because people who have been abused and exploited for many years, from childhood through, also find it incredibly difficult to vocalise. There is no question about that whatever. That is not to dismiss anything she says, but it is to recognise that vocalisation does not start at 18, 20 or 21; it might never, ever appear, given the nature of the exploitation and abuse that has happened to that particular person. I ask her just to think on that particular issue, not necessarily to respond now, but to put it into the mix.
Laura Farris
I have to take this back to what it is. It is not about creating an offence. It is not about saying, “If you sexually exploit a child, you’ve committed a criminal offence, but if you sexually exploit an adult woman, you haven’t.” That is not what this is about, and I do not want to get lost in that. The hon. Member for Birmingham, Yardley described a series of offences that, if they achieved convictions, would be category A offences. They are unbelievably serious offences. We are not denying that.
The clause, however, is directed at grooming gangs as they relate to children. The purpose of the clause is to capture the wider membership of the grooming gangs so that even if people did not directly groom the victim, they are on the hook for the same aggravation. It is to bring in the entirety of the grooming gang. As I said, that is usually defined by the CPS in terms of how it will choose to prosecute a case. That can be very wide indeed. It can bring hundreds to court, or certainly tens, but that is a decision for the CPS. The clause potentially brings all gang members within the scope of the aggravation, simply because they have been identified as part of the gang, if one of those victims has been groomed. That is the purpose of the clause.
Jess Phillips
I did not for one second think that I was asking for a new offence. If I had been, I would have tried to write it into the clause. The Minister is suggesting that there are not wide-scale gangs grooming adults in our country that need targeting. It is exactly the same. There are grooming gangs. Perhaps we could all spend a bit of time at the National Crime Agency or watch any drama about organised crime, which always includes drugs, sexual exploitation and prostitution. There are grooming gangs grooming adults, both men and women. Especially when we are talking about men, it is very silenced. There is a trade in drug addict, down-and-out men in our country that would make people’s toes curl. I have rarely met a young heroin addict who was not traded for sex by powerful men.
I cannot believe the categorisation of it. I do not believe it, because I know the Minister well. For children it is, “grooming matters more”. For adults, we might as well say, from what I have heard today, “Why did you get back in the car?” I have to say, it is not characteristic and not what I was expecting. I find it very disappointing. There is no crime of adult sexual exploitation. It does not exist. It is as if we just do not care that adults get sexually exploited. It is as if we tolerate it in society.
Mrs Flick Drummond (Meon Valley) (Con)
The hon. Lady is making an excellent point. There is a rise in cuckooing in particular, which is the exploitation of adults. It used to be for drug dealers and so on, but now it is being used for prostitution as well. I just want to add that to the hon. Lady’s excellent comments.
Jess Phillips
I absolutely agree. There is undoubtedly a pattern with cuckooing. Funnily enough, one of the other things we do not define in law, which I am hoping goes through in the Victims and Prisoners Bill, is child criminal exploitation. Apparently the really important grooming gangs in those cases we do not consider important enough to define in law. Let us hope that that changes as these many Bills that all cross over each other pass through. I absolutely hope to see cuckooing in this Bill before the end of its passage.
I want to stand here and make a statement on this idea that it is any different. When adults are sexually exploited, for instance an 18-year-old being sold, raped, beaten, held at gunpoint and frightened, the idea that they could come and speak—it is just unrecognisable to me.
Question put and agreed to.
Clause 23, as amended, accordingly ordered to stand part of the Bill.
Clause 24
Murder: end of relationship aggravating factor
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
New clause 27—Aggravating factor relevant to offence of murder: honour-based violence and abuse—
“(1) Schedule 21 to the Sentencing Code (determination of minimum term in relation to mandatory life sentence for murder etc) is amended as follows.
(2) After paragraph 9(g) insert—
‘(h) the fact that the offender inflicted honour-based violence or abuse on the victim.’”
A new clause to instate honour-based abuse as an aggravating factor in murder cases.
New clause 28—Aggravating factor relevant to offence of murder: strangulation—
“(1) Schedule 21 to the Sentencing Code (determination of minimum term in relation to mandatory life sentence for murder etc) is amended as follows.
(2) After paragraph 9(g) insert—
‘(h) the fact that the offender strangled the victim as part of the homicide.’”
A new clause to instate strangulation as an aggravating factor in murder cases.
New clause 29—Infidelity of victim not to be used as part of a defence to murder—
“When considering a charge of murder, the court may not take into account as part of the defendant’s defence an allegation that the victim was at any time or in any way, physical or verbal, sexually unfaithful to the defendant.”
This new clause would ensure sexual infidelity can never be used as a defence to murder.
Laura Farris
Clause 24 sets out the new statutory aggravating factor for murders that are connected with the end of a relationship. This provision is one of four that the Government are taking forward in response to the independent review of sentencing in cases of domestic homicide that was undertaken by Clare Wade KC. Together they will ensure that the seriousness of murder committed in a domestic context is reflected in our sentencing framework. Around a quarter of all homicides in England and Wales are classed as domestic. In other words, the perpetrator is a partner or former partner of the victim.[Official Report, 1 March 2024, Vol. 746, c. 6MC.] (Correction) The vast majority of these homicides are committed by men against women and usually follow a pattern of years of abuse prior to the homicide.
The legal framework for murder sentencing is contained in schedule 21 to the Sentencing Act 2020, a piece of legislation that was first introduced in the Criminal Justice Act 2003, 20 years ago. While every case of murder carries a mandatory life sentence, this framework sets out the principles to guide the court in determining the minimum custodial term. It is a non-exhaustive list. It is always open to judges to consider aggravating and mitigating factors not contained in schedule 21.
Until now, schedule 21 has contained no express recognition of the seriousness of domestic murders, but over the past 20 years—I would argue particularly in the past five—our understanding of offending committed in a domestic context has improved. As Clare Wade highlighted in her review, our sentencing framework needs to be updated to reflect that. On the overall measures, last year, a statutory instrument was laid before Parliament to introduce both a statutory aggravating factor and a statutory mitigating factor for murder in relation to controlling or coercive behaviour, in line with the recommendations. Where an abusive partner has killed their victim, in recognition of the seriousness of the preceding abuse of coercive control and the experience of the victim before death, the coercive control will constitute an aggravating factor for the purposes of sentencing.
A new mitigating factor will apply in cases where the victim of an abusive partner or family member has killed their abuser, in recognition of their experience as a victim of abuse preceding the killing, which is exactly what happened in the Sally Challen case. This is consistent with the conclusion of the Court of Appeal—it is essentially taking the court’s conclusion and making it a statutory mitigating factor.[Official Report, 1 March 2024, Vol. 746, c. 7MC.] (Correction)
We have also introduced new statutory aggravating factor for murders involving gratuitous and excessive force, sometimes referred to as overkill. That is something that Clare Wade found to be strikingly prevalent in not only domestic murders,[Official Report, 1 March 2024, Vol. 746, c. 7MC.] (Correction) but all the cases she assessed. The perpetrator in cases of overkill—to use that shorthand—was male in all but one case.
Clause 24 introduces the fourth legislative measure that the Government committed to take forward in response to Clare Wade’s recommendations. This provision will make murders connected to the end of a relationship, or the victim’s stated intention to end a relationship, a statutory aggravating factor. In 40% of the murder cases analysed by Clare Wade as part of her review, the murder occurred at the end, or perceived end—an important qualification—of the relationship. The perpetrator was male in all those cases, and, in over two thirds of them, a history of coercive or controlling behaviour was also identified.
Killing in those circumstances is often the final controlling act of an abusive partner. As Clare Wade put it in her report, when the perpetrator learns he no longer has control over his partner because she is going to leave, the final act is homicide—the last way he can control her. The old shorthand used in court is: “If I can’t have you, no one will.” It is striking how often it twins with overkill—the use of gratuitous and excessive violence—at that moment. They often occur at the same time.
While it is for the judge to determine the appropriate weight given to the aggravating factors in each case, we expect that this change, along with the other statutory aggravating factors we have introduced in response to Clare Wade’s recommendations, will have a significant impact on the minimum custodial terms. It will also get the court to consider the nature and context of domestic homicides specifically, which has never happened before. These changes mark a step change in the way our sentencing framework responds to and understands cases of domestic murder. For the first time, the nature of these murders and the unique harms underpinning them will be recognised expressly in our sentencing framework. The perpetrators must serve sentences that truly reflect the severity of their crimes.
Jess Phillips
I will speak to new clauses 27 to 29. I do not disagree on the issue. I worked very closely with the families to get Clare Wade’s review up and running under the then Lord Chancellor, the right hon. and learned Member for South Swindon (Sir Robert Buckland)—who I believe was just speaking in the Chamber, making a nuisance of himself today as well. While we are making these changes, I think that Clare Wade has herself said, as have many of the families involved, that making these limited and piecemeal changes is not good enough. I will place some of my own thoughts on record for the sake of showing the many ways in which the aggravating factors for cases of domestic homicide need to be updated.
Jess Phillips
A girl can dream! I will speak to a number of changes because, if we are going to make a point about the end of a relationship, we have to also think about some of the other aggravating factors to try and level the playing field regarding sentencing. I have a list of case studies here of murderers and how long they went away for: 15 years, twelve and a half years—brutally murdering women—16 years, 15 years for a man who then went on to murder somebody else on his release. So, the level of time that we give for this particular crime is woeful.
New clause 27 would make honour-based abuse an aggravating factor in murder cases. Banaz Mahmod was killed in a so-called honour killing in 2006 by her father—not somebody she was ending a relationship with—her uncle, and five other men. She was murdered for leaving her abusive husband, for desiring a divorce and for meeting a new boyfriend who those men disapproved of. She was murdered because she was accused of bringing dishonour and shame on her family and the community.
The men that killed Banaz had boasted and joked about the murder, and were supported by other members of the extended family, who made investigations and prosecution as difficult as possible. The police estimated that there were about 50 men involved in her murder and related crimes.
Before her death, Banaz suffered greatly, reporting rape and violence, threats to kill and an attempt on her life. She went to the police five times. She named the suspects who would eventually kill her. The police did not hear; they did not act. In 2008, a commissioner for the then Independent Police Complaints Commission found serious failings in the police handling of the case.
For many years, Banaz’s sister Bekhal, who I consider a friend, has campaigned alongside Southall Black Sisters for a law that recognises the horror of honour-based killing explicitly in sentencing. New clause 27 would do that. It would introduce honour-based abuse as an aggravating factor in murder cases.
Such a new clause will increase confidence in the criminal justice system, sending a strong message that this violence can never be accepted, excused or ignored. As the Women and Equalities Committee stated, an explicit reference “would strengthen the understanding that honour-based abuse is taken seriously by the criminal justice system and only ever as an aggravating factor.” That would have an impact upstream, too, ensuring that agencies do not misunderstand, ignore or turn a blind eye to honour-based abuse due to ignorance or to fear of being seen as culturally insensitive or racist.
Those women must be protected. We must reach them before it is too late. That is particularly important, as honour-based abuse is a high-risk crime that involves multiple perpetrators and colluders and sometimes multiple victims, because of shared codes of honour. Too many victims are at risk for us not to act.
New clause 28 argues that strangulation should be classified as an aggravating factor in sentencing murders. From previous times that I have worked on this issue with the Minister present, I know that she cares deeply about strangulation, and the arguments for the new clause seem unquestionable. First, the nature of the violence: strangulation is a gendered form of killing. That is how men brutally and callously kill women. The 10-year femicide census showed that strangulation was the second most common method for men who kill women, and Clare Wade’s review demonstrated its prevalence.
It is hard to find words to reflect the horror of killing someone by strangulation—the vulnerability of the victim, the intimacy of being eye to eye, the length of time that it would take to kill someone in that way, and the fear that the victim must experience in their final moments. Many bereaved families I work with speak to me about how that haunts them. That must be reflected in the sentencing framework.
Furthermore, new clause 28 follows new laws on non-fatal strangulation—the Minister may remember them her time on the Back Benches—which were introduced under the Domestic Abuse Act 2021. How we understand the role of strangulation in domestic abuse is changing. It is now understood as a form of coercive control and an accurate red-flag predicter of homicide. If someone is strangled, they are much more likely to go on to be murdered. We must change how it is considered in sentencing.
A judge can recognise strangulation as serious or sadistic under schedule 21—I say again that that needs review—but strangulation is not being recognised. It is simply not being recognised for the horror that it is. In 59% of the strangulation cases looked at by Clare Wade’s review, the method of killing was not seen as an aggravating factor. Significantly, in 73% of the remaining cases where the offence was said to be aggravated by the nature of the killing, the strangulation was accompanied by either an assault or an attack with a weapon. That suggests that the seriousness of the violence denoted by strangulation in and of itself is not being acknowledged.
In law, we place a lot of emphasis on weapons, but as we see in many gendered murders, many male perpetrators do not need a weapon. Such a perpetrator carries his weapon everywhere he goes, and that is his strength, his arms, his physical power. He does not need a weapon, so his culpability should not be decreased because he did not use one; he did use one. That is not a point in law that has gone unrecognised in other crimes; our bodily differences are recognised. For example, for the crime of rape, the Sexual Offences Act 2003 explicitly states that it can be done only with a penis. That recognises that a man’s body can be a weapon. I am not asking for anything beyond what exists in current law.
A three-year study of 204 adult cases of non-fatal strangulation showed that one in six had been strangled to the point where the victim lost consciousness. Symptoms of such violence include strokes, depression, memory loss, seizures, motor and speech disorders, and paralysis. Studies have shown that victims of non-fatal strangulation are seven times more likely to be murdered by their partner. The true nature of strangulation must be understood, as must its relationship with misogyny. Strangulation is about silencing. It is about exerting power, fear and control. As the member of a focus group who attended for Clare Wade’s review explained:
“It is almost always about the perpetrators wanting the last word but if you work with the perpetrators, you hear this over and over again—like I wanted her to shut up I wanted her to be quiet but I wanted to win you have to have the last word. That is what the whole kind of attacking the throat and putting the hands over the mouth—it is all about silencing.”
I very much hope that the understanding of an aggravation in the use of strangulation in a killing can be considered.
On a slightly different note, new clause 29 would ensure that infidelity can never be used as a defence to murder. The Minister said earlier when commenting on perpetrators attending court that common law practice sometimes needs writing into primary legislation. I very much agree with her, which is why I am seeking for this amendment to be made. While it is still written in our legislation that someone can use infidelity as a defence for murder, it is not used in common law.
Currently, infidelity cannot be used as a defence or mitigation. However, the latter is common-law principle rather than in statute. Section 55(6)(c) of the Coroners and Justice Act 2009 provides that sexual infidelity cannot be relied upon in a defence of a loss of control. That was passed following the wrath about “crime of passion” defences going through the criminal justice system in response to domestic murders, and it revoked previous laws on provocation. The legislative change was brought about due to the incredible work of domestic abuse campaigners.
However, the legislation did not concurrently prevent sexual infidelity being a mitigating factor in sentencing in schedule 21 to the Sentencing Act 2020—I feel like I am really attacking schedule 21 today, but I am not keen on it if I am honest—thereby creating an inconsistency in the law. The law on provocation changed, but the sentencing principle that surrounded it did not. Common-law principles on the whole prevent this inconsistency from playing out. I will spend the entirety of the Committee stage saying, “In real life, that does not really happen.” Well, in real life this does not happen. It is not something that I am mortally frightened of. It no longer happens that someone is allowed to say that because their wife cheated on them it is fine that they killed her. A million other defences are made, but not that one anymore.
The defence still exists in law; however, it is not used, on the basis that precedent allows for factual scenarios to be disregarded in mitigation where they run contrary to the policy behind existing legislation, even where there may not be a statutory bar. Despite that, it is important to regularise common-law principles in statute for the avoidance of confusion and to fill lacunas in the law. New clause 29 ensures that no judge could ever stray and use it as a mitigating factor.
New clauses 27, 28 and 29 speak to the larger issue of how we see and respond to the killing of women. How we sentence crimes reflects how seriously we take them. At the heart of these debates is how seriously we take the violent deaths of women and the stealing of their lives. I am afraid to say that at the moment, and we do not take it as seriously as we take other crimes. Several years ago, two mothers walked into my office, Carole Gould and Julie Devey. Their relentless campaigning, at personal cost, has hugely elevated the issue of how we should hold the people who kill women to account. Their daughters were both murdered in brutal, violent attacks by their ex-partners. Ellie was 17 and Poppy was 24. They had their futures stolen from them by two men who had decided, as Julie once described, that
“if they couldn’t have them no one else could either”.
Their mothers began campaigning to challenge the discrepancy in the sentences given in cases where the victim, often a woman, is killed in the home and in other homicides where the victim is killed in public spaces. The distinction commonly turns on the fact that if a perpetrator brought a weapon to the scene of a crime, the starting point for sentencing is 25 years. If, however, the weapon is not brought but found, as with a kitchen knife—my kitchen knife comes back into play from earlier—the starting point is only 15 years. That is 10 years’ difference.
The example that is repeatedly given to demonstrate that inequality is that if someone brings a knife with them and kills their victim with a single stab, they will receive a mandatory minimum sentence of 25 years; but if the victim is suffocated, strangled, beaten, or stabbed hundreds of times to the point of mutilation with a knife found at the scene, the starting point is 15 years. With the discretion of the judge and the mitigating and aggravating factors, Clare Wade’s research suggested that on average that resulted in a six-and-a-half-year difference between the two sorts of crimes. That cannot be right.
Alex Cunningham
Follow that!
Clause 24 would insert a new aggravating factor into paragraph 9 of schedule 21 to the sentencing code, to be considered when determining the minimum term for a life sentence imposed for murder. It would apply where the offence was connected with the end of the offender’s intimate personal relationship with the victim; the victim intending to bring about the end of that intimate personal relationship; or a belief by the offender that the intimate personal relationship had ended or that the victim intended to bring about the end of the personal relationship. The new statutory aggravating factor would apply to offences committed on or after the date the relevant provision comes into force.
We do not oppose the clause, but I hope that the Minister will clearly define what is meant by “intimate personal relationship”. We will discuss clause 30 later, but it refers to
“controlling or coercive behaviour in an intimate or family relationship”.
Does clause 24, then, refer only to that of a partner or ex-partner?
We know the context surrounding this measure. Around a quarter of all homicides in England and Wales are classed as domestic—that is, they are committed by the partner, ex-partner or relative of the victim. They represent an average of nearly 160 homicides per year, with almost 90 being committed by a partner or ex-partner, over the last 10 years. I join others in commending the excellent work of Clare Wade KC, who utilised her expertise in this field to conduct the independent domestic homicide sentencing review, published on 17 March 2023.
As my hon. Friend the Member for Birmingham, Yardley said, the review coincided with an ongoing campaign by the families of two women who were murdered by their male partners: Ellie Gould, who was 17 at the time of her murder by Thomas Griffiths, and Poppy Devey Waterhouse, who was 24 when she was murdered by Joe Atkinson. In her report, Clare makes the important argument that not only are women wronged by a breach of trust, which is an integral part of domestic abuse, but the harms to them often extend to further harm to secondary victims in the form of families, many of whom are the children—we have heard that before—and friends of the victim. There is also the harm to society in general, which, to date, may not have been sufficiently considered.
Clare made it clear to Committee members in her oral evidence session that the proposals in the Bill fall well short of what she set out in her report. In her evidence, Clare said, of clause 24:
“I have to say that it looks a little odd in the Bill because it is, as it were, stand-alone. The intent behind the policy is to have a coherent legislative policy that addresses all the harms, and addresses the particular harms in these cases. We now have in the secondary legislation the aggravating factor of coercive control as something that has happened in terms of the history of the relationship by a perpetrator towards a victim, and vice versa—it is a mitigating factor as well.”
Does the Minister understand why the clause looks a little odd? Perhaps she needs to do some work to make it fit for purpose and able to capture more of Clare’s recommendations.
I recognise that my hon. Friend the Member for Birmingham, Yardley has tabled new clauses 27, 28 and 29 in respect of these matters, which we will come on to. I am pleased that the Government are accepting the recommendation to make a murder that takes place at the end of a relationship a statutory aggravating factor in sentencing for murder. In 48% of murder cases looked at in the Wade report, the sentencing remarks disclosed that there were reports of either jealousy or resentment on the part of the perpetrator at the breakdown of the relationship. In the majority of cases, that appeared to be the catalyst for the murder.
The perpetrator was male in all but one of those 43 cases. A history of controlling or coercive behaviour was identified within the case sample. Clare also said in her oral evidence that
“these killings nearly always happen within the context or confines of domestic abuse and, in the cases we looked at, we found that there was frequently an escalation in domestic abuse when the victim—in the majority of cases, a woman who is killed by her male partner—wants to leave the relationship. That particular recommendation was made because not only is that a real harm, and that represents the real danger, but the policy underlying the other recommendations is one that places the concept of controlling and coercive behaviour at the forefront of the thinking.
The real harm in terms of coercive control, which the law does not yet recognise, is entrapment. It is not fear, as in being continually afraid, and it is not necessarily physical injury. It is entrapment, which is what prevents people who are being abused from leaving relationships. Putting that into legislation as an aggravating factor that can be taken into account by the courts would make it clear that that is one of the harms, but it would also, I suppose, bring to our consciousness the real harm in domestic abuse.”––[Official Report, Criminal Justice Public Bill Committee, 14 December 2023; c. 114-115, Q64.]
In the Government’s response to the Wade report, they proposed four legislative measures to give domestic homicide specialist consideration in the sentencing framework for murder for the first time. Clause 24 is the final one of these measures, with three already laid before Parliament as draft statutory instruments. I will not rehearse again the issues around grooming, which have been covered previously, but does the Minister recognise that she may have lost an opportunity to bring forward more of the recommendations from Clare’s review?
Although we certainly do not oppose the clause, we must consider the practical implications at this stage. In the Government’s impact assessment, they state that the impacts of the clause
“fall beyond the 10-year period”
of measurement. However, in the longer term, the impact assessment states that the measure
“is estimated to require a further 42 additional prison places in steady state, reached around 2065, at a 40-year net present cost”
of £19.2 million. To reaffirm what I said in reference to clause 23, without the Government getting on with tackling the crisis in our prisons, any measures that impact on capacity are a cause for a degree of concern.
I turn briefly to the new clauses that my hon. Friend the Member for Birmingham, Yardley spoke about so comprehensively. Again, I find it difficult to add value to what she had to say. New clauses 27 and 28 would introduce aggravating factors for honour-based abuse and strangulation respectively. New clause 29 would ensure that sexual infidelity can never be used as a defence for murder. I cannot add much to what my hon. Friend said in her well-illustrated speech, and I take this opportunity to thank and pay tribute to her. She has many years of working in this space. From what I have seen, heard and read, I know my hon. Friend has been not just a leading voice fighting for change, but a driving force in supporting both organisations and individuals.
We on the Opposition side recognise the importance of tightening up sentencing in this area. As outlined in my speech on clause 23, that will form a vital part of the wholesale review that Labour has committed to, so we can consider all the measures necessary to ensure that the criminal justice system works for victims. As always, I look forward to the Minister’s response.
Laura Farris
I align myself with the shadow Minister’s comments about the hon. Member for Birmingham, Yardley. I would like to pick up where the shadow Minister left off, in talking about sentencing more broadly. That will bring me on, quite naturally, to the new clause concerning strangulation.
I agree with the reservation about the gendered aspect of strangulation throughout domestic abuse and particularly in domestic homicide. The hon. Member for Birmingham, Yardley talked about the problem with the law at the moment, where if someone takes a weapon to the scene of the crime, they get longer than if they use a weapon that, for example, comes out of the kitchen drawer. It is well known that this is the Ben Kinsella amendment, which Jack Straw introduced in 2007 in response to a campaign fought very passionately by Ben’s sister, Brooke, and his family.[Official Report, 1 March 2024, Vol. 746, c. 7MC.] (Correction) Ben was a young man killed in gang violence, and his sister campaigned very passionately for a 25-year starting point for anybody who takes a weapon to the scene of the crime. Clare Wade dealt with that issue quite extensively in her report. I am not expressing a view of the Government here; I am just reflecting what Clare Wade said. She was critical of the starting point. In fact, she was quite critical of starting points in general.
The Government are conducting a murder sentencing consultation at the moment. It is on the Government website, and it remains open until March this year. It addresses all these points, including where sentences do not look like they are quite right—where some are too low or too high; I am not saying that they are necessarily too high, but it is about whether starting points are right. If the hon. Member for Birmingham, Yardley will forgive me, I will say no to the new cause about strangulation, but I encourage her—particularly given her background and expertise—and all Members to contribute to that consultation, because we are looking at this blend of issues at the moment.
Another important concern that Clare Wade recognised in her report was about ranking methods of murder. A well-known example is that a 25-year starting point applies to any convicted offender who has taken a weapon to the scene of the crime, but a victim of domestic abuse—what we might in the old language call “the battered wife”—is almost always going to use a weapon. That is the only way a woman is likely to kill a man, and a woman has very often taken one to the scene of the crime. We did not actually intend to capture that category of offender, but the law currently does.
We think it is important that we are not, at this point, setting one category of offence above another, and that we conduct this consultation and consider this area of the law carefully. As the hon. Member for Birmingham, Yardley effectively acknowledged, and as I think Clare Wade also did, some issues need to be looked at in the round. I hope the hon. Lady will understand why, on that basis, I will say no to her new clause, with all due deference and respect for how she made the case so powerfully put in Clare Wade’s report. All Governments should consider it carefully. That is my first point.
The second point was about honour-based abuse, which again the hon. Member for Birmingham, Yardley articulated well. We are clear that we will not allow political or cultural sensitivities to get in the way of tackling it. There is no specific offence for such abuse; the term is used to encompass various offences, including not only the usual range of domestic abuse, but some of the psychological pressure that the hon. Lady described. Forced marriage can fall within that, with elements of family shame. She talked about a case with a large number of participants who were part of the abusive ring.
Alex Cunningham
I appreciate being able to make an intervention. During my contribution, I talked about Clare Wade and the clause being a little odd because it is a stand-alone one. I know that the Minister has addressed the new clauses of my hon. Friend the Member for Birmingham, Yardley, but will she comment on that? Is there an opportunity to adopt more of the recommendations of the Clare Wade report?
Laura Farris
I thank the shadow Minister for his intervention. We are thinking hard on that point.
I want to check that I have not missed anything from section 55, where anything
“done or said amounted to sexual infidelity is to be disregarded.”
That is still good law. I suggest that the issue of some defendants claiming as a defence that they had killed a victim because she had been unfaithful to them has now been resolved and it is excluded as a qualifying trigger for the loss of control defence.
Clare Wade recommended that sexual infidelity should also be prohibited from being considered as a mitigating factor when it came to sentencing. We published our response to her review in July last year, setting out why we will not take that forward. The domestic abuse sentencing guideline already expressly states that provocation is no mitigation to an offence in a domestic context, except in rare circumstances. No evidence was provided in the review that sexual infidelity was ever being taken into account inappropriately as mitigation. I am therefore satisfied—it is the only point on which I really disagree with the hon. Member for Birmingham, Yardley—that the law already has sufficient protection in place. I urge the hon. Member not to move the new clauses.
Jess Phillips
I do not actually move them yet, as we do not do that for new clauses until the end. I was saying to myself, “I don’t think I have to do anything.”
I have, of course, already taken part in the consultation alongside the Killed Women network, which I work with incredibly closely. To the Minister’s final point, I started my remarks by saying that I do not agree with myself, having to do a piecemeal job. Schedule 21 needs an overhaul, but we will all start tinkering with it until it ends up in the place it already is, with bolt-ons and batons hanging off it, when something much more fundamental, in a modern world, needs doing.
On the final point about the defences, it may surprise the Minister to hear that that definitely came to me from some pretty eminent lawyers who work in the field—maybe even Clare Wade. I will take that back and speak to them about what exactly was concerning them with regard to that particular issue. I will bring it back to the Committee when we discuss new clauses at the end, of which there will be loads.
Question put and agreed to.
Clause 24 accordingly ordered to stand part of the Bill.
Ordered, That further consideration be now adjourned. —(Scott Mann.)