Grand Committee
Arrangement of Business
The Deputy Chairman of Committees (Viscount Stansgate) (Lab)
My Lords, if there is a Division, which is unlikely, we will adjourn immediately and resume 10 minutes after the Division Bells ring.
Registered Office Address (Rectification of Register) Regulations 2024
(9 months, 1 week ago)
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Lord Johnson of Lainston
That the Grand Committee do consider the Registered Office Address (Rectification of Register) Regulations 2024.
Relevant document: 8th Report from the Secondary Legislation Scrutiny Committee
The Minister of State, Department for Business and Trade (Lord Johnson of Lainston) (Con)
My Lords, I beg to move that the Committee also consider the draft Limited Liability Partnerships (Application of Company Law) Regulations 2024, the draft Service Address (Rectification of Register) Regulations 2024 and the draft Principal Office Address (Rectification of Register) Regulations 2024, which were all laid before the House on 18 December 2023.
These regulations represent the first substantive tranche of a total of some 50 statutory instruments that will breathe life into the reforms being introduced by the Economic Crime and Corporate Transparency Act 2023, which I will refer to as “the Act”. It was my pleasure to help guide that Act through Parliament. I pay tribute to noble Lords for helping deliver a landmark piece of legislation; I am extremely pleased to see so many of them in their usual place today. The Act’s reforms will help bear down on the criminals, kleptocrats and terrorists who abuse our open economy, and will enhance the UK’s reputation as a place where legitimate business thrives.
I will begin by turning attention to the draft Limited Liability Partnerships (Application of Company Law) Regulations 2024. While the inevitable focus of the Act was on the reform of company and limited partnership frameworks, our policy is generally to apply company reforms to the class of entity established through the Limited Liability Partnerships Act 2000. That 2000 Act provides a regulation power to do so and, where appropriate, to modify the application to suit the limited liability partnership, or LLP, context. We intend to exercise the power through further instruments as necessary to ensure that Act provisions apply coherently as between companies and LLPs.
This instrument forms the first step in that process and serves to transpose the elements of the Act that commenced on Royal Assent in October 2023 and in January 2024 and, most significantly, those planned to commence on 4 March. I remind noble Lords that the intention is that many of these points will indeed commence on 4 March. That date is an important one, as it marks the point from which it is intended that many of the company registrar’s new powers will come into effect and from which significant new requirements will apply to companies and, by virtue of this instrument, also to LLPs.
Noble Lords will be pleased to know that I spoke this afternoon to the Registrar of Companies; I was very comforted by her encouraging words about how Companies House is ready for that date and looking forward to it. I am happy to cover further points later around its preparedness and the chronology of other activities feeding off the Act.
Those provisions include: establishment of additional controls around the name an entity chooses to register and that under which it conducts business; a statutory requirement to register an appropriate email address; an obligation annually to confirm that the entity acts with a lawful purpose; and, perhaps most importantly, the registrar’s new objectives under the Act to strive to ensure the integrity and accuracy of register information and, within the parameters of her functions, to prevent companies and others carrying out illegal activities. Elsewhere among those powers and requirements are those that relate to the addresses that corporate entities are required to file with the Registrar of Companies.
That brings me to the next instrument in this group, the Registered Office Address (Rectification of Register) Regulations 2024. Instances can arise in which an unsuspecting householder finds that a company with which they have no involvement has misappropriated their address, claiming it as that of the registered office they are required by law to file with the registrar. This not only causes alarm and inconvenience for householders but can be indicative of criminal intent on the part of the company in question.
Through the Act, we are strengthening the registrar’s powers to combat this practice by tightening the requirements around what constitutes an appropriate registered office address; streamlining and expanding upon existing avenues of redress for those impacted; introducing criminal sanctions for those who fail to take corrective action; and, ultimately, providing the registrar with the ability to strike from the register those companies that persist in offending.
The purpose of this supporting instrument is to establish a flexible framework within which the registrar can act to address this abuse. It puts flesh on the processes to be followed where the registrar believes it appropriate either to act unilaterally and expeditiously to change a company address or to provide it with the opportunity to object to a proposed change. It sets out how criminal penalties will apply to companies, and their officers, which fail to take corrective action where the registrar has replaced an erroneous office address with a default address. It also outlines the process the registrar can follow to strike a company off the register when corrective action is not taken.
These registered office address regulations apply these procedures and processes in the limited company context. The limited liability partnership regulations I introduced earlier serve to transpose them to apply with similar effect in the LLP setting.
I will now cover the Service Address (Rectification of Register) Regulations 2024 and the Principal Office Address (Rectification of Register) Regulations 2024. They are, so to speak, two further chapters in the same story. Just as companies are required to file particular address details, so are persons associated with them. It may be helpful if I set out in a little more detail what these requirements are and where they apply.
I turn first to service addresses. A service address must be filed in respect of all company directors, company secretaries and any individual registered as a person with significant control, or PSC.
I move on to principal office addresses. Certain companies have directors or company secretaries that are other corporate entities rather than individuals. Companies may also have what is termed a relevant legal entity, or RLE, which is a company or organisation that has a significant degree of influence or control over another. They are effectively the same as people with significant control but are entities, not individuals. A company must provide address details in respect of all three of these categories and, in doing so, has the option of filing either a registered office or a principal office address.
These two sets of regulations establish similar processes around the rectification of false or erroneous service and principal office addresses as the service address regulations referred to earlier. However, there is one material difference. Because these addresses relate to individuals or corporate entities other than the company itself, the ultimate sanction of striking the company at issue off the register for persistent non-compliance cannot apply.
All three sets of these address-related regulations are also applied in an LLP context by the draft Limited Liability Partnerships (Application of Company Law) Regulations 2024 that I presented at the outset. In combination, they will deliver a robust and comprehensive safeguard, encompassing, for example, instances in which an address is misappropriated for multiple abuses within the one company, as well as providing scope for much quicker redress for those who still fall victim. At present, the registrar can act only following an application from the victim, and she has to provide companies with 28 days in which they can challenge the claim that an address is being misused. These registrar powers are available only in respect of the registered address; they are not currently provided for service and principal addresses.
Once these improved mechanisms are in place, not only will the registrar also be able to change an address to a default address of her own volition but she will have the discretion to do so immediately, affording the company the opportunity to challenge only after the event. Therefore, in cases of prima facie abuse, it will be possible to deliver much quicker and more efficient resolution. I know that noble Lords on all sides of the House were particularly focused on that topic during the passage of the Act.
In conclusion, these measures are all crucial to the Act’s effective implementation. I hope that noble Lords will support them and their objectives. I beg to move.
Lord Bourne of Aberystwyth (Con)
My Lords, I thank the Minister for setting out clearly and crisply the details of the four sets of regulations. I declare my interests as set out in the register. It is certainly not my aim to do otherwise than to support these regulations, which are consequential from the Economic Crime and Corporate Transparency Act 2023, as the Minister explained, but I want to raise some brief points in relation to them.
I appreciate that, in relation to the address of a company’s registered office, one major concern is companies opting for PO box addresses or inappropriate addresses that are not the address of the company or any of its officers. I take the point about the importance of tackling this, particularly in relation to crimes of fraud, money laundering and so on. Does the Minister have any idea of the incidence of this type of misleading activity? If he does not have the figures to hand, I would be grateful if he could write to me.
I have two brief additional points. More widely, I wonder if the Minister can provide any details—he has given some indication—of when other provisions of the Economic Crime and Corporate Transparency Act 2023 will be brought into force. I appreciate what he said about 4 March but I wonder whether Section 60 of that Act, on confirmation of lawful purpose, is to be brought in on that date. I think it is but would be grateful for an identification in the regulations and any other regulations expected in that regard. It would be good to have that mapped out.
Lastly, is the Minister in a position to say something about a review of company law more widely? The last far-reaching review of company law took place in 2006. It was then the most far-reaching review we have ever had and led to the longest piece of legislation on any subject ever seen at Westminster, so it would be quite a task, but that was some 20 years ago and it is in need of some review and refresh. When the Minister responds, perhaps he can give some indication of when that might be tackled. I am most grateful.
Lord Vaux of Harrowden (CB)
My Lords, it was good to hear that Companies House is making such good progress. I wonder if it might make sense for the Minister to arrange an update session at some point with Companies House for interested Peers, as we had during the process of the Economic Crime and Corporate Transparency Act.
I will speak briefly on the three rectification of register SIs. I greatly welcome these regulations. They will enable people whose address is being used without their permission as the registered or service address, or principal office, of a company to have that remedied. We heard during the passage of the Economic Crime and Corporate Transparency Act of the case of the unfortunate individual in Wales whose address had been fraudulently used to register 12,000 companies, and how hard it was for him to have that corrected. It must be deeply stressful for such an innocent party to worry about whether they will find themselves being chased by HMRC for unpaid VAT or tax, or indeed by other creditors, and possibly even finding the bailiffs at their door chasing payment for debts of companies that are nothing to do with them. Until now, they were getting little or no help from Companies House or HMRC in that situation, so it is good that action is being taken but I have a few questions to ask.
First, when Companies House decides to change the company address to the default address, it must in most cases give written notice to the company. I am curious how that will work in practice if the original address was fraudulent, or even just an error. The Committee will be able to see a bit of a circularity there. It presumably just means that the innocent party receives yet more mail addressed to a company that he knows nothing about, which might add to his stress. If it was a genuine mistake, the company might never find out until it was struck off, so there is a practical issue there.
More importantly, though, the regulations relate only to the single company in question. As we know, when a false address is used many companies—in the case of the man in Wales, thousands of them—may often be registered at the same address. It would surely make sense to include a duty on the registrar to investigate all other companies registered at the same address when the decision is taken to change the address to the default; otherwise, the innocent party whose home is being fraudulently used will have to make an individual application in respect of every company of which he becomes aware. In the case of the Welsh gentleman, that would be 12,000 individual applications, which would be an enormous and rather unfair burden on an innocent person. Can the Minister confirm that the registrar will investigate all companies registered at the same address, even if that is not an actual requirement under these regulations?
Related to that, the regulations are not clear about how an application for an address to be changed can be made. Does it have to be in writing or will Companies House make available a more user-friendly system—online, email or whatever—to minimise the effort that an innocent party has to make to sort out the matter? In most cases, I imagine that a fraudulent company will use the same address for the registered office, service address and principal place of business as relevant. Under these three SIs, the innocent party will in that case have to make three separate applications for each such company—or indeed more than three if for each individual director. That 12,000 could then turn into 36,000 or more applications to sort out the issue for our man in Wales. Can the Minister explain to me how this will be streamlined to minimise the burden on the innocent parties?
As I mentioned, such fraudulent companies are often used for the purpose of VAT fraud. Would it not make sense, therefore, also to include an obligation on the registrar to inform HMRC every time such a situation is found? During its evidence sessions, the Fraud Act 2006 and Digital Fraud Committee heard how it is common for fraud victims to check Companies House as a sensible due diligence step before parting with their money. If a company has been moved to a default address, would it not make sense to highlight that on the register and flag the company as being a fraud risk, during the period before it is struck off, to protect potential fraud victims?
Overall, these regulations are a good, important step but they could usefully be added to in order to provide better, simpler remedies for the innocent parties in these cases.
Lord Sikka (Lab)
My Lords, it is pleasure to follow the insights of the noble Lord, Lord Vaux. I will speak to the second SI, the Limited Liability Partnerships (Application of Company Law) Regulations 2024. I broadly welcome the thrust of the proposals but I have a number of questions; I hope that the Minister will be able to answer them.
First, the words “company law” appear in the statutory instrument, obviously, but can the Minister tell the Committee whether there is in the UK any central enforcer of company law—or for LLPs, for that matter? I have not been able to find one in all these years, so it would be helpful to know where the buck stops. Who, in the final analysis, is responsible for regulating these entities? This matters, especially when companies and LLPs engage in unlawful practices such as paying dividends without sufficient distributable reserves—something that damages the interests of creditors, including pension schemes with a deficit.
Let me go back a little while, because I have always been interested in this topic. In a Written Question on 14 September 2017, Kelvin Hopkins, the then Member of Parliament for Luton North, asked the Business Secretary
“what checks his Department carries out to ensure that dividends paid by companies do not exceed their distributable reserves”.
This was the reply, on 12 October 2017:
“The Department is not responsible for carrying out checks on dividends paid by companies to ensure that they do not exceed their distributable reserves”.
That is still the position. Nothing has changed. We still do not know who is responsible for looking at these things.
In recent years, companies such as Domino’s, Dunelm, Games Workshop and Hargreaves Lansdown have admitted to paying dividends that were, strictly speaking, unlawful; after a while, they noticed that they were unlawful. They therefore paid illegal dividends but, in the absence of an independent enforcer of company law, no one really examines such instances. The Business Department has long washed its hands of such matters. I hope that the Minister can tell us where the buck stops and which external agency is responsible for enforcing both company law and LLP law. That is my first question.
Secondly, LLP and company financial statements are prepared in accordance with what are sometimes called generally accepted accounting principles—or GAAP, although there are many variations on that—and are promulgated by the Financial Reporting Council in the form of accounting standards. They have an important bearing on whatever counts as an asset, a liability, income, an expense, wages, a tax, liquidity, accountability and much more. Ultimately, the rules or standards have a bearing on the distribution of income, wealth and risks.
In a democratic society, only Parliament has the social mandate to adjudicate on competing claims concerning the distribution of income and wealth. However, that authority has been subverted by the Government, and none of the accounting standards issued by the Financial Reporting Council is ever debated in Parliament. Why is that? Why has Parliament’s authority been subverted? I hope that the Minister can explain why the Government do not bring accounting standards to Parliament for approval because they affect the distribution of income and wealth and form the basis of taxation.
Thirdly, through the FRC, committees dominated by partners of LLPs make their own accounting and disclosure rules. They operate through a private company, which is named CCAB Ltd and is dominated by the accountancy bodies. No one in the Government has ever suggested that the hungry should set food standards, the homeless should set housing standards or the poor should set the minimum wage, but the partners of LLPs are allowed to make their own accounting rules without any kind of parliamentary oversight.
If noble Lords look at LLPs’ accounts, they will see that these LLP partners do not like transparency. For example, LLPs are not required to disclose their partners’ share of profits, which is the nearest equivalent to director remuneration in limited liability companies. We do not know their exact share of the profit, even though they may be enjoying government or other public contracts. Why is the partners’ share of profits not disclosed in LLPs’ financial statements, and why is setting the rules for LLP accounting and disclosure considered private? Surely it is not.
Lord Fox (LD)
My Lords, as someone who has spent a lot of his professional life working on annual reports, I have often had questions about GAAP, but the Minister will be pleased to know that I will not ask them today.
The four SIs before us are to be welcomed. They are steps on the way from our discussions on both the last economic crime Bill and the one before that. We are moving forward, in a sense. I am glad that the noble Lord, Lord Vaux, introduced what I call the Knighton collection of companies that were registered to a terraced house in the Welsh borders, not far from where I live—as I believe does the noble Lord, Lord Bourne. I would like some reassurance that the statutory instrument on registered office addresses would deal with that.
As the noble Lord, Lord Vaux, eloquently set out, there are a lot of steps to go through to eliminate falsely registered companies. It comes back to the question of whether Companies House is capable of really handling this, ceasing to be a filing cabinet and starting to be an investigative organisation. To echo the point made by the noble Lord, Lord Vaux, it would be very helpful to have an update on how the huge cultural change that Companies House needs is going. Many of us were impressed by the team that we saw, but also a little frightened by the huge task that it has in front of it to make these SIs and the next 51—or however many there are—come to life.
I have some trepidation on the second of these SIs, on limited liability partnerships, because the noble Baroness, Lady McIntosh, seated opposite, is our Scottish legal expert. I wondered where Scottish partnerships come in, because the territorial extent of that statutory instrument is the whole UK. Where do Scottish partnerships sit within that?
The service address and principal office address regulations are useful and important too, but expose the central weakness that is still within our system. After all the work we did on the Bill, those with control still have the ability to hide that control. We welcome the Service Address (Rectification of Register) Regulations and the Principal Office Address (Rectification of Register) Regulations, but can the Minister set out, either now or in writing, how we are going to eliminate the cancer within this system of people obscuring the real ownership of assets to the authorities and wider society? With that, we welcome these four statutory instruments.
Lord Leong (Lab)
My Lords, I thank the Minister for setting out these regulations and everyone who has spoken in this short debate. I will take these instruments one at a time.
Under the current system, criminals can—often by using data unwittingly shared or stolen and for sale on the dark web—fraudulently register an individual residential address as a registered office with Companies House, without the knowledge of the actual residents. Since 2011 it has been possible for companies to be incorporated within 24 hours for as little as £12, with Companies House making no checks on the veracity of the address. Once this has been done, the perpetrators can apply for credit, business loans and other financial arrangements. This fraud often does not come to light until the individual wants to apply for credit and finds that they are unable to do so, often resulting in considerable problems.
This instrument relates to where individuals have had their residential address hijacked. It allows the registrar to change the address to a default address and to strike the company from the register of companies if a genuine new address is not provided. It establishes criminal offences for companies and officers where they do not comply. We welcome the streamlining of this process and expansion of the registrar’s powers that this instrument provides, including that, as well as acting on the basis of applications, the registrar can when necessary act unilaterally based on any information in their possession to move swiftly to change a company’s registered office address without giving notice in advance.
However, I would like to know how the Government seek to protect and support victims of these fraudulent practices, as mentioned earlier by the noble Lords, Lord Vaux and Lord Fox. Can the Minister say how they will be informed of developments? Will victims be supported if issues continue for them beyond the changing of the registered address—for example, if they have negative notes or ratings on their credit file? If so, how will this be addressed?
Given that this is clearly a widespread practice, does the Minister have any information about provisions to actively check business addresses? There could be existing situations in which fraudulent addresses are in use but currently unchanged or undetected; they may not come to light until the innocent victims have their lives blighted by the discovery of a fraudulent registration of which they were unaware, as in the case in Wales that was mentioned. Does the Minister have accurate figures for how many addresses are registered? Surely it must be in the millions. If, as I suspect, it is on that scale, what analysis has been done on whether this instrument will create an influx of work for the registrar? Has resource been allocated for this?
I move on to LLP. This instrument will ensure that the reforms to company law made by the Economic Crime and Corporate Transparency Act 2023 also apply to the law governing limited liability partnerships. It will ensure that company law applies without arbitrary differences between companies and LLPs. It pertains to straightforward administrative amendments relating to a company’s name, registered office and email addresses, its directors, annual confirmation of accuracy on the register, information about persons with significant control and so forth. We support this legislation, which seems both reasonable and straightforward, and so on this occasion I do not have any further questions for the Minister.
I move on to the Service Address (Rectification of Register) Regulations 2024. As many noble Lords will know from personal experience, directors and secretaries of companies and persons with significant control over companies are required to notify the companies registrar of their service address—that is, a location where documents may be deemed effectively served on that person.
This instrument empowers the registrar to change the registered service address to a default address nominated by the registrar where the registrar is satisfied that the registered service address does not meet the necessary legal requirements. The registrar may change the address by their own motion or on application and may also, at their discretion, change the address without notice or after a period for objections, the length of which may also be at the registrar’s discretion. Clearly, the situation in which company directors, secretaries and persons of significant interest could attempt to delay or evade being held to their legal responsibilities by providing non-compliant addresses would be unsatisfactory.
Lord Johnson of Lainston (Con)
As always, I thank noble Lords for a very powerful and constructive debate around this essential legislation. I genuinely think it will make an enormous difference to the quality of Companies House activities and of our business activities, reducing crime in a magnitudinous way and making the data that companies provide far more valuable in terms of them being able to operate legitimate businesses, to borrow money and to give confidence to customers. Markets are based on trust, so the more the Government can do—and have done, I am pleased to say, with the support of all Peers in the House—the better the business operations underneath that framework.
I will briefly go through some of the significant points. If I have missed anything I will be delighted to follow up after this discussion, but I am keen to make sure that everyone is answered as broadly as possible. If I do not have specific data requested, I will write and copy in all noble Lords.
I thank my noble friend Lord Bourne for his contribution; I hope I understood his question correctly. I do not have to hand a number for the instances of PO boxes being used as registered addresses, but I would be comfortable supplying it to him. The whole point is that this legislation will end the practice of having PO boxes. I think that only about 21,000 or 22,000 addresses are classed as default; of course, that is in effect the registrar’s own address. If you think about the however many million companies that are registered—perhaps 5 million or so—that is a very small proportion. A lot of these figures sound high—when you talk about tens of thousands, it seems an enormous number—but the reality is that, in proportion, they are relatively small. A lot of these default addresses—I am covering several points at the same time—are not for nefarious purposes. They might exist simply because, for example, an individual who had a company has died or the accountant who was registering it has gone out of business. So there are administrative reasons why default addresses are used.
Forgive me but I cannot remember whether it was the noble Lord, Lord Vaux, or another noble Lord who made the point about advertising—that because it is a default address, issues around concern and risk may be raised. I have some sympathy with that, although it is not for me to say. A default address does not necessitate that there is nefarious activity; it is often administrative. Clearly, if noble Lords go on Companies House, they will be able to see the date on which an address became the default address, which would potentially give one an indication of the situation.
It is worth talking about the chronology here. I so enjoyed the passage of the Economic Crime and Corporate Transparency Bill. The time went by so fast; it feels like only yesterday that we finished it. It became an Act towards the end of last year. As I said, I am pleased that, following a helpful conversation with the registrar, Louise Smyth, she has been extremely co-operative with my office in promoting our ambitions for Companies House. I am sure that—the noble Lord, Lord Vaux, asked a question about this—it would be extremely helpful for us all to arrange an update. I found speaking to Louise today, ahead of this debate, very helpful. It is important that we have an element of checking to see whether the resourcing is appropriate and whether the speed of activity is there, but I have the fullest of confidence in Louise and her team.
Let us look at the chronology going forward. Assuming that everything today goes to plan, these powers will come into force on 4 March. That will in effect enable the registrar to have far more discretion over how she acts.
I turn to the points made by the noble Lord, Lord Leong, about multiple registrations, how the registrar will effect her duties and the appellate process around that. It is clearly listed in the statutory instrument that you will not have to have 21,000 to the power of however many different applications, as the noble Lord, Lord Vaux, may have suggested. The point is this: currently, people may register my address as their company address. This is one of the core sparks that lit the blue touchpaper, or the rocket, that was the Economic Crime and Corporate Transparency Bill—this iniquitous situation in which any of us could be registered as a director and our address could be used as a company address. It is a completely bizarre situation that will come to an end on 4 March.
It will then be up to the registrar to make those inquiries; at the stroke of a pen, she will be able to cancel out however many thousands of companies registered to one address. How are we going to do this? The registrar will use the intelligence hub; it is already in existence, as far as I am aware, and is being significantly resourced and expanded. I am encouraged that she will have—this is what we discussed in great detail as the Bill passed through the House—the discretionary powers to do the work and do what is clearly the right thing.
The noble Lord, Lord Leong, rightly mentioned the appeals process. It would be unreasonable to suggest that a single agent of the Crown should be able to, at their whim and discretion, change the fortunes of businesses; that is simply not the case. There is a clear appeals process and, ultimately, the courts would adjudicate. Let me be clear: it is not in the interests of Companies House or the registrar to strike companies off if they believe that they are doing legitimate business. That would be a highly unusual scenario, but there are safeguards and checks and balances around that.
I hope I have covered some of the questions asked by my noble friend Lord Bourne and the noble Lord, Lord Vaux. I will cover two other short points on the chronology. These powers will come into effect on 4 March. In May we will get the statutory instrument for the fees—I believe it is being laid in Parliament, in the other place, today—which will go to £50 for incorporation and £34 for verification at the end of every year. The increase is quite significant in percentage terms, but I think all noble Lords in the Committee will agree that, in real terms, that is not a significant amount of money for the incorporation of a company, with all that that entails. I think we have reached quite a good place there.
The all-important work on verification is the real meat of the additional hard work by the noble Lords, Lord Vaux and Lord Fox, and other noble Peers. Our friends the ACSPs hope, as do Companies House and the registrar, that by the end of this year they will have begun the process of ensuring that the verification process around ACSPs is well under way. They expect to bring in the appropriate processes for individual verification in 2025. As noble Lords know, these include photo identity card and passport verification and so on; we have done so much work on this.
Lord Fox (LD)
On chronology, am I right in thinking that there is a commencement statutory instrument that needs to be brought forward for the overall Bill? When might we see that being tabled?
Lord Johnson of Lainston (Con)
That will happen next week, I am told. I look behind me hopefully on questions like that, but we will do that next week and I hope we stick to this timetable. As I have said, various SIs relating to fees and so on are being laid in the other place today.
I believe I have answered most of the questions from the noble Lord, Lord Vaux, and my noble friend Lord Bourne. The noble Lord, Lord Sikka, made some important points about dividend payments and the stability of our company system. I would not necessarily say that they are relevant to the Companies House regulations that we are looking at today. They are separate from Companies House’s requirement to make sure that the proper accounts are filed. The noble Lord asked who the enforcer for company law is; the court system is. It is important to stress that.
There have been discussions about when company law will be reviewed. As far as I am aware, we have no specific plans to do a full review, but I am happy to take all the noble Lord’s comments and issues back to the Department for Business and Trade, which has particular responsibility over certain reporting areas, to make sure that he is content that the work we are doing is effective.
I believe I covered the points from the noble Lord, Lord Leong, related to ensuring that the Registrar of Companies can operate effectively and the appellate process. Very importantly, on his comment about the powers of the registrar, these are new powers, so we will have to see how they develop. It is absolutely right that the House and the Government continue to keep a close watch on Companies House and the team there to ensure that they have the necessary powers and resources to deliver on a truly transformative regime for how companies are registered and how Companies House operates. As the noble Lord, Lord Fox, rightly said, it needs to move from simply being a repository of information to becoming a truly dynamic activator in overseeing how companies operate. This is exactly what these statutory instruments allow.
I am happy to follow up with any noble Lords who have specific requests, but I very much hope that I have their support on these statutory instruments.
Limited Liability Partnerships (Application of Company Law) Regulations 2024
(9 months, 1 week ago)
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Lord Johnson of Lainston
That the Grand Committee do consider the Limited Liability Partnerships (Application of Company Law) Regulations 2024.
Service Address (Rectification of Register) Regulations 2024
(9 months, 1 week ago)
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Lord Johnson of Lainston
That the Grand Committee do consider the Service Address (Rectification of Register) Regulations 2024.
Principal Office Address (Rectification of Register) Regulations 2024
(9 months, 1 week ago)
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Lord Johnson of Lainston
That the Grand Committee do consider the Principal Office Address (Rectification of Register) Regulations 2024.
Mesothelioma Lump Sum Payments (Conditions and Amounts) (Amendment) Regulations 2024
(9 months, 1 week ago)
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Viscount Younger of Leckie
That the Grand Committee do consider the Mesothelioma Lump Sum Payments (Conditions and Amounts) (Amendment) Regulations 2024.
The Parliamentary Under-Secretary of State, Department for Work and Pensions (Viscount Younger of Leckie) (Con)
My Lords, I will also speak to the draft Pneumoconiosis etc. (Workers’ Compensation) (Payment of Claims) (Amendment) Regulations 2024 and the draft Pneumoconiosis etc. (Workers’ Compensation) (Specified Diseases and Prescribed Occupations) (Amendment) Regulations 2024.
The schemes we are debating today provide vital support for sufferers of dust-related diseases often caused by occupational exposure to asbestos and other harmful dusts. This includes diseases such as pneumoconiosis and mesothelioma. Although both schemes aim to provide compensation to sufferers within their lifetime, each scheme also allows for claims by dependants if, sadly, the person suffering from the disease passes away before they are able to claim. This is in recognition of the suffering these diseases can bring to whole families.
The changes we are debating today will apply equally to those in England, Wales and Scotland. The Government recognise that addressing Great Britain’s asbestos legacy, particularly in public buildings, remains a key issue. We also understand the crucial role that research and early detection can play in the fight against cancer and other diseases covered by these schemes. We continue to make progress in this space, with the rollout of the NHS targeted lung cancer screening programme, and around £122 million invested in cancer research in 2022-23 through the National Institute for Health and Care Research. However, while individuals continue to be diagnosed with these terrible diseases, the lump sum schemes remain a vital source of financial support for sufferers and their families.
I will now take a moment to provide some additional background to the schemes. The Pneumoconiosis etc. (Workers’ Compensation) Act 1979, which—noble Lords will be relieved to hear—for simplicity I shall refer to as the 1979 Act scheme, provides a single lump sum compensation payment to eligible individuals who suffer from one of the diseases covered by the scheme. This includes diffuse mesothelioma, pneumoconiosis and three other dust-related respiratory diseases. It was designed to compensate people who were unable to claim damages from former employers that had gone out of business and who had not brought any civil action against another party for damages. To be entitled to a lump sum award, claimants must have an industrial injuries disablement benefit award for a disease covered by the 1979 Act scheme.
The 2008 mesothelioma lump sum payments scheme, which I will refer to as the 2008 Act scheme, was introduced to provide compensation to people who contracted diffuse mesothelioma but were unable to claim compensation through the 1979 Act scheme. This may have been because they were a self-employed worker or their exposure to asbestos was not due to their work. The 2008 Act scheme provides support quickly to people with diffuse mesothelioma, at their time of greatest need.
This Government recognise the suffering that diseases such as mesothelioma and pneumoconiosis cause to sufferers and their families. I know that many noble Lords will be aware of friends and close colleagues from your Lordships’ House who have lost their lives as a result of these dreadful diseases. I have known two people who have succumbed. We must remember the great impact these illnesses have on people and their families.
Each year, the schemes continue to provide vital financial support to sufferers and their families. Between April 2022 and March 2023, the latest financial year for which data is available, 2,860 awards were made across both schemes, with expenditure totalling £42.3 million. However, between now and 2028-29, expenditure on the schemes is forecast to fall by 8% in real terms. In part, this may reflect historical changes in the domestic workforce but also improved health and safety provision more widely. This may provide some hope that fewer families will suffer the impacts of these terrible diseases going forward.
Two of the instruments we are debating today seek to increase the value of one-off, lump-sum payments made under the 2008 Act scheme and 1979 Act scheme respectively, this time by 6.7%. These new rates will apply to those who first become entitled to a payment from 1 April 2024. As many noble Lords will be aware, these two schemes are not included in the main social security benefits uprating procedure. However, a 6.7% increase is in line with the September 2023 consumer prices index and mirrors the proposed increases to industrial injuries disablement benefit payments and other disability benefits. As I outlined this time last year, there is no statutory requirement to review the level of these payments annually. However, the department has decided to uprate payments under both lump-sum schemes together, in line with inflation, since 2010. I reassure noble Lords that this year will be no different, which reflects the continued importance of the support provided by these schemes.
This year, in addition to the uprating instruments, I ask that the Committee considers a third draft instrument. Unlike uprating, this instrument will not form part of an annual process. Instead, it seeks to extend the eligibility criteria under the 1979 Act scheme. This instrument will simply realign the diseases which may bring entitlement to a payment under that scheme with those that may bring entitlement to IIDB, ensuring that the original policy intent of the 1979 Act is reflected in the legislation. In doing so, it will widen the 1979 Act scheme entitlement to customers suffering from two additional dust-related conditions; first, unilateral or one-sided diffuse pleural thickening and, secondly, asbestos-related primary carcinoma of the lung where there is no accompanying asbestosis.
As many noble Lords are aware, the department is advised by the Industrial Injuries Advisory Council—an independent scientific body, called IIAC—on changes to the list of prescribed diseases for which IIDB can be paid. At the point that they were added to the 1979 Act legislation, the specified diseases exactly mirrored diseases listed in the relevant IIDB legislation. Over time, IIAC has recommended several changes to IIDB prescribed diseases that are also specified in the 1979 Act, which have been accepted by the department.
The unintended impact of accepting these recommendations was that people who suffer from one-sided diffuse pleural thickening and primary carcinoma of the lung with occupational exposure to asbestos, but no accompanying asbestosis, are now potentially eligible for IIDB but not eligible for an award under the 1979 Act scheme. This divergence was first identified in September 2023, when officials were asked to provide clarification on entitlement for an individual case. Officials have worked at pace since September to bring forward the legislation that we are debating today.
The proposed amendments seek to address this divergence by realigning diseases specified in the 1979 Act legislation with those which may bring entitlement to IIDB. If approved, this instrument will mean that the diseases specified in the 1979 Act legislation are based on an improved clinical understanding and that the original policy intent of the 1979 Act is reflected fully in legislation.
Historically, payments have been made to sufferers of these two diseases, despite the divergence identified in the legislation. This was because the department was using diseases set out in the IIDB legislation when considering entitlement to a lump-sum award under the 1979 Act scheme. Importantly, our understanding is, therefore, that customers who made claims for these two diseases historically have not missed out as a result of the change not being made sooner.
As of 16 February, the department was holding 94 claims made since September 2023 where it has not been possible to establish entitlement under the current legislation, but where the criteria would be met under the proposed legislation. If it is approved today, we will pay these customers as soon as possible.
Overall, we estimate that this change will extend legislative entitlement to a 1979 Act scheme lump-sum award to approximately 300 people a year with one-sided diffuse pleural thickening and asbestos-related primary carcinoma of the lung—a reflection of the vital role the schemes play in providing compensation to those affected by these terrible diseases. I am sure—I hope—that noble Lords here today will join me in recognising the continued importance of the compensation provided by these schemes.
Finally, as a part of my role, I am required to confirm that each of these three provisions is compatible with the European Convention on Human Rights, and I can gladly do so. I commend the proposed amendments to these schemes to the Grand Committee and ask noble Lords’ approval to implement them. I beg to move.
Baroness Blower (Lab)
My Lords, as general secretary of the National Union of Teachers, I was aware of a number of members who died from school-acquired mesothelioma. I declare an interest: having worked in an asbestos-contaminated school myself, I have that registered on my medical record, although I am in good health at the moment.
These lump-sum payments are meant to provide some compensation for asbestos victims who cannot get civil compensation from a former employer, but there is an inconsistency in the schemes. If a surviving partner or dependant must claim after their loved one has died, they receive a substantially lower payment. In 2019-20, a 77 year-old with mesothelioma would have received £14,334 if they claimed themselves, but if they died before claiming, which can of course happen with a cancer that is both aggressive and difficult to diagnose, their surviving partner or dependent child would have received £7,949. Mesothelioma patients typically have months left to live at the time of their diagnosis.
Many surviving partners, often women on modest wages or pensions, suffer financial hardship after the loss of their loved one. Their household income falls, but many of their outgoings remain the same. In that situation, they are further disadvantaged if they can receive only the much lower posthumous payment, so there is a clear moral case for raising that payment. Of the 3,830 payments made in 2018, only 260 were posthumous claims, according to the figures I have from the TUC. It estimates that it would cost £1.5 million to equalise payments. In its view, and indeed mine, raising the level of posthumous payments is therefore affordable.
In 2010, the Government acknowledged that there was no justification for the differential payments, stating that the inequality in payments could put pressure on victims’ families when they are most vulnerable. Does the Minister agree that it is now time to change this and equalise the payments?
Baroness Donaghy (Lab)
My Lords, it is ironic that the all-party group on asbestosis is meeting as we speak. The noble Baroness, Lady Finlay, and I had to leave that meeting early to be here. That group is doing good work. I also pay tribute to the staff at the DWP for all the work they do in this area. They do not always get the thanks that they deserve.
My interest in this is not related to what I am going to say. I chair the oversight committee of the mesothelioma compensation fund on behalf of the Department for Work and Pensions. That committee consists of all the interests involved: victims, unions, employers and insurance companies. I have been doing this since the creation of the Act.
I simply want to support what my noble friend Lady Blower just said. This inconsistency has existed for 14 years now, and the Government themselves have always acknowledged it: if a claim is not made before the person is deceased, the family ends up with a pitiful amount of money. This is really a plea to underpin what my noble friend said, as something ought to be done to rectify this terrible anomaly.
Baroness Finlay of Llandaff (CB)
My Lords, I also declare that I am a member of the all-party group on asbestos. Following what has been said about schools, which is incredibly important, it is also worth remembering that many of the people who die of mesothelioma have been healthcare workers, because they were in hospitals where the pipe lagging, often done with asbestos, was poorly maintained and loose. When they ran through the corridors, sometimes the basement corridors, to get to emergencies they would have been inhaling this fine dust without realising it. I was one of the junior doctors working in that type of hospital.
The all-party group is desperate—I use that word advisedly—for these regulations and for this compensation scheme to come through. I undertook in the meeting today to make that representation here. I was interested in the Government’s figures, if I heard right, of 2,860 awards in a year, because new cases are estimated to be around 2,700 a year, which tallies completely with the appalling survival rate of only 2% at 10 years. Mesothelioma is an awful malignancy from which people die very quickly. We have heard repeated stories of people who suddenly became ill and were dead within months, so it is devastating. It is also devastating in the younger age groups, who may leave children bereaved of a parent.
The other thing I want to flag up and keep on record is the fact that we still have many school buildings with asbestos in them. That problem has not been solved and I have particularly brought it to the attention of the Government from Wales, where there has been dispute over how it will be ameliorated. As well as this compensation scheme for the victims, we need to remember that prevention is absolutely crucial and to make sure that all buildings where there is asbestos are adequately managed. It may well be that what has been done in many of those schools and hospitals to date has been inadequate, thinking that it could be covered up, because the walls get nails put into them and if children bounce against them, the walls crack. Water can also get in, and you can easily get a leak of asbestos fibres.
There is no current requirement to monitor the air quality in an ongoing way. Individual sampling is inadequate because these fibres will fall to the ground, so a one-off air sample may not detect them. There needs to be continuous air quality monitoring in schools, and I suggest that it might be a preventive and public health measure.
Lord Allan of Hallam (LD)
My Lords, the first two instruments are of course welcome in providing the inflation-based uplift, particularly because the schemes do not require that from their inception, so it is certainly welcome that those payments will be made. I have only one question on that, which is to understand how the process of the change occurs around 1 April, as the Minister said would happen. Given the rate of inflation, the 6.7% is quite material.
I am curious to understand whether it is something that the claimant exercises some control over—in other words, if they decide to put in their claim in March, it will be at the lower rate; if they choose to wait until after 1 April, it will be the higher rate—or is there some other mechanism taking place that determines that it has to be before or after the uplift date? That will be a question for a lot of people now that we have the gap between approving the new rates and when those rates kick in. People will have questions about whether they control that or the department does. What is it that determines whether they get the old rate or this new rate, which is materially increased? I say that not to complain but to welcome it—it is extraordinarily welcome—but if somebody applied and found that by applying a week earlier, they had missed out on a significantly higher payment, it would be frustrating. I hope the Minister can deal with that.
On the final instrument, I again thank the Minister for the very clear and comprehensive explanation of how we got there. It touched on questions that I had when I read the instrument. I will play back to the Minister what I think I heard, and perhaps he can confirm in his closing remarks whether I have understood it correctly.
There are around 300 people a year in the category that we are talking about who were technically excluded from the old payment scheme. These people have been getting their money but, in effect, they have been getting it ultra vires. They should not have been getting it, technically; they have been getting it—that is not a complaint; it is extremely welcome if that is the case—but, in September last year, somebody spotted the fact that they should not have been getting it, and now we have 94 people sitting in the queue until we can fix that. Can the Minister confirm that that is the sort of number of people; that they have been getting the money and no one from the group that we are talking about was being turned away; and that it is just that from a technical, legislative point of view, we have been more generous than we should have been? If that is the case, that is great; I am happy to go with that.
I hope the Minister can just clear that up for us and confirm that, extending into the future, from the point of view of understanding whether someone is eligible, there is not a group of people who will not have applied because, under the prior definition, they thought they were ineligible. If it is the case that there is a group of people who are now eligible who were not previously eligible, I am keen to hear from the Minister how we are making sure that they are all made aware of that and encouraged to apply to the scheme.
On balance, these three instruments seem very welcome. They uplift a much-needed payment for people suffering from serious illness. The one question I have is around the mechanism for when that uplift kicks in between now and 1 April. On the third instrument, again, it is welcome, but I just seek reassurance that people in that category have not been turned away and that future claimants will be made aware of their eligibility effectively.
Baroness Sherlock (Lab)
My Lords, I thank the Minister for introducing these regulations to the Committee and all noble Lords who have spoken. As we have heard, the Government have decided to increase the lump sum awards payable under the 1979 Act scheme and the 2008 Act scheme by the 12-month CPI rate last September, namely 6.71%. That is obviously very welcome.
We also welcome the fact that the Government have decided to align the definitions of these diseases as set out in the 1979 Act scheme with those in the industrial injuries disablement benefit—it was helpful to get that background and the amplification from the noble Lord, Lord Allan—hence the need for the third instrument we are debating here. It will have the effect of expanding the pool of people who are definitely entitled to the lump sums payable under the 1979 Act to include those with unilateral diffuse pleural thickening and asbestos-related primary lung cancer. This expansion is welcome but, just to follow on from the question from the noble Lord, Lord Allan, for people who are in that queue and waiting for these regs to take effect in order to be able to get it, if they die before they take effect, are we in the position raised by my noble friends in terms of the differential between dependants and other schemes? Can the Minister comment on that?
The Minister is absolutely right that these schemes continue to provide crucial compensation to those who are suffering from these awful diseases and their families. Although money is obviously no substitute for a life, it can help with practical issues, especially if it is paid out fast.
Annual deaths from mesothelioma in Britain increased steeply over the past half-century, mainly due to the widespread industrial use of asbestos from about 1950 to about 1980. That accounts for the current high death rate among men over 70, whose younger working life coincided with the period of peak asbestos use. Thankfully, death rates for those below 65 have been falling. I looked through the latest statistics published by the HSE last July. They showed that there were 2,268 mesothelioma deaths in Great Britain in 2021, which is a fall of 302 from 2020 and below the average of the previous few years.
The HSE says that this reduction remains consistent with the earlier projections that the annual deaths would fall gradually during the 2020s and suggests that the variability in the figures for 2020 and 2021 may have been something to do with Covid, but it also says that predictions suggest that there will continue to be 400 to 500 deaths among females in the 2020s. If I am reading that right, that suggests that while male deaths will continue to fall, female deaths will not. Last year, in the same debate, I asked the Minister whether he could comment on that discrepancy. I did not get an answer. Can he help this year?
It occurred to me to wonder whether this had anything to do with asbestos being uncovered in schools and hospitals, which was mentioned by my noble friend Lady Blower and the noble Baroness, Lady Finlay. After all, there are reports that a lot of asbestos has been found in schools uncovering RAAC, which is not surprising given that that DfE has previously said that 81%, I think, of state schools have asbestos. I gather that attempts are being made to launch studies into the impact on teachers and students. Last year, the Guardian reported that official data had already shown that female former teachers born between 1935 and 1954 have a 40% increased rate of mesothelioma. It also reported that statisticians have now detected a rate of mesothelioma deaths that “borders on statistical significance” among teachers born between 1955 and 1974. I hope fervently that my noble friend Lady Blower will not turn out to be in this cohort.
As the noble Baroness, Lady Finlay, said, there is also a problem in hospitals, and I hope very much that she will not turn out to be caught up in this terrible situation. Last July, the Times reported on the death from mesothelioma of Guru Ghoorah, an NHS nurse, at the age of 45, leaving two children aged four and seven. Four NHS hospital trusts were ordered to make a combined compensation payment to him of £650,000. The thing that struck me about that report, apart from that tragedy, was that it noted that ONS figures state that 177 NHS staff died from mesothelioma between 2002 and 2015 and that occupations are not recorded if a person dies aged more than 75. Two-thirds of mesothelioma deaths occur after that age. Interestingly, the Times reported that a freedom of information request by Sheffield University to NHS Resolution found that, between 2013 and 2022, 360 asbestos-related mesothelioma claims were made against the NHS. Sadly, each of those will have resulted in a death. That suggests a rather higher death rate than the official ONS figures. Can the Minister comment on the risks of asbestos in these settings, which were raised by my noble friend and the noble Baroness, to which the HSE is presumably alert? What action is being taken to protect staff, students and patients? Does he think this will impact mortality rates in future?
Looking at the statistics I was struck again that the north-east always stands out in so many depressing tables. Three of the top 10 geographical areas for male deaths are in the north-east, the region I live in: North Tyneside, South Tyneside and Hartlepool; as are two of the top 10 for women: Newcastle and Sunderland. Of course, these diseases are a product of our industrial past. If my noble friend Lord Jones were here, he would talk about south Wales miners suffering from pneumoconiosis. This debate is an important annual reminder of the price paid by so many people for our industrial heritage, our infrastructure and the society we all benefit from, but it is also a reminder of the need for government and industry to take health and safety seriously. The link between mesothelioma and asbestos was found in the 1960s, but asbestos was still being used widely throughout the 1970s. The schemes that we have been debating today were needed because, as my late and much lamented friend Lord McKenzie of Luton reminded noble Lords in the past, some employers and some people involved in liability insurance did not act as they should have done with regard to their liabilities, hence the need to create these schemes, so this is a good annual prompt to be alert to new and emerging risks to health.
The position of dependants has been raised again by my noble friends Lady Donaghy and Lady Blower. I would be interested to know the Government’s current position on this. My noble friend Lady Blower mentioned the TUC’s figure of £1.5 million as the cost of equalisation. Do the Government agree with that figure? If not, will the Minister tell the Committee the figure the Government have for the cost of equalising payouts to dependants and victims?
Finally, I am sure that the Minister will have seen the reports in the news over the past few days about a new drug breakthrough to treat mesothelioma. Does he have any more information that he can share with us on that?
I am grateful to the staff who have worked on this, to the All-Party Parliamentary Group, to the charities and to all those who work in this space. It is incredibly important that we keep up the work on research, on campaigning and on support. I look forward to the Minister’s reply.
Viscount Younger of Leckie (Con)
My Lords, I start by thanking all noble Lords here today for their contributions to this short debate. As has been the case in previous years, it has demonstrated the profound interest in these schemes that is present in the House—indeed, in this Committee.
I should start off by saying this: it is important that we all remain mindful that these debates are about those whose lives have been impacted by these dreadful diseases. I particularly appreciate the attendance of the noble Baronesses, Lady Donaghy and Lady Finlay, who have broken off from their committee; again, it emphasises the importance of this subject.
The Government recognise that the two schemes we are debating today form a crucial part of the support that is available to people suffering from dust-related conditions and their families. It is right that we ensure that the value of these compensation schemes is retained, especially in these difficult times. In addition to ensuring that these awards are uprated for those who first become entitled from 1 April 2024, the Government are also proposing to make changes to the list of diseases that may bring entitlement to compensation under the 1979 Act scheme.
A number of questions were asked. I will attempt to answer them all; I hope that there will not be any duplication in what I say. I shall mark my own homework on that; I am sure that noble Lords will do so too.
First, the noble Baronesses, Lady Blower, Lady Donaghy and Lady Sherlock, referred to equalisation and dependant awards, asking: why do dependants get lower awards than sufferers and when will the Government equalise these award rates? It is clear that whole families can be devastated by these diseases, as I said earlier; that is why dependants can claim compensation following the passing of their loved ones. The Government remain of the view that available funding should be prioritised to those people who are currently living with the disease. This position is in line with the main purpose of these schemes: to provide financial support to people living with certain diseases, and to help them deal with the issues that illness brings. I hope that I have a figure for the noble Baroness, Lady Sherlock; I will address that in a moment.
The noble Baronesses, Lady Sherlock and Lady Blower, asked further questions about disparity, including on the number of recipients of payments under the 1979 scheme who were aged 77 or over and the number aged 37 years and under. They also asked for the breakdown of payments by industry. I can tell the Committee that, in the last full financial year for which published data is available—April 2022 to March 2023—2,460 awards were paid under the 1979 scheme. Some 1,400 of the awards paid—57% of them—were for individuals aged 77 and over, while fewer than five awards paid were for individuals aged 37 and under. Unfortunately, information on the occupational and industry breakdown of recipients of the lump sum schemes is not published and is not readily available; this would require analysis of multiple datasets for the 1979 scheme and the industrial injuries disablement benefit in order to determine occupational and industrial formation. I have probably gone a bit further than the question that was asked but I hope that that is helpful.
The noble Baronesses, Lady Blower and Lady Finlay, asked further questions about equalisation. Around 90% of the payments made under both schemes are paid to sufferers of the diseases covered by the schemes. As I have said already, we are prioritising those living with the diseases.
We estimate that to equalise awards for people diagnosed with the disease and dependants in 2024-25 would require an additional £1.4 million a year from the DEL budget. No provision has been made for this in the current spending review settlement. I think the figure that the noble Baroness, Lady Sherlock, might like to have is the £1.25 million figure that has been raised today.
The noble Baronesses, Lady Finlay and Lady Blower, raised important questions about asbestos in schools and public buildings. I will attempt to address these questions. It is obviously incredibly serious, and the Department for Education expects all local authorities, governing bodies and academy trusts to have robust plans in place to manage asbestos in school buildings effectively in line with their legal duties. Well-maintained and safe school buildings are a priority for the Government, and we have allocated more than £15 billion of capital funding since 2015, including £1.8 billion this financial year. This comes on top of our 10-year school rebuilding programme, which will transform buildings at more than 500 schools. Where there are serious issues with buildings that cannot be managed by responsible bodies, the Department for Education provides additional support on a case-by-case basis.
Moving onto public buildings, the Government agree that continuing to build on the evidence base around the safe management and disposal of asbestos is fundamental in ensuring that the risks posed by its past use are minimised. The Health and Safety Executive has a mature and comprehensive regulatory framework to ensure that legacy asbestos risks in Great Britain are managed that aligns with the best evidence currently available. This is reflected throughout the approaches outlined in the Control of Asbestos Regulations 2012—CAR. Correct implementation of CAR not only ensures management of risks of exposure but will eventually lead to the elimination of asbestos from the built environment without the need for any target deadline.
The noble Baroness, Lady Finlay, raised supporting research into mesothelioma. Research is crucial, as I am sure the noble Baroness will tell me, in the fight against cancer. The Department of Health and Social Care invested around £122 million in cancer research in 2022-23 through the National Institute for Health and Care Research, which I think I mentioned in my opening remarks. For several years, DHSC has been working actively to stimulate an increase in the level of mesothelioma research activity from a rather low base. This includes a formal research priority-setting exercise, a National Cancer Research Institute workshop and a specific call for research proposals through the National Institute for Health and Care Research. I hope that chimes with the knowledge that the noble Baroness no doubt brings to this Committee.
In 2018, the British Lung Foundation launched the UK’s first Mesothelioma Research Network, the MRN, with the involvement of key stakeholders, including DHSC. The vision of MRN is to improve outcomes for people affected by mesothelioma by bringing researchers together and therefore driving research progress and improving the quality of research. The network is supported by a £5 million donation from the Victor Dahdaleh Foundation, which matches the funding given to Imperial College London by the Government to establish the National Centre for Mesothelioma Research. I could say more about this, but it might be better if I write more to the noble Baroness on this important matter. I suspect she knows a lot of it, but it is important, and I will copy in all Members of this Committee.
The noble Lord, Lord Allan of Hallam, asked which cases might lose out on the uprated rates if they are paid before April. Perhaps I can provide some form of reassurance. The uprating regulations apply only in relation to any case in which a person first fulfils the conditions of entitlement to a payment under the 1979 Act scheme on or after 1 April 2024. As the cases being held will have first become entitled to a payment under the 1979 Act scheme before 1 April 2024, the amount they will receive is unaffected by the uprating. I hope that clarifies that. I think I might have mentioned that in my opening remarks, but I just say it to re-clarify it.
The noble Lord, Lord Allan, and the noble Baroness, Lady Sherlock, asked about historic claimants paid ultra vires. I reassure both of them that their understanding of my understanding or perhaps my understanding of their understanding is correct, whichever way around that reads best.
The noble Lord, Lord Allan, asked whether anybody has missed out. I probably covered that okay in my previous responses, but perhaps to go a bit further the department understands that historic claims made for these two conditions will have already received lump sum payments. As a result, to reclarify, these claimants have not missed out on a payment because this change was not made sooner.
The noble Baroness, Lady Sherlock, asked whether in situations where a sufferer dies before a successful claim is paid the lump sum payment is paid to the estate of the deceased at the same rate. If someone with the disease makes a claim but dies before payment is made, the payment is made to their estate at the same rate that they would have received had they received their payment while they were alive.
The noble Lord, Lord Allan of Hallam, asked who will benefit from this change and whether this will benefit only new claims or historic claims. I think have covered that. The noble Lord may wish to rise if I have not.
Lord Allan of Hallam (LD)
I am grateful to the Minister. The question also relates to the previous answer that he gave. If somebody in the new category that we are talking about had applied in August last year, they would have received the payment; however, had they applied in October, they would be held in the queue. We want to understand that a person who has been held in the queue because they applied in October—at that point, the department understood that it did not have the legal authority—will not lose out in any way, particularly if, sadly, they have passed away between their application and now, the point at which we can release the funds because we have passed this statutory instrument. I do not want to delay this any longer; the faster we get it, the better.
Viscount Younger of Leckie (Con)
Absolutely. That was my understanding too. My understanding is that they would not lose out, given the case raised by the noble Lord. If that is not correct for any reason, I will certainly write to him; however, I have made it clear that nobody will lose, and I should stick to that point.
The noble Baroness, Lady Sherlock, asked about gender differences. Her question was interesting; she asked it last year but did not get an answer, I think. There is always a degree of uncertainty in predicting future disease incidence, but the annually published data from the HSE show that annual mesothelioma deaths were broadly similar in the period from 2012 to 2020 but lower in 2021. Before that, annual deaths had been rising steadily since the late 1960s, but current projections suggest that annual mesothelioma deaths in both males and females are expected to decline over the long term as a consequence of past reductions in asbestos exposure for both males and females.
How soon the decline in annual deaths will become evident is expected to be different, with deaths among males declining during the 2020s and deaths among females remaining broadly level during that period before starting to decline. The reason for this lies in different patterns of asbestos exposure in males and females in the past—the noble Baroness will appreciate that, I think—with heavy exposures being reduced or eliminated sooner in specific industries where fewer females worked, such as shipbuilding, insulation work and asbestos product manufacturing.
The noble Baroness, Lady Sherlock, asked about regional variations. Some asbestos exposures, such as during construction work, were widespread across all regions whereas other exposures, for example those I alluded to earlier associated with shipyards and asbestos product factories, were associated with particular regions. Of course, those regions still tend to have higher mortality rates today, sadly.
I should make a point of clarification to do with equalisation. We estimate that to equalise awards for people diagnosed with the disease and dependants in 2024-25 would require an additional £1 million to £4 million a year—I think I said £1.4 million and I apologise for that—from the DEL budget and no provision has been made for that in the current spending review settlement.
With that, I hope I have answered all the questions.
Pneumoconiosis etc. (Workers’ Compensation) (Payment of Claims) (Amendment) Regulations 2024
(9 months, 1 week ago)
Grand CommitteeRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Viscount Younger of Leckie
That the Grand Committee do consider the Pneumoconiosis etc. (Workers’ Compensation) (Payment of Claims) (Amendment) Regulations 2024.
Pneumoconiosis etc. (Workers’ Compensation) (Specified Diseases and Prescribed Occupations) (Amendment) Regulations 2024
(9 months, 1 week ago)
Grand CommitteeRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Viscount Younger of Leckie
That the Grand Committee do consider the Pneumoconiosis etc. (Workers’ Compensation) (Specified Diseases and Prescribed Occupations) (Amendment) Regulations 2024.
East Midlands Combined County Authority Regulations 2024
(9 months, 1 week ago)
Grand CommitteeRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Baroness Scott of Bybrook
That the Grand Committee do consider the East Midlands Combined County Authority Regulations 2024.
Relevant document: 8th Report from the Secondary Legislation Scrutiny Committee
The Parliamentary Under-Secretary of State, Department for Levelling Up, Housing & Communities (Baroness Scott of Bybrook) (Con)
My Lords, these regulations provide for the implementation of the devolution deal agreed between the Government and four councils—Derby City Council, Derbyshire County Council, Nottingham City Council and Nottinghamshire County Council—on 30 August 2022. Since then, we have been working closely with the councils on the implementation of the deal, which is an important contribution to the Government’s levelling-up agenda increasing opportunity, investment and prosperity in the East Midlands. The four councils consented to the making of these regulations on 15 December 2023.
The regulations, if approved by Parliament and made, will establish the East Midlands Combined County Authority and the office of mayor for the area. This will be the first of a new type of local government institution, a mayoral combined county authority, made possible by the Levelling-up and Regeneration Act 2023. The essential feature of a combined county authority is that only upper-tier authorities, that is county councils and unitary authorities, can be constituent members of the combined authority, with a requirement that there must be at least two constituents. This does not mean that, where a constituent authority is a county council, the district councils in the area cannot be involved and have a voice within the combined county authority on matters which could affect them.
In the East Midlands it is envisaged, as set out in the devolution deal, that the constituent members will invite the district councils to be represented by four non-constituent members, two from Derbyshire districts and two from Nottinghamshire districts. It will be for the district councils to decide who their representatives will be. These non-constituent members can be given voting rights on certain matters, as decided by the constituent members. In addition, district councils will be invited by the combined county authority to nominate certain of their members to serve on the combined county authority’s overview and scrutiny committee and audit committee. These committees will have important roles for the accountability of the combined county authority and of the mayor to the people of the East Midlands.
The central feature of the East Midlands Combined County Authority that the regulations provide is that there will be a directly elected mayor for the area. The mayor will provide a single point of accountability essential for the powers and budgets being devolved.
The regulations provide for the first mayoral election to take place on 2 May 2024. The elected mayor will then take up office on 7 May, with a four-year term ending after the next mayoral election in May 2028. Thereafter, there will be elections every fourth year, to be held on the ordinary day of election for the year, which is the first Thursday in May. Following the enactment of the Elections Act 2022, these mayoral elections will be on a first past the post basis.
The regulations also make provision for the overall governance arrangements of the combined county authority. Each constituent council will appoint two of its members to the combined county authority. One of these members will act as the constituent council’s lead member. This means that the combined county authority will have a mayor and a total of eight constituent members.
The mayor will be the chair of the East Midlands Combined County Authority and will appoint a deputy mayor from one of the constituent members. The combined county authority may, in addition, arrange for there to be up to eight non-constituent or associate members. As I have mentioned, it is the intention of the East Midlands authorities that the district councils should nominate four non-constituent members.
The combined county authority will be established the day after the day on which the regulations are made. Until the elected mayor takes office, it will be for the constituent members to decide how they will conduct business, including arrangements for chairing any meetings.
In addition to certain generic functions that all mayoral combined county authorities have, the regulations also confer significant functions on the combined county authority, as agreed in the devolution deal. Many of these functions are currently functions of a public authority, such as Homes England or the Greater London Authority, or indeed functions of the Secretary of State. As required by the 2023 Act, alongside these regulations we have laid a Section 20(6) report, which provides details about the public authority functions being devolved to the combined county authority.
Certain of the functions conferred on the combined county authority are to be exercised only by the mayor. In addition, the mayor will have powers, as mayors of combined county authorities generally do, to issue a precept, if they so choose, to cover the costs of mayoral functions which are not being met by other resources available to the combined county authority. The functions conferred by the regulations include those on housing and regeneration, mayoral development corporations, transport, public health, and education and skills. I will address each in turn. The essential features of these functions are as follows.
To improve the supply and quality of housing and to facilitate the regeneration of the East Midlands, Homes England powers will be conferred on the combined county authority and will be held concurrently with Homes England. These powers will enable the combined county authority, working closely with Homes England, to promote housing and regeneration, and will include the compulsory purchase of land. This will be a mayoral function, and any decisions will also require certain local consents, including the consent of the district council if the proposed land for purchase falls within its area, and that of the Peak District National Park Authority should the land fall within its geographical boundary.
The regulations provide for the mayor to have power to designate mayoral development areas within the geography of the East Midlands Combined County Authority to support the development of strategic sites. This is the first step in establishing a mayoral development corporation; further regulations would be necessary to create such a body. Powers relating to such a corporation are to be exercised by the mayor. As with the compulsory purchase powers, local consents are also necessary. District council consent is required should the proposed development area sit within a district’s geographical boundaries. Similarly, the consent of the Peak District National Park Authority would be required if any part of the development area were within the national park.
The combined county authority is to become the East Midlands transport authority. The mayor is to have control over a consolidated and devolved transport budget, with the power to pay grants to the constituent councils in relation to the exercise of their highways functions to improve and maintain roads. The mayor may also pay grants to bus service operators for eligible bus services operating within the East Midlands area. Grants must be calculated in accordance with any regulations made by the Secretary of State.
Local authority public health functions are to be conferred on the combined county authority, enabling it to deliver public health initiatives throughout its area and in support of the local authorities in the East Midlands. The combined county authority is to be required to adhere to Section 2B(1) of the National Health Service Act 2006, which places a duty on a local authority to take steps as it considers appropriate to improve the health of the people in its area. This responsibility will be held concurrently with the combined county authority’s constituent councils. None of the constituent councils’ public health functions is transferred from the councils to the combined county authority.
Finally on functions, I mention that the devolution deal also provides for the devolution of certain education and skill functions, together with the adult education budget. As agreed with the area, further regulations for these functions will be brought forward later this year with the aim, subject to Parliament’s approval, of the combined county authority being responsible for these functions from the academic year 2025-26.
These regulations will be made, if Parliament approves, under the Levelling-up and Regeneration Act 2023. As provided for by that Act, Derby City Council, Derbyshire County Council, Nottingham City Council and Nottinghamshire County Council consulted on a proposal to establish the combined county authority based on the East Midlands devolution deal. They promoted the consultation by a number of means, including a dedicated website; two online events in which residents and stakeholders could make their views known; and a communications campaign. Responses could be made online or directly by email or paper. The councils also undertook stakeholder engagement with businesses, the voluntary sector and key institutions in the East Midlands.
The public consultation ran from 14 November 2022 to 9 January 2023. A total of more than 4,800 people responded to that consultation. As required by the 2023 Act, the councils preparing the proposal provided the Secretary of State with a summary to the responses to the consultation on 1 November 2023, after the enactment of the 2023 Act. The Act provides that a consultation carried out before it came into force can be considered as fulfilling the requirement in it to consult. The majority of respondents supported all aspects of the proposal with one exception. On the establishment of the mayor, 48% of those who took part in the consultation supported the proposal, with 52% opposing it.
The role of the mayor is integral to the proposal. Many aspects of the proposal supported by residents are available only to an institution that is led by a strong, accountable, directly elected leader such as a mayor. Those opposed to a mayor raised concerns about the cost of a mayor, the consolidation of power in an individual and adding an additional tier of governance to local government. In contrast, those supporting the approach of a directly elected mayor referred to the benefits that it could bring to the area in accountability, leadership and providing a voice for the region at national and international levels.
Baroness McIntosh of Pickering (Con)
My Lords, I am grateful to my noble friend for setting out the contents of the regulations before us, which follow the same sort of model that has been used for the York and North Yorkshire Combined Authority and its mayor, as well as the North East Combined Authority and its mayor. I have a couple of questions.
If the housing responsibilities are transferring from the combined authority to the mayor, what will happen in the instance of planning for a major housing scheme? For example, if people have concerns about the impact of flooding and the lack of sustainable drains or similar, which authority will consider that application? It concerns me that the planning process seems to be separated out from what has previously happened in a straightforward way. If all the county councils to which my noble friend the Minister referred are now being transferred to a higher authority, it may not have the facility or means to understand planning issues. It may focus on what it perceives to be the need for increased housing; for example, it may focus on a four or five-bedroomed housing scheme and not on a one or two-bedroomed scheme, which might be preferred or more required in a rural setting.
My noble friend referred to the power to issue a precept. How much of the funding that she set out to the Committee this afternoon is new funding and how much is simply replacing what is already available in the terms of schemes? I will draw a parallel with the area that I know best. For example, if we look at the Tees Valley Mayor, he has an awful lot of new funding at his disposal at virtually every turn. I understand that that will not be the case for new combined authorities and mayors, such as the subject of these regulations. What new funds are going to be available? Are the funds being transferred from the combined authority to the mayor? Is it going to be the case that there is no new money so, in fact, as set out in the regulations, the power to raise a precept will be relied upon in virtually every case, in which case the council tax will have to go up? Was that put in the consultation that was put to the public to which my noble friend referred?
Finally, on the consultation, as a democrat I find it incredibly difficult to accept that when 52% of those responding, if I understand the Minister correctly, rejected the model for a mayor in this instance, the Government and the Minister’s department are proceeding. Would it not be a good idea to pause, reconsider and go back on the proposals? Even though my noble friend says authoritatively that all the legal requirements of the consultation have been met, I urge her to consider the democratic implications of rejecting what 52% of the population said.
Lord Shipley (LD)
My Lords, the noble Baroness, Lady McIntosh of Pickering, has raised a number of pertinent points and I am looking forward to hearing the Minister’s response to them. She particularly raised the consultation and the responses. There has been a continuing problem with consultation on combined authorities because the number of people who respond is very low. In the case of the East Midlands, I think Ministers have taken the view that elected councillors would have to make the decision about the mayor. Nevertheless, there is a question about how the Government and combined authorities can engage with people to a much greater degree so that response rates to any question would be much higher than in this case. Having said that, I thank the Minister for her explanation of these regulations. It is very good to see the close working of the local authorities in the East Midlands Combined County Authority. I wish it every success in its work. We want it to succeed.
I have previously raised issues of scrutiny, audit and risk in relation to this combined county authority and other mayoral combined authorities. I noticed that the Secondary Legislation Scrutiny Committee commented on this public consultation. Paragraph 45 of the report cites the Department for Levelling Up, Housing and Communities explaining that
“the Secretary of State has noted respondents’ concerns about the EMCCA’s governance model and the position of a Mayor but is satisfied that these draft Regulations would ‘provide the necessary check and balances on the governance of the EMCCA and its Mayor’”.
I draw the Minister’s attention to the Tees Valley Review dated 23 January 2024. I will quote from it, because what it says is important to all combined authorities. The question I pose to the Minister relates to whether any of the deficiencies identified in that report, published a few weeks ago, could occur in the East Midlands Combined County Authority. I quote specifically from paragraph 1.7 of the report’s executive summary, which said that
“there are issues of governance and transparency that need to be addressed and a number of decisions taken by the bodies involved do not meet the standards expected when managing public funds. The Panel have therefore concluded that the systems of governance and finance in place within”
the Tees Valley Combined Authority and the South Tees Development Corporation
“at present do not include the expected sufficiency of transparency and oversight across the system to evidence value for money”.
Recommendation 6 then went on to say that the Tees Valley Combined Authority cabinet should
“review its current delegations and directions to STDC to ensure it meets its statutory obligations, including appropriate oversight by Overview and Scrutiny Committees, to enable value for money to be delivered and evidenced through effective scrutiny of significant decisions”.
The Secretary of State has said that the draft regulations would
“provide the necessary check and balances on the governance of the EMCCA and its Mayor”.
Can the Minister, either now or perhaps later in writing, explain how these draft regulations actually provide the checks and balances necessary to ensure that a report such as that written on Tees Valley could not be written on the East Midlands?
The Minister is aware that I have raised issues of security, audit and risk repeatedly during the passage of the levelling-up Bill and on other occasions, and I find those words in the Tees Valley Review worrying. I hope that this cannot possibly happen elsewhere. I am surprised by what has been said on Tees Valley but, given that, what structure is in place—I cannot find it in these regulations—to prevent a repetition of what seems to have occurred in the Tees Valley from happening in the East Midlands or in any of the other mayoral combined or combined county authorities?
Baroness Taylor of Stevenage (Lab)
My Lords, I thank the Minister for setting out the basis for this new type of mayoral combined county authority. The regulations establish the East Midlands combined authority and are required in advance of the first planned combined authority mayoral elections in May this year. We consider them to be very important for the economic and social development of the region and its population, so we will not be objecting to this important SI, but that does not mean that we do not have any questions about it. Indeed, we are very excited and hopeful that our candidate, Claire Ward, will be the first East Midlands mayor elected and, as mayors do up and down the country, will make a great difference to communities in the areas that the Minister set out—housing, transport, public health, and education and skills.
We also noted the degree of consultation that took place from 14 November last year to 9 January this year, but further note, as did the noble Baroness, Lady McIntosh, and the noble Lord, Lord Shipley, that the numbers are very low in these consultations. We need to think about how we engage the public more in these very important discussions about the future of their areas. We also noted that there is a distinctive emphasis in this devolution deal on the combined authority reflecting the local communities within the combined authority area. We can do more of that, and I think that might help to engage people even more.
Baroness Scott of Bybrook (Con)
My Lords, I thank noble Lords who have spoken in this debate, particularly for their support for the East Midlands. I know that will be well received. Once again, we all wish it well. I will respond to a number of questions— I will look at Hansard and write if I miss any—starting with my noble friend Lady McIntosh.
The response rate to the consultations the constituent councils did was very low. The noble Baroness, Lady Taylor of Stevenage, and the noble Lord, Lord Shipley, mentioned that 4,800 responses from 1.6 million people is not a lot, but you cannot force people. My experience is exactly the same. People will tell you, “We just want people to lead our council, keep us safe and economically viable and to spend our money wisely”. Sadly, that is what happens in all these cases, but that is how it is.
My noble friend Lady McIntosh of Pickering asked whether this funding is new. Yes, the funding to the East Midlands is new, as was the case in Tees Valley; that was new funding, too. My noble friend also mentioned planning powers. No planning powers or housing powers are being transferred from existing planning and housing authorities. We made that clear in passing the then Levelling-up and Regeneration Bill, which is now an Act. Therefore, those authorities will be responsible. That is part of the challenge; they must work together for the good of their area.
The East Midlands devolution deal is a level 3 deal, with strong devolution alongside the establishment of a mayor. There was concern that 52% of those who responded to the consultation did not want a mayor; the problem is that they also said they wanted a level 3 devolution deal, with the large amounts of money and power that come with it. It was for the Secretary of State to make the decision that the result of the East Midlands consultation should be a level 3 deal, which requires a mayor.
The noble Lord, Lord Shipley, the noble Baroness, Lady Taylor of Stevenage, and my noble friend Lady McIntosh brought up Tees Valley. As they will know, the report came through very recently. We are considering the two recommendations in it. The noble Lord, Lord Shipley, is absolutely right: risk, scrutiny and audit are very important here, as they are in all local government. The mayor from Teesside has been asked for his response by early March; once it comes through, I will write a further letter on the Government’s response. What I think will happen is that we—the Government—will learn from that report, as will the East Midlands. As with all local government, as I say, scrutiny, audit and risk are important.
Lord Shipley (LD)
Since we are on that specific issue, may I ask two questions? The Minister said that there were two recommendations but, actually, there are 28 altogether.
Lord Shipley (LD)
Right, but there are others which relate indirectly to the scrutiny, risk and audit function.
Secondly, this is not just about the East Midlands Combined County Authority. This issue relates to all mayoral combined authorities: those that currently exist and those that are about to come into existence. I hope that, when the Minister writes to us, there will have been an in-depth examination by the department of how the criticisms of Tees Valley’s arrangements could not occur in all of those other authorities. I hope that I am making myself clear: there needs to be an examination of the constitutional and working arrangements in all those combined authority areas.
Baroness Scott of Bybrook (Con)
I agree with the noble Lord. This is what we will do: we will look at the report in detail and respond accordingly on the things in the report that reflect, first, on the department itself and, secondly, on future combined authorities of whatever type because of the importance of that.
There are currently no limits on mayoral precepts; the power does exist to set limits. That would need the approval of the Commons, though, if it were to happen so we will watch that as it moves forward. I think it was the noble Baroness, Lady Taylor of Stevenage, who brought up the issue of a political adviser. The combined county authorities can have one political adviser; the post, like local authority political advisers, is not politically restricted in the way that other officers’ posts are, but they can have one.
Water Industry (Special Administration) Regulations 2024
(9 months, 1 week ago)
Grand CommitteeRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Lord Douglas-Miller
That the Grand Committee do consider the Water Industry (Special Administration) Regulations 2024.
The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Lord Douglas-Miller) (Con)
My Lords, these regulations and the Water Industry Act 1991 (Amendment) Order are part of a package that updates the water industry special administration regime legislation. The package is made up of two commencement orders and three statutory instruments. The first commencement order was made on 11 January and the two affirmative statutory instruments being debated today were laid in draft on 15 January. The second commencement order and the negative resolution statutory instrument will follow shortly after the affirmatives are debated.
The purpose of these statutory instruments is to enable the Government to facilitate a more effective water industry special administration regime. They apply to England and Wales, and ministerial consent has been secured where necessary. The Government already have powers in the Water Industry Act 1991 to apply to the High Court for a special administration order. However, updates are required as the current legislative regime is outdated and modelled largely on the Insolvency Act 1986, which has since been modernised. The most notable legislative updates were the Enterprise Act 2002; the Small Business, Enterprise and Employment Act 2015; and the Insolvency (England and Wales) Rules 2016. These updates to insolvency legislation are not automatically applied to the legislative framework of the water industry special administration regime. Instead, the Government must assess how to adapt these insolvency law changes to each industry’s specific special administration regime. Legislation relating to special administration regimes is laid periodically; recent examples of this are the Payment and Electronic Money Institution Insolvency (England and Wales) Rules 2021 and the Energy Act 2023.
It is vital that the Government are prepared for a range of scenarios, particularly regarding the continued provision of public services. This is why an updated water industry special administration regime is so important. I want to make it clear that the two main grounds on which a water company can enter special administration are unchanged by this legislation. They are insolvency, where a company may be unable to pay its debts or its liabilities are greater than its assets; and performance, where the company has failed to carry out its statutory functions or licensed activities to such an extent that it is inappropriate for the company to continue to hold its appointment or licence. During a special administration regime, customers’ water and wastewater services will continue to be provided.
The first statutory instrument for noble Lords’ consideration is the draft Water Industry Act 1991 (Amendment) Order 2024. This order implements hive down provisions through amending Schedule 2 to the Water Industry Act, which makes provision about transfer schemes upon the termination of an appointment or the transfer of a licence for a water industry company and is amended by this order to include provisions about transfer schemes in cases where there is a transfer by hive down. This amendment is necessary to ensure that the hive down provisions commenced last month by the Flood and Water Industry Act 2010 (Commencement Order 10) Order 2024 are fully operable. Hive down is a common commercial restructuring practice to ring-fence value and attract potential buyers. This amendment allows the administrator to hive down the regulated business to a subsidiary in order to protect its business and facilitate a sale process that may be more attractive to a potential buyer.
The second statutory instrument that I ask the Committee to consider today is the Water Industry (Special Administration) Regulations 2024. This instrument will apply, disapply and modify general insolvency provisions as they apply in relation to water companies, including licensed infrastructure providers, and special administration orders made in respect of those water companies under the Water Industry Act 1991.
These regulations make general modifications to the Insolvency Act 1986 and other enactments about insolvency provisions, alongside specific modifications to Schedule B1 to that Act. The amendments adapt Parts 26 and 26A of the Companies Act 2006 via specific modifications for the purpose of the water industry special administration regime and amend Section 26 of the Water Industry Act, and Schedule 1 to the Water Industry (Specified Infrastructure Projects) (English Undertakers) Regulations 2013. In addition, this set of regulations will give government the power to lay a negative statutory instrument in the coming weeks, which will revoke the Water Industry (Special Administration) Rules 2009, replacing them with updated special administration rules for water companies, based on the 2016 general insolvency rules.
These statutory instruments update the water industry special administration regime legislation to ensure that, should a water company ever be required to go into special administration, a modern, efficient water industry special administration can be implemented. I am grateful for the support of the Committee and am happy to take questions, which I will endeavour to answer in my closing speech.
Baroness McIntosh of Pickering (Con)
My Lords, I am most grateful to my noble friend Lord Douglas-Miller for setting out the content of the SIs before us. I am in great support of them and have just a couple of questions to press my noble friend on.
When my noble friend set out the circumstances behind these instruments, he seemed to indicate that we are just putting into effect existing legislation here and updating it. I would just query the timing of this, which was also queried in the House of Commons when these measures were debated there. At the moment, there are additional investments that we are, rightly, asking water companies to make and which are of a very high order: £60 billion of capital investment over 25 years for storm overflows and other investments such as the self-monitoring programme, which was embarked on under the Labour Government and which we vigorously and enthusiastically pursued. Might these additional responsibilities on water companies be causing the Government some concern, or is it literally about putting in and updating the background, as my noble friend set out? Obviously, we all want to ensure that the water companies are fulfilling the legitimate investment that we have asked them to make.
I have a rather cheeky question. My noble friend knows of my interest in Schedule 3 to the 2010 water Act. Why has Schedule 5 been preferred to be implemented before us in these instruments, and when might we get the orders implementing Schedule 3 to the same 2010 Act? That would put into place the sustainable drainage systems and end the automatic right to connect, which has been called for since the Pitt review and surface water flooding of 2007. That is my rather cheeky interjection, which my noble friend might either want to respond to today or write to me on.
Parallels have been drawn in the report before us with energy companies. When energy companies have failed over the last two or three years, the existing customers of a company which was asked to take on the customers of a failed energy company have found, regrettably, that their tariffs and charges have gone up. This is obviously a matter for Ofwat, but can the Government give any undertaking to customers in the event of a water company failing—which, heaven forfend, we would not wish to see—so that, essentially, what happens in the water sector will not be what we saw happen in the energy sector?
Baroness Bakewell of Hardington Mandeville (LD)
My Lords, I thank the Minister for his introduction to these two SIs, which make provision for the continuation of water supply to households should a water company be teetering on the verge of insolvency. I welcome this move to protect householders and businesses if that happens.
A special administration regime—SAR—allows the Government to prepare for all eventualities to ensure uninterrupted provision of this vital public sector service. Each service SAR is unique. Those governing the water industry—the WISAR—are distinct and come into play when a water industry company becomes insolvent. This is obviously a serious matter. I ask the Minister: how many of the country’s water companies are on the verge of bankruptcy? Is it a couple or is the prediction in double figures? Is the number of water companies struggling confined to England or are there similar threats of insolvency in Wales, Scotland, and Northern Ireland?
Paragraph 7.5 of the Explanatory Memorandum indicates that the High Court will appoint a person to manage the affected water company and that this will be on the recommendation of Ofwat or a Defra Minister. I would like an assurance from the Minister that this person will not be someone who has previously been involved in the running of the water company under consideration, nor someone who has been involved in the running of another insolvent water company. This must be someone who is completely independent in every sense of the word.
Apparently, the Flood and Water Management Act 2010 (Commencement No. 10) Order 2024 covers the arrangements for hive down provisions, which the Minister referred to. The Explanatory Memorandum states:
“This will allow otherwise viable water industry companies to enter a special administration, restructure its debts and then exit the SAR as a going concern”.
Not being a legal expert, I searched for the meaning of a hive down. I found this:
“A hive down is the transfer of all or part of the assets or business of a company to a subsidiary—usually a new subsidiary”.
Paragraph 7.6 of the Explanatory Memorandum indicates that this would allow the new subsidiary
“to benefit from potential tax savings”.
The process allows new owners to acquire a “clean” water industry company that has no existing liabilities. This is exactly what the current water companies inherited at the point of acquisition in the 1980s.
I sometimes despair at the way in which we as a country conduct ourselves. It seems to me that a water company facing insolvency would welcome the chance to create a subsidiary company, get rid of its debts—or restructure them, as the Explanatory Memorandum euphemistically calls it—and start again, delivering the same lack of investment and poor repair service. Unless I have missed it, there is nothing in the Explanatory Memorandum that prevents previous CEOs or directors carrying on their inefficient ways from the insolvent water company into the new subsidiary. Can the Minister comment on the likelihood of this happening under the proposals for a hive down?
I understand that the SAR rescue purpose applies only where the special administration was based on economic insolvency grounds, not performance grounds, but I am not sure that that is what the Minister said. Can he give more information on poor performance and not meeting the government-set vital environmental targets and say whether this is also a consideration? Will violation of environmental law constitute a failure to fulfil statutory duty, under the terms of Chapter II of the Water Industry Act? Do the Government commit to applying for a special administration order where a company shows consistent and flagrant breaches of its environmental duties?
Paragraph 7.12 gives a lot of detail about the process with a list of modification orders. These modifications indicate that only the Secretary of State or a Welsh Minister can make an application for a water industry company to go into administration. It further states that the interests of the customer should always be considered. I would have assumed it would be a given that the customer would always be the first to be considered.
There is also a section in the EM, at Paragraph 7.18, indicating that the appointed special administrator’s conduct may be challenged by the relevant Minister or Ofwat. Can the Minister give an example of what kind of conduct might qualify for a challenge by the Minister or Ofwat?
There is reference in paragraph 7.21 of the EM to paragraph 91 and the power of the sponsors to apply to the court for the replacement of the special administrator. Since it is necessary to put this information in the EM, this would indicate that it is not a one-off occurrence and is something that has happened in the past. Would the Minister care to comment?
The changes that the Government are proposing will also enhance the ability of special administrators to dispose of fixed-charge property without the consent of the charge holder. In this case, the fixed-charge holder receives only “appropriate value” rather than the standard test of “market value”. Can the Minister say whether this will lead to an increase in valuation disputes in challenges to the administration of sales of water company fixed-charge assets?
There has, as usual, been no guidance to accompany this instrument and no impact assessment. The reason given for no impact assessment is that the impact is alleged to be minimal, with the net present value of the SI over a 10-year evaluation period likely to be less than £55,000. Is this £55,000 a one-off or annually? If the latter, that is more than half a million pounds. Can the Minister say whether this figure includes the bankruptcy costs? If the debt is to be restructured so that the new water company can continue debt free, there will surely be some impact on the creditors of the water company at the point of insolvency. Can the Minister comment?
I understand that if a water company is about to be insolvent, something has to be done to allow water and sewage services to be provided on a continual basis to domestic householders and businesses, some of whom use vast quantities of water every day. However, I remain concerned about this process. It seems to me that those who had been running the previous, now insolvent, water company can simply transfer to running the wholly-owned subsidiary which will be set up under the WISAR. I also remain concerned that the SI makes no reference to the sewage crisis. The noble Baroness, Lady McIntosh, referred to that. Can the Minister confirm that the special administrator will be able to discharge environmental duties as well as financial duties?
I realise that I have asked a number of questions, but I hope that the Minister will be able to answer them. The Liberal Democrat policy is to reform water companies into public benefit companies. While this may not solve all the problems of the ailing water industry, it would certainly bring a great deal more transparency to the issues. I am looking forward to the Minister giving considerable reassurance on this extraordinarily complex matter.
Baroness Hayman of Ullock (Lab)
My Lords, I start by thanking the Minister for his thorough introduction to these two SIs. As he said, the first one updates the special administration regime for water industry companies, looking at general insolvency issues. We welcome that; it needs to be looked at and sorted out.
The second SI is pretty technical. It allows part or all of a water company’s undertaking to be transferred to a wholly owned subsidiary, as we have heard, and for securities to be passed over to another water company. The noble Baroness, Lady Bakewell of Hardington Mandeville, talked about this to some extent, so I will not go into detail, but I stress the importance of minimising costs to the taxpayer if and when the companies need extra support, even if that is temporary.
We support these regulations because they give more security to people’s water provision. Clearly, it is essential that customers have a continuous provision of water services, irrespective of how the water company is performing. Water is needed for life, so this is important. However, I am sure that the Minister is extremely aware that further challenges face the water sector at present. Some pretty fundamental issues need to be tackled that clearly go beyond the SIs in front of us.
The fact that these legislative changes are necessary reflects the serious situation in which many water companies are not just failing to protect the environment but struggling financially. The noble Baroness, Lady Bakewell of Hardington Mandeville, asked about the number of water companies that are facing such problems. Of course, Thames Water is the one that has been in the media recently and there have been serious concerns about its solvency, but I also understand that Thames Water, Southern Water and South East Water have been using up to 25% of customer bills to service the huge debts that they have built up. Clearly, the customer should not be picking them up.
The noble Baroness, Lady McIntosh of Pickering, talked about the impact on consumers, picking up on paragraph 7.6 of the Explanatory Memorandum. I underlined the bit that she referred to specifically to ask the same questions that she did, so I would be grateful for a clear answer about that and the impact on consumers in this area, for example.
It is important that we have a radical rethink of how the water sector, regulators and Government all work together to ensure stability. I am sure the Minister would agree with me on this, but it would be good to get confirmation that the Government are looking more broadly at stability issues for water companies.
We know that the special administration order is intended to ensure that water services are not interrupted when a water company becomes unviable. The noble Baroness, Lady Bakewell of Hardington Mandeville, talked about environmental duties and impacts which could be interrupted when a company becomes insolvent. I am particularly concerned about that. When this was discussed in the other place, the Minister was asked whether
“the new regulations … guarantee that any special administrator will continue to discharge a company’s environmental obligations, including investment commitments under the water industry national environment programme, catchment plans and infrastructure upgrades”.
I remind the noble Lord of the Minister’s response during that debate. He said:
“Every water company is specifically regulated by the Environment Agency, as well as Ofwat. The Environment Agency will have powers if water companies are owned and operating under the regime they operate under now, or should they enter special administration”.—[Official Report, Commons, Fourth Delegated Legislation Committee, 6/2/24; cols. 5-9.]
I am not sure whether that answers the question, particularly asked by the noble Baroness, Lady Bakewell, about what those environmental obligations and duties would be if it is interrupted. You may potentially have a gap; how can we ensure that it is managed smoothly if it has been transferred across and who, outside the Environment Agency, is responsible for that? Someone has to report that to the Environment Agency and it has to go through that due process, but where does that environmental obligation sit during an insolvency, potentially with a move to a subsidiary? It may well be that the Environment Agency takes it away and manages that separately, but these things are normally done with Ofwat and all the water companies together. I just want clarity around that. In talking about clarity, I hope that I have made myself clear.
Lord Douglas-Miller (Con)
I thank noble Lords for all their questions, which I will now endeavour to have a go at, and for their very welcome support for these instruments. As I mentioned in my opening speech, these statutory instruments will enable the Government to facilitate a more effective, efficient water industry special administration regime, ensuring that we are prepared for all eventualities to ensure the uninterrupted provision of vital services. A number of noble Baronesses touched on that today.
I will start with the several questions asked by the noble Baroness, Lady McIntosh of Pickering. I might have three out of four answers for her; the second one probably eluded us all.
Everyone will be aware that there has been some recent instability and speculation around the financial resilience of some of our companies in the water sector. This has led Defra to carry out due diligence work on our water industry special administration regime legislation. This exercise identified unmodernised provisions in the current legislative framework. These statutory instruments update water industry special administration regime legislation to ensure that it reflects modern insolvency practices, as is the case for special administration regime legislation for other public services. Ensuring that legislation on special administration takes account of modern insolvency and business practices is important, regardless of the financial resilience of the sector, to ensure proper preparedness.
The noble Baroness, Lady McIntosh, also asked whether customers will be paying for water companies’ failures. I think that was the gist of her question, which cropped up in a number of noble Lords’ concerns. I want to make it clear that we will always act to protect consumers as a priority. Any intervention that puts pressure on the public purse will be considered very seriously and only as a last resort. The purpose of being able to utilise a more efficient insolvency practice is to protect consumers and ensure not only that they do not pay for those mistakes but, more importantly in the short term—a point raised by the noble Baroness, Lady Hayman—that we can provide that service. We can have an argument later about who paid for what and whether somebody needs some money back, but it is crucial that that service—water and wastewater—is delivered for everybody. That would be critical if we had to go through an insolvency, so I reassure the Committee on that front.
The final question that I can answer from the noble Baroness, Lady McIntosh, is whether the public would end up paying to bail out a company in special administration. I again make it clear that we will always act to protect consumers as a priority and that, as I have said, any intervention that puts pressure on the public purse would be considered very seriously and as a last resort.
The noble Baroness, Lady Bakewell, asked a lot of questions. I am not sure that I will get to all of them but I will reflect on the ones I have missed and make sure that she gets a written response. The first question was about the Government’s position on Thames Water. As the noble Baroness is probably aware, water companies are commercial entities; it is not appropriate for me or any member of the Government to comment on the position of a specific company. It is for the company and its investors to manage the company’s financial resilience in the context of its licence and broader statutory obligations.
The second question was about why no companies are listed in Ofwat’s leading category, or how many are failing—I think that was the gist of the noble Baroness’s question. It is clear from Ofwat’s performance report that there has been a marked decline in the performance of a number of water companies over the past year or so. This has been driven by company-specific factors but also by the effects of extreme weather, including an unusually hot, dry summer and a winter that brought multiple freeze-thaw events in 2022 and 2023. There are also live enforcement cases against six companies, which precludes a leading rating where an enforcement case is under way. Specifically, there was a question on how many companies we think are going to fail; I am not aware of any companies that are about to fail. I do not have any information on that at all.
The third question was about why the hive down provisions have been introduced. Without them, only a direct sale of assets would be possible. This is likely to be much more expensive and complex to implement from a tax perspective as you would not benefit from the no-gain, no-loss treatment on transfer. It is probably also important to recognise that, if you get to the point of insolvency, the quickest route to providing the services that are absolutely critical is to package up what the company has to deliver in that hive down and get it back into the hands of somebody who can operate the business in the most effective way. Tying it up, with all the debt and the other complications that go with an insolvency, will just complicate and delay the issue.
I turn to the question from the noble Baroness, Lady Bakewell, about breaching environmental standards. As I stated in my opening speech, a water company can be placed into special administration on performance grounds where there is either a serious breach of their principles or statutory duties or an enforcement order that it is no longer appropriate for it to continue to hold its licence. One of the principal statutory duties held by a water company is under Section 94 of the Water Industry Act 1991, which says that a water company has a duty to deal with the contents of sewers effectually and provide the necessary infrastructure for that purpose, including meeting the requirements of the Urban Waste Water Treatment (England and Wales) Regulations 1994. This is key as, without treatment, urban wastewater has significant adverse impacts on our water environment.
Finally, the noble Baroness, Lady Hayman, asked a number of questions. I think I have touched on a few of them as I have gone through here. One of the issues that she focused on specifically was how Ofwat will regulate underperformance. Following the publication of its performance report in November 2023, Ofwat published the financial penalties and payments for all water companies. Ofwat required 13 companies to return £193 million to customers for underperformance in 2022-23. This money will be returned to customers through bills over the 2024-25 year. On the action that the Government are taking on underperformance, industry performance is below the level that the Government and regulators expect and the Government are taking action, alongside Ofwat, as we progress.
Baroness McIntosh of Pickering (Con)
Both the noble Baroness, Lady Bakewell, and I asked about the unusual position in which we will find ourselves, where a subsidiary company can be set up, meaning that the company is not competitive or living up to its responsibilities financially. I drew the parallel with chapter 11. Is this the first time that we have done this in the UK or is there another parallel? My noble friend could write to me on this.
Lord Douglas-Miller (Con)
It might be easier if I wrote specifically on that. Is my noble friend referring to the special administrator’s duties?
Baroness McIntosh of Pickering (Con)
If I have understood correctly, if a subsidiary company is set up for the purposes of the company continuing to act, does that mean, as with chapter 11, that it does not need to pay off its creditors or debtors? Is this the first time that it has happened in this country?
Lord Douglas-Miller (Con)
I am a little unsure on that, so perhaps the best thing for me to do is write.
I think we have covered the questions for which I have answers, and I will write to the noble Baronesses on a number of other questions. With that, I commend these instruments to the Committee.
Water Industry Act 1991 (Amendment) Order 2024
(9 months, 1 week ago)
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Lord Douglas-Miller
That the Grand Committee do consider the Water Industry Act 1991 (Amendment) Order 2024.